A Challenge to Charities

Challenge can drive improvement in any organization.  Usually I focus on business or political organizations in this space, but one of the most important opportunities for improvement through challenge is not-for-profits. 

Not-for-profits hold a special place in this space because: (1) charities' core mission is to improve lives, whereas businesses improve lives as a by-product of generating profit; and (2) they typically get a "free pass" from many challenges and traditional competition, meaning that they have less pressure to improve. 

Light must be shed on the inner workings of charities now, more than ever, as the organizations can be as scandal prone as Enron or Congress.  For example, the United Way, the country's largest charity, has seen scandals that would lead businesses executives into painful prosecution.  For example:

• In 1992, the United Way's national leader, William V. Aramony, was accused of fraud and embezzlement, while receiving a surprisingly large annual salary.  He was convicted in 1995 on 25 counts including conspiracy to defraud, mail fraud, wire fraud, transportation of fraudulently acquired property, engaging in monetary transactions in unlawful activity, filing false tax returns and aiding in the filing of false tax returns.
• In 2002, the New York Times uncovered that the United Way had double counted donations and included the value of volunteers' time in order to artificially depress expenses as a percentage of donations.  While this may seem small, the United Way uses claims of low expenses as a way to (unfairly) win dollars away from competing charities.

Not-for-profits need the pressure to improve just like the rest of us, and, thankfully, the Internet is fostering new challenges for charities.  One of my loyal readers recently informed me of Charity Navigator, a not-for-profit itself that was created to allow givers to see unbiased information regarding specific charity efficiency. 

To test Charity Navigator, I ran a search of the Aloha United Way in Honolulu, Hawaii.  Within seconds I was able to see a report on this charity's overall rating, efficiency index, mission, leadership salaries, and a comparison to other United Way chapters.  Users can also compare any two charities in a vast database.

Independent ratings, expert opinions, key financial indicators, and competitive comparisons are all measures that can drive the Challenge Dividend payoff.  They provide an even playing field of comparison for donors to choose where their dollars are best directed.  As a result, the better, more efficient not-for-profits are more likely to get additional funding.  And these measures become targets for charities to use in driving improvement.  Finally, with the help of a third party like Charity Navigator, we can trust that the numbers are legitimate, apples-to-apples comparisons.

Result: not-for-profits try harding to spend our dollars wisely, and more people benefit from our giving. 

Comments

[Allison Bradley]

Bob,

This was a great blog!

I was very pleased to see that the Leukemia Lymphoma Society had a four-star rating. The only downside I found within the site is that they do not rate religious organizations, but they had a good explanation as to why.

Thanks for sharing this valuable resource.

Allison