Charity Watchdog Reorganizing Evaluations, Rates Itself 4-Stars

Telling a room full of direct response fundraisers that mass mailings might not be the best way to promote intelligent giving won’t win you many friends. But then again, Michael Thatcher wasn’t necessarily there to make friends, instead offering a view of Charity Navigator’s future priorities, which include plans to rate the impact and results of nonprofits, and rating more charities.

Stepping into the lion’s den, the new CEO of Charity Navigator sat down for a brief question-and-answer session during Friday’s luncheon at the Direct Marketing Association Nonprofit Federation’s annual Washington, D.C. conference. Thatcher, who was appointed last fall to succeed Ken Berger, took questions from Shannon McCracken, vice president of donor development at Special Olympics and chair of the DMANF Advisory Council and a few from the floor as a microphone was passed.

In brief remarks before the conversation, Thatcher shared some statistics about Charity Navigator, its priorities, and the effort to revamp its ratings as part of “Charity Navigator 3.0.” Charity Navigator is aiming to release revamped financial evaluations and other changes this spring.

“To shift ratings away from overhead, we must talk about impact,” Thatcher said. At Charity Navigator, that will include reducing overhead as a metric, implementing a 10-point system, moving to three-year rolling averages, and eliminating revenue growth as a metric. The goal is to create a desire for impact and measuring impact, he said. “We’re looking for a means to actually rate that, to be part of the rating system if not the most important part. How to articulate results will be essential to moving forward,” Thatcher said. “Overhead is a problem but we haven’t actually given people something else to focus on,” he said.

Traffic to Charity Navigator’s web site was up 21 percent last year, to more than 9.1 million visits, according to Thatcher. He described the charity as a web or technology company that provides a service. With 40,000 unique donors last year, he said the organization is different from nonprofits in attendance that rely on donors. “Our donors are our users,” he said, similar to public media like NPR.

The Glen Rock, N.J.-based charity rating service is often at odds with the nonprofit direct mail community. Among Thatcher’s comments that seemed to receive the most indignation from attendees was the idea that nonprofits should share more information about donor list practices and that donors opt-in to sharing their information with other charities as opposed to opting out.

“We’re not categorically against list sharing. We’re asking that you let donors know,” Thatcher said. “Donors must be able to opt-in,” he said.

The biggest complaint from donors – “since day one” – is the “excessive amount of mail they receive,” according to Thatcher.

Part of Charity Navigator’s mission is promoting intelligent giving and mass mailing might not be best way to do that, Thatcher said, conceding that the organization and mailers might have to agree to disagree on that point.

Thatcher remained resolute on the issue of Joint Cost Allocation, which has chafed some in the direct mail community. He estimated that only about 400 of the 8,000 charities currently rated by his organization report joint cost allocations. “The average donor’s not going to understand what that means,” he said, adding that it’s not an issue of whether charities do it but that they articulate clearly to donors that they report joint cost allocations.

People might not realize how small Charity Navigator is, with a $1.5 million budget and 19 employees. One audience member questioned whether the organization has the funding, resource and manpower to for the massive undertaking of revamping its ratings and measure results and impact of more nonprofits.

In response to a question from the audience about whether Charity Navigator would rate itself, Thatcher said he’s committed to taking that to his board next month and providing a response. “We want to do this, we actually do rate ourselves” as a four-star charity, he said, promising to make that data available.

Charity Navigator’s methodology currently requires a nonprofit to have seven years of financial data to produce a rating; the organization shifted from a private foundation to a nonprofit starting in 2014.

Charity Navigator also is in the process of rebranding its Watch List, which was the subject of another question from the audience. Wounded Warrior Project recently was placed on the Watch List after stories by The New York Times and CBS News, in which former employees questioned its spending practices and those items were not independently investigated by Charity Navigator nd in some cases were incorrectly reported. The Watch List is perceived as being more toxic than Charity Navigator’s “donor advisory,” which Thatcher said is much more damaging and a harsher claim.