Donors Are Settling for a ‘Bronze Standard’ for Measuring Charities

In the genteel world of philanthropy, people rarely say out loud that some nonprofits are better than others, and some donors are better than others.

But those two notions are often lurking in the conversation, because sometimes even the best donors give money to bad organizations, Jacob Harold, a program officer at the William and Flora Hewlett Foundation, told a meeting Monday of nonprofit officials held at New York University’s Robert F. Wagner Graduate School of Public Service.

In some cases, Mr. Harold says, these donors focus on the wrong type of information when making decisions about their giving, often looking only at organizations’ overhead and not at whether they are effective in fulfilling their missions.

Mr. Harold and other nonprofit leaders were gathered to discuss how charities and foundations could set up systems that would force organizations to do a better job of measuring their effectiveness.

The event, which was sponsored by the Hewlett Foundation and the Wagner School, as well as by the watchdog group Charity Navigator and the corporate philanthropy Liquidnet for Good, asked participants to offer their suggestions about the best ways to encourage both donors and charities to focus on results.

“Nonprofit practitioners believe that if they keep their overhead low, it will help them seem efficient,” said Jeff Mason, chairman of the Alliance for Effective Social Investing. “They understand how to raise money, how to build their brands, and how to tell the story of the work their organizations do. But none of these things have anything to do with the ability to build social value.”

The growth of online information about charities through services such as Charity Navigator and GuideStar have made it much easier for donors to find financial information about nonprofits. But donors often use those tools to focus exclusively on how much money is spent on salaries and overhead, speakers said.

Hewlett’s Mr. Harold suggests that nonprofits should help donors understand how to focus on what matters more—whether their methods work. [Editor’s note: The previous and following paragraphs of the article has been updated to correct an error that caused Mr. Harold’s comments to be wrongly attributed to Mr. Mason.]

In an ideal world, said Mr. Harold, each nonprofit would spend tens of thousands of dollars per year to gather data that would show over the long haul whether their work matters. That would be the “gold standard,” he said.

Because of cost, however, such a move is unrealistic for most organizations.

Instead, he said, he would settle for a “silver standard,” in which nonprofits attempt to articulate reasonable goals, adopt sound strategies for achieving them, and set up reasonable ways to measure whether they are achieving those goals, such as conducting evaluations among a nonprofit’s clients.

But many donors are themselves falling short—settling for what Mr. Harold says is a “bronze standard” of measurement.

Many donors do care about how their money is spent. Brian Walsh, director of global social engagement at Liquidnet for Good, pointed to a recent study that showed 85 percent of donors say they care about performance. Nonetheless, only one third say they conduct research before they make a donation and only 3 percent say they make gifts based on a charity’s performance.

How can the nonprofit world narrow that gap between those who say they care about performance and those who make gifts based on performance?

The solution is twofold, Cynthia Strauss, director of research at the Fidelity Charitable Gift Fund, told the nonprofit leaders. It involves not just setting up an evaluation system but also teaching donors what they should look for when considering a donation.

The pressure to focus on results won’t matter until it affects a charity’s bottom line, Ms. Strauss. “That is a real challenge for our sector.”