Rankings Should Reflect Results, Not Donations

In a few weeks, The Chronicle of Philanthropy will publish its annual ranking of the 400 charities that raise the most from private sources. While fund raisers, philanthropists, and others are always eager to see which groups make the list, what’s most interesting to us is which organizations do not make it.

Although the rankings highlight those organizations that have amassed the most in donations, they do not include data about the level of social change these nonprofit groups have achieved. They do not reveal which organizations have been most successful at advancing their missions. Whether an organization aims to protect the environment, alleviate poverty, or educate the next generation of leaders, it exists to serve the broader public interest. To evaluate progress toward those altruistic goals, different measures of success are needed.

We need a way to rank nonprofit groups according to results — not budget size or organizational reach. The ultimate measure of a nonprofit organization’s performance should be how many lives it saves or how many low-cost homes it builds, not how much money it has received — or how little it spends on overhead to raise those funds.

Even if you accept for a moment that financial measures are one useful means of marking progress, it is worth looking at the Philanthropy 400 to see what it shows about change in the nonprofit world. How many new nonprofit organizations grow to a large-enough scale each year to make it onto this list, especially compared with new companies on the Fortune 500 rankings of big business?

For the last six years, the scholar Allen Grossman has been posing that question to students in his Harvard Business School course on managing nonprofit groups. His analysis suggests that of the top 25 Fortune 500 companies, nearly one-third were founded after 1965, and therefore are only several decades old. The Microsofts and eBays of the world can catapult to the ranks of companies like General Electric or IBM in a matter of years.

But in the nonprofit world, only a handful of nonprofit groups founded after 1965 make it to the top tier of the Philanthropy 400. A large number of nonprofit organizations that rank high in the nonprofit world are organizations founded more than a century ago, like the Salvation Army and the American National Red Cross. Fast growth is a chimera — and perhaps the wrong goal — of new charitable organizations.

In our forthcoming book, Forces for Good: The Six Practices of High-Impact Nonprofits, we sought new approaches for defining success by spending four years intensively studying 12 nonprofit organizations that had made a significant difference on a national, and sometimes international, scale.

To select those dozen successful organizations, we first surveyed thousands of nonprofit CEO’s — including leaders of the Philanthropy 400 groups, plus more than 2,000 leaders of small- and medium-size nonprofit organizations — for nominations.

We then asked experts in a range of charitable fields to help determine which of the frequently nominated groups were the most successful, and subsequently subjected those organizations to a rigorous review to be sure that they were indeed accomplishing their goals. Because we were interested in learning about how groups that are relatively new can quickly achieve big results, we focused only on organizations that had been started after 1965.

We learned that whether an organization has a big budget or a relatively modest one, it can achieve enormous amounts of social change.

The annual revenue of the dozen nonprofit groups we studied varied tremendously: The Center on Budget and Policy Priorities operates on $13-million, while America’s Second Harvest receives $543-million annually, counting the massive amount of food and other products it receives from corporations. (Admittedly, even the smaller organizations in our book were extremely large when compared with the size of average American nonprofit groups, which operate on hundreds of thousands of dollars annually, rather than millions.)

The organizational structures of the 12 groups we studied were also disparate: Some operate just one site, like the Exploratorium, a San Francisco science museum, while others, like the National Council of La Raza, support hundreds of affiliates and numerous regional offices. But what those 12 groups share is proven ability to achieve significant results on a very wide scale. Their impact is far greater than their organizational size would suggest.

Those nonprofit groups were successful not just because they run well-managed organizations, but also because they spark national movements.

They are adept at working with business, government, and citizens at large, as well as with other nonprofit groups, to advance their agendas. They learned how to find points of leverage and introduce changes across entire industries and throughout entire nations, yielding results far greater than they ever could through their organizations’ programs alone.

In short, successful organizations do the things that social entrepreneurs do to achieve wide-scale, systemic change — whether or not the leaders of these groups would call themselves social entrepreneurs.

Their achievements cannot be seen by looking at the usual measurements of success.

Take the Self-Help Credit Union, in Durham, N.C. This organization was founded to build wealth for low-income and minority people by providing home and business loans with fair terms and rates.

For the first two decades of its existence, Self-Help built its operations in the state of North Carolina.

But Self-Help saw an opportunity to provide low-interest loans on a much wider scale when it capitalized on a chance to influence the lending practices of the mortgage powerhouse Fannie Mae. In the process, Self-Help succeeded in helping to create the nation’s largest secondary mortgage market for low-income borrowers and has since facilitated the lending of more than $4-billion to people nationwide who historically have faced a tough time borrowing money at affordable rates.

Self-Help didn’t stop there.

It simultaneously fought to protect its borrowers from foreclosures by advocating for antipredatory lending laws. It established an advocacy arm, the Center for Responsible Lending, and worked through local coalitions of grass-roots, religious, and other groups to pass laws in 22 states designed to protect low-income people from borrowing scams.

Self-Help’s operating budget has since grown to $45-million, but the group’s success in transforming the American mortgage industry and influencing public policy doesn’t show up on its balance sheet.

Nevertheless, the organization is recognized for fundamentally transforming the way low-income borrowers are served and for its work to protect billions of dollars in assets among the nation’s poor. How best to quantify the impact of fundamental system changes such as these? And in the cases where the organization was not the sole actor in a larger movement, how should credit be assigned?

The Exploratorium is another organization that has defied conventional notions of success.

Most people who live outside of Northern California probably haven’t heard of this hands-on science and education museum. But anyone who has ever visited a children’s museum has experienced the power of the Exploratorium.

While it operates just one site, in San Francisco’s Palace of Fine Arts, the museum helped spark a worldwide movement for experiential learning, and ushered in a radical notion of what museums could be.

Rather than dusty buildings filled with rare objects, the Exploratorium conceived of a new kind of museum — one that offered interactive exhibits and artistically designed educational tools that allowed visitors to experience the phenomena about which they were learning.

From its earliest days, the Exploratorium’s founding scientists and artists made a strategic choice to assist the birth of more museums based on their approach. They literally gave away their intellectual property, training other museum directors in how to copy their approach and publishing key insights — without ever taking direct credit by requiring organizations to use its name or work out a formal affiliation.

That approach is akin to Coca-Cola publishing its secret recipe and then training Pepsi and other beverage companies in how to make and distribute the soda. Today, hundreds of hands-on science museums operate around the world — virtually all inspired by, if not directly assisted by, the Exploratorium’s leaders.

When a business entrepreneur like eBay revolutionizes the established auction industry by democratizing trading, its success is clearly reflected in catapulting stock performance. But when nonprofit leaders revolutionize entire industries or create new fields de novo, their contributions can’t be evaluated in the same way. Yet this is how significant social change is created.

As Albert Einstein said, “Not everything that can be counted counts, and not everything that counts can be counted.”

Let’s move from measuring what goes into a nonprofit organization — like the amount of money raised and number of staff members and volunteers — to evaluating the difference that nonprofit groups make to society. It is time to develop new ways to rank nonprofit groups based on their ability to create change that reaches far beyond the programs contained within their own four walls.

Leslie R. Crutchfield is managing director of the Ashoka Global Academy for Social Entrepreneurship, a research grantee of the Aspen Institute Nonprofit Sector and Philanthropy Program, and a philanthropic adviser. Heather McLeod Grant is an adviser to Stanford University’s Center for Social Innovation, Duke University’s Center for the Advancement of Social Entrepreneurship, and to foundations and nonprofit groups.