Six months into his role as President and CEO of Charity Navigator, Michael Thatcher has been engaged in an active conversation with the nonprofit community about the organization’s controversial ratings methods. The DMA Nonprofit Federation (DMANF) and its members have long been concerned with organizations such as Charity Navigator, whose ratings often do not show the full view of a nonprofit’s impact and discount the responsible data-driven marketing and fundraising strategies in place by only focusing on efficiency measurements.
“DMANF has long stood for open and transparent dialogue and took a bold yet responsible step to invite Michael Thatcher to our Washington Conference,” said Senny Boone, Executive Director of the DMA Nonprofit Federation. “I’m pleased he accepted our offer and even more so that DMANF was able to provide our members with the opportunity to pose their concerns to him directly on Charity Navigator practices that unfairly injure responsible nonprofits.”
Thatcher sat down for a Q&A at the DMA Nonprofit Federation’s Washington Conference to discuss Charity Navigator and his shared what he called “mutual goals” with the nonprofit community: “To increase the trust and giving across the nonprofit sector.” Thatcher also took questions from the DMANF members in attendance over concerns with Charity Navigator’s practices.
What follows is an abbreviated transcript of the Q&A, which was moderated by Shannon McCracken, current Chair of the DMA Nonprofit Federation’s Advisory Council and Vice President of Donor Development at Special Olympics International:
When the CEO position came open, the Charity Navigator Board was very clear and specific in announcing that they wanted to bring in someone who had very strong technology experience? Why was that a key need and how will that change what Charity Navigator does going forward?
Thatcher: Technology is a tool, right? In broad terms, it allows us to do more, expand what we do, to scale and get more leverage to do more with the same efforts. If you look at who and what Charity Navigator is, we are a web service, entirely an IT organization. So not necessarily having strong technical acumen in the organization was actually hindering us from increasing our reach. Whether it’s looking at how you encapsulate the methodology and the ratings, so that you can reach more charities, or how you actually render the information to make it more accessible to people is something that we’re looking at with technology.
Ultimately, you’ve got to get the methodologies right and then you can digitize them and extend your ability to do more with what you have. We’re a small organization. I don’t know if you realize how small Charity Navigator actually is. We actually grew 37% last year, in terms of our employees, but there are only 19 people working at Charity Navigator. We’re a very small organization, so we have to use technology to actually extend our reach.
In the Charity Navigator rating system, do you think there has been an inherent bias against organizations that rely on grassroots funding and the associated overhead costs, because that’s not where your organization is coming from?
Clearly the cost of fundraising is something that’s tricky. If you have expensive fundraising models, given the current methodology, that’ll be a dent in the rating in that particular instance.
Charity Navigator and others have helped contribute to the “overhead myth,” making a perception that overhead cost is higher and that it should be the metric to measure. We’ve all acknowledged that we need to shift that conversation. How do we collectively start changing that conversation with the giving public?
I’ve been down to Washington, DC, for most of the week, and it’s been a theme of all the different discussions I’ve been in. How do we create a desire for an impact? Or to articulate an impact? We need to shift the focus away from financial ratios and actually talk about how we are achieving our missions. How we’re doing what we say we’re doing, and making that desirable.
I’m sure many of you have read “The Money for Good.” The recent edition of that came out in August. It actually looks at the individual donor, who really cares about how the money is being spent or how the notion of “waste” is a concern within the individual donor base. The foundations are most-focused on impact. The individual donors tend to be more focused on where the money is going. Part of what I think needs to happen is to create a desire for impact. We’re looking at creating a means to rate that and we want that to be a key part of the ratings system. Because the most important part is how you articulate the results. It’s going to be essential to moving forward.
Something else that sparked concern is Charity Navigator’s recent callout of list-sharing as a privacy issue. Talk to us about where you’re coming from with that and is that something that is open to further discussion?
We’re not categorically against list-sharing, we don’t see that as something that is, “Do not do that.” What we’re asking for is, let your donors know that you’re going to be sharing your lists. The way we categorize this as a privacy issue is, are you letting the donor opt in or opt out? Do you treat each differently? Our preference is that it would be an opt in for their information to be shared. And, if they opt in, by all means share their information.
The other thing I’ll just say is that probably the biggest complaint we get from donors is the excessive amount of mail that they receive. That’s since Day 1. “I get too much mail. How do I stop the mail? How do I stop the solicitations?” In terms of the feedback, what we hear from the donors; that is something they’re not happy about.
Other watchdog organizations, like BBB, have set the bar at an opt out. Opt in is a very specific action that we’re asking donors to take. If they don’t take that action, it significantly increases our overhead cost, which makes us less efficient, which would lower our ratings. In addition, it causes us to send more mail, because instead of identifying somebody who might be interested in a cause, the solicitation would have to be sent to everybody. Do you feel there has been enough discussion, or does Charity Navigator have enough information about how list-sharing exchanges and list rentals work within our industry?
At this point, the position stands as-is, and we really want it to be an opt-in, primarily focused on donor advocacy from that perspective. I understand that this is increasingly where we’re heading, and that you’re no longer communicating with a qualified list of potential donors, and I understand that. But I also understand that, in what we stand for, which is promoting intelligence in giving, we don’t know that mass mailings necessarily go in stride with that. This may be an area where we have to agree to disagree. [Crowd murmurs.] Or maybe not agree to disagree, just disagree. I don’t have enough to change that right now.
Can you give us a brief understanding of how an organization lands on the Charity Navigator Donor Advisory and Watchlist?
I don’t actually know when this was started, but we created a Donor Advisory and Watchlist a number of years ago and the purpose being to surface information that we feel is potentially worth noting to donors. In some cases, the Donor Advisory is the more severe of the two, where we’ll actually strike a rating from an organization, when they’re looking at much more serious allegations, whether it’s financial fraud, the organization soliciting funds and they actually don’t exist as a 501c3 anymore, quite serious allegations. We surface that so that it’s made public.
The Watchlist is more noteworthy incidents that are raised by a credible source. We have a committee in place, which is currently made up of six members of Charity Navigator. At times it has included Board members. It currently doesn’t; it’s currently just staff. We’re expanding that committee to be a seven-member committee. They meet on a weekly basis. They look at the reliability of the source, the nature of the claims that are being made, the scope, the seriousness of the charges or allegations that are being made in those claims. That’s how one gets onto the Watchlist.
Then there’s a timing that, if a charity has been on the Watchlist and there’s been no action, in a six month time and then there’s a review that happens at that point. What often happens with the Watchlist is that charities will reach out and they’ll provide validating information, publically-accessible validating information as to how to address the claims that have been made. Even if those responses from the charities don’t take you off the Watchlist, we’ll always make that response public. In many cases it actually does overturn, there’s good data that tells us “oh, this was inappropriately cited” and we want to take the organization off the Watchlist.
I’m happy to hear you’re willing to take someone off a watch list, but there is an amount of damage that is done to an organization simply by being put on a watch list. Clearing up a mistake is an afterthought that many will never hear. How do you police yourself to ensure you’re being cautious when putting an organization on the Watchlist?
That’s a great question that actually calls out something I didn’t say. If your organization is likely to end up on the Watchlist, you will know about it before it happens. We give time, we could give more time. We give two days. [Crowd murmers.] If you’re caught in the crosshairs of the press, you’re already reacting to that. That is the current methodology. I agree, that’s not a lot of time, and right now we’re looking at revisions to the financial metrics. We’re also in the process of rebranding the Watchlist.
One of the observations from the outside, coming in, is that the Watchlist tends to be perceived as more toxic than the Donor Advisory. Whereas, the Donor Advisories are much more damaging. There’s a much worse claim that is actually there. So there’s a branding effort in how we have the appropriate name for what’s going on. We’re changing the process, so I hear you loud and clear. Two days, it’s hard to turn on that dime. At the same time, you’re already spinning on that dime when something hits the newswire. So you’re already going to be reacting to it.