Here is a great piece by Katherine Van Kooy in the Calgary Herald entitled ‘Charity rankings often don’t tell the full story’. Katherine van Kooy is the president and CEO of the Calgary Chamber of Voluntary Organizations (CCVO).
Recently, a number of articles in the Herald and elsewhere have referred to the ranking of charities by Charity Intelligence Canada.
While these articles have focused attention on some outstanding local organizations, it is important to bring some much needed context and clarity to the charity rating stories.
Headlines like, “Six local charities among the best in Canada,” which appeared in the Herald on Dec. 7, contribute to the impression that this ranking adequately represents charities in Canada. In reality, it is based on a very small sample of only 93 out of more than 85,000 charities in Canada - hardly comprehensive or authoritative. Nor is it clear to the public how organizations were selected to participate in this program.
While some excellent organizations benefit from the positive publicity associated with these rankings, many others suffer by implication of not being named, even though they were not even part of the process. Perhaps even worse is the damage to the reputation of organizations that chose not to participate in Charity Intelligence’s program, with the implication that by not responding to an unsolicited request for information, they somehow lack transparency.
Charity rankings endure despite the shortcomings of the various evaluation methods used. In an effort to simplify the choices facing potential donors, ratings organizations use a set of criteria to evaluate and compare the performance of charities.
However, unlike the private sector, where share price or return on investment are recognized performance measures, charities do not produce profits. There are few common measures that provide a useful basis for comparing the complex and varied work of Canada’s diverse charitable sector.
There is no one-size-fits-all standard of accountability for charities because there is great diversity in the size of organizations, the scope of their work and the nature of their funding.
Thousands of small charities with tiny budgets operate primarily with dedicated volunteers. At the other end of the spectrum are large charities with multimillion-dollar budgets in areas as varied as health care, education and international development, with sophisticated programs and professional staff. While some organizations rely entirely on donations to support their activities, many have varied sources of revenue, including grants, contracts for service, membership fees and earned income from business activities.
Concerns about charity rankings have been raised before in Canada and the United States. A 2005 study of the major ratings agencies of U.S. charities, reported in the Stanford Social Innovation Review, identified several major weaknesses of these programs: too heavy reliance on simple analysis and ratios derived from poor quality financial data; an over-emphasis of financial efficiency while ignoring the question of program effectiveness; and generally poor analysis of important qualitative areas such as management strength, governance quality and organizational transparency.
Financial transparency needs to be better understood by potential donors. Every charity in Canada must file an annual T3010 report with Revenue Canada including detailed financial information, which is posted on the government website and is accessible by any potential donor. Many organizations post their audited financial statements on their websites. Organizations with grants or con-tracts report back to their funding agencies. All organizations are accountable to their board of directors and members if they have them, and organizations with good stewardship practices keep their donors informed.
“An organization can disclose thousands of pages of documents without actually becoming more transparent,” Toronto charity lawyer Mark Blumberg told the Calgary Chamber of Voluntary Organizations. “The issue isn’t quantity of information, but providing relevant information that is useful for different stakeholders.”
Even when rating organizations use robust evaluation processes, their reports tend to focus on simplistic measures, such as cost of administration or fundraising, as though these are the most relevant factors by which to evaluate the effectiveness of charities.
If the real interest is in helping donors select the organizations they would like to support, then let’s begin with some honest talk about the real cost of operating an organization. Those costs are associated with good financial management, insurance, information systems, recruitment of staff and volunteers and communications with stakeholders. It is high time we stopped perpetuating the myth that low administration costs equate with effective operations and are a good standard for measuring the effectiveness of charities.
Donors need to know that their contributions are being put to good use, while also recognizing that administration costs are not an unnecessary burden, but an essential part of running an effective organization.
While charity ratings may seem appealing, donors need to understand their limitations. They may provide a starting point, but donors might also re-member there are many excellent organizations to choose from. For a much fuller story, call the charity directly. Ask for more information, including information about their outcomes and the factors that affect their work.
Do you require legal advice with respect to Canadian or Ontario non-profits or charities?
Mark Blumberg is a partner at the law firm of Blumberg Segal LLP in Toronto and works almost exclusively in the areas of non-profit and charity law.