October 28th, 2009

Do Foundations use Charity Navigator?

Recently a client asked us about how funders use Charity Navigator.

Our client transferred a program to another charity, resulting in what Charity Navigator interpreted as an $800,000 asset loss.  As a result, our client lost one Charity Navigator Star—from 4 to 3.  Its board members worried that they might lose donors as a consequence.  We replied that we can’t imagine a current funder that wouldn’t ask for explanation, but we agreed to ask our network.  We asked 8 foundation executives in Chicago to tell us if they or their colleagues use Charity Navigator or comparable ratings services, and if so, how they use it.

The foundation executives we queried do not use Charity Navigator in their work.  Overall, they report that experienced donors are skeptical of it and cautious using it, if they use it at all.  Charity Navigator is likely to be used by individuals, family foundations, or donor advised funds simply to screen out badly managed organizations, but rarely to distinguish between degrees of well-managed ones.  This issue could be a minor concern for the client, but it’s not worth any worry.

Typical comments we received:

“I don’t use Charity Navigator, and I hate “star” systems, but if I did note that kind of loss, I would ask.”

“We meetings with grantees, do site visits, and/or talk to them on the phone so we are more familiar with programs and agencies than we could get through a site such as Charity Navigator.  It is my understanding that this would be used more by families re their foundations or donor advised funds.”

“Your client may want to be particularly careful about how they footnote in their annual report or report in their audit about the transfer of the funds.  It’s more likely a donor will look at your client’s annual report or newsletters, etc. than go to these websites.”

Charity Navigator, like other nonprofit evaluation services, “is a well-intended effort, and can be useful as part of overall fact-finding, but like an IQ test, is commonly misused and even mis-advertised.”