New ratings systems help nonprofits navigate the road ahead

How many followers have you gained on Twitter? What are critics saying about your art productions? How many children have you connected to a positive role model?

While that data may not make it into a nonprofit’s Form 990, New York charities are adopting, or involuntarily being measured by, new and more in-depth metrics designed by Charity Navigator and GuideStar to satisfy a growing thirst for transparency from donors who last year donated a record $373 billion to organizations across the country.

GuideStar and Charity Navigator, two of the nation’s largest charity evaluators, recently rolled out changes to their rating systems that present nonprofits in a more transparent light and encourage them to undertake long-range evaluations. The adjustments come as donors to New York’s nonprofits seek to make more informed choices about where their money goes in the wake of scandals and high-profile implosions at the Queens Library, FEGS, the Healing Arts Initiative and the Wounded Warrior Project, and as nonprofit coalitions struggle to draw attention to an operating climate that has left many local organizations in fiscal distress.

GuideStar’s new “platinum” rating system, introduced in May, allows nonprofits to add several metrics of their choosing atop the standard financial, program and governance information. Nonprofits are asked to commit to a menu of metrics that are specific to their area of service. For example, a microfinance organization can add measurements of its business development, loan activity, poverty intervention or training. One such question asks the number of savings accounts used by clients.

Eva Nico, the senior director of nonprofit programs at GuideStar, said the new measures represented a “maturity” of the sector. “I think we’ve all maybe talked ourselves hoarse about the fact that it’s not just about the financials, but haven’t necessarily been able to offer an alternative view that people can look at,” she said.

Nico added that GuideStar, itself a nonprofit that launched in 1994, performed more than six months of research, examining reports and speaking with experts, before developing the Common Results Catalog of frequently tracked metrics. Over the next five to 10 years, she said, it will add more personalized data to reflect other recurring measures. “This was a big experiment, and we definitely view it as a project that will take years to unfold,” she said.

Leading up to the launch, almost 900 nonprofits applied to be considered for the “platinum” level, according to the company, which said it tracks data on 2.5 million organizations. (The service is free, but some consultants and other groups are charged for advanced reporting tools.) About 620 “early adopters” were platinum members as of the end of June, about 35 of them in the New York area, Nico said.

One of those nonprofits is Pen Parentis, a relatively new Manhattan-based organization of five full-time volunteers dedicated to helping writers stay active and creative after starting a family. Last year, according to the new metrics, the group held 11 literary salons and panels, and its mailing list grew to 1,747 names. Milda M. De Voe, its founder and executive director, said a friend recommended that she sign up for GuideStar’s service immediately after the group earned its nonprofit status as a way to be transparent and convince donors that Pen Parentis wasn’t “some people in an attic.”

“As a nonprofit, the minute you get your 501(c)(3) status, you’re competing with, like, the Red Cross,” she said, adding that “I think that a lot of people think of a 501(c)(3) as a kind of ticket, that they’re suddenly going to have millions of donors the minute that they get their nonprofit status, and I don’t think it works that way.”

So far, the new metrics have earned compliments, if not donations. “It does make people, interestingly, more eager to do pro bono work,” she said, citing assistance from Gray Matters, a group of late-career and retired consultants.

In the beginning of June, Charity Navigator launched its “CN 2.1” methodology to more accurately capture a nonprofit’s financial health over a longer term. Sandra Miniutti, its vice president of marketing, said the organization compiled historical data from institutions, consulted an advisory panel and solicited staff input to retool its four-star rating system. Under the new scale, Charity Navigator averages financial measures like program expenses and fundraising revenue for three years to offer a better glimpse at an organization’s long-term stability. That might add context when, for example, a group involved in disaster recovery may receive a spike in donations following a disaster and then return to typical levels the following year, making the normalization seem less like a drastic drop-off in funding.

After the recalculation – which was applied to all of the 8,000 groups rated by Charity Navigator – about 1 in 5 earned a small increase while 8 percent declined by one star, including Covenant House, which is reportedly under investigation, and Compassion International, which maintained a 4-star rating since 2002.

Miniutti said the conversation about how best to gauge nonprofits’ health has evolved since Charity Navigator launched in 2002. At that time, few organizations were either willing or able to provide their IRS forms, but now the discussion has migrated to what information provides the clearest view on what’s most helpful.

“I think we’re going to have to crawl before we can walk before we can run, and we’re certainly not in a position today where we’re saying this food bank has a better quality program than that food bank,” she said. “But at least (we’re) getting to the point where we can help donors see this charity is saying: this is the impact they want to have and this is their path to getting there, and this is how they’re measuring and reporting on that.”

Mary Beth Postman, deputy director of the Waterkeeper Alliance, headquartered in Manhattan’s Financial District, said the GuideStar metrics “fell in” among those they already tracked. Like Pen Parentis, the “platinum” status hasn’t necessarily led to more donations yet, but has helped give prospects some information to follow up with the agency. Many questions raised by potential institutions and corporations, she said, seemed to be derived from the website.

Much of Waterkeeper Alliance’s work involves filing legal challenges and enforcing environmental regulation, which can be harder to quantify than Facebook and Twitter growth – and the immediate effects are not always clear. “So, it’s been helpful, because it makes us think long-term,” Postman said. “Because you can say you want to file 10 letters of intent, but what does that mean?"

As part of its Platinum Level rating, the Drug Policy Alliance, a 16-year-old organization based in midtown Manhattan aimed at ending the war on drugs, began sharing the average amount given by first-time donors, a figure which grew from $65 in 2013 to $71 two years later. (It leaves out donations more than $5,000 to “avoid the skew caused by major gift outliers.”)

Drug Policy Alliance Managing Director of Development Clovis Thorn said the organization had already been tracking such metrics for internal and strategic purposes but submitting them to GuideStar allowed them the added benefit of impressing potential donors.

“We use a lot of emotion to raise money,” Thorn said. “And so I think a lot of people give to us because they get emotionally invested in something we’re doing and see the results, and they give contemporaneously and spontaneously. And we actually encourage that.”

Generally only a “small minority” of its 30,000 annual donors look at the grades before donating, Thorn said. Nonetheless, those who consult the online ratings tend to be the most thorough and informed donors – and worth catering to.  

However, at times, Thorn has been frustrated by the lack of clarity within the ratings system, even as it purports to foster clarity within the nonprofit sector. Over the past six years, DPA’s star rating sank from 4 to 1, rose to 5 and then settled at 4, where it is now.

“This turn toward actually managing progress and impact is actually a very good development,” he said. “There were times when I wanted to pull my hair out with these charity monitoring websites because they were so opaque and no one really knew how we were being rated.”