Firing bad donors

Like any other industry, money drives the social sector. Sure it matters that our hearts are in the right places, and that we are willing to make less doing what we do. But we still work for a paycheck, and whether or not we can get a paycheck creating the social value we seek determines to some extent what we focus on.

The importance of money is the reason that the ongoing debate about how to rate charitable organizations matters. We do not simply want to know what works and what does not, but which agencies are deserving of charitable dollars. In short, what is at stake is not only which agencies get funded, but which causes do as well.

How we rate agencies will alter how agencies do business, which will in turn impact their bottom lines. That is why we have to be really careful with how we end up rating organizations. Charity Navigator realized that their focus on administrative overhead not only mislead donors about which agencies were most impactful, but it also incented organizations to focus more on financial gymnastics than creating social value.

It’s great that Charity Navigator is making changes to the way it evaluates organizations and I’ll be following those changes closely. But if there has been so much widespread agreement that the focus on overhead ratios is a poor indicator, why has the sector abided by this fruitless metric for so long? Essentially, the Charity Navigator effect was to flood agencies with donors who contributed to those organizations for bad reasons.

I don’t run a non-profit. My company builds database systems and provides data analysis services for poverty-focused social sector organizations, so instead of donors I have customers. But the two really are not all that different. Just like donors, I have some agencies that hire my firm for good reasons, and others that hire us for stupid ones.

And just like non-profits, which have long accepted donations from individuals and foundations whose values do not align with their own, I too have been (and am) guilty of working with organizations whose missions are a poor fit with my company’s values.

I have rationalized working with bad customers in the past by thinking I would use the money from those contracts to supplement the work my company really cares about. What I failed to acknowledge is that money not only enables you to follow your agenda, but it also has a way of setting it.

Basically, these bad customers led me and my team to focus on building features in our products that did not align with our core mission. We ended up spending staff time on issues that were at best tangentially related to the core poverty issues our company was built to address.

Non-profits do the same thing. It is a rare occasion when an agency turns down funds. I have seen my own customers accept grants for the sake of expansion, not thinking how that funding would impact the overall trajectory of the organization. A lot of funding comes with so many strings that it can pull an agency in multiple directions, resulting in devastating mission creep.

Rating social sector organizations well is vitally important. How we evaluate organizations determines which ones we fund, which in turn changes what agencies do. While I am all for better evaluation of non-profit organizations, perhaps the organizations would be wise to take the time to evaluate those who evaluate them in turn.