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Friday, March 20, 2009

Charity Ranking Programs

I’ve written several posts (Why weren't we at the top? and Ranking corporate sustainability performance) that have expressed my views on the pros and cons of programs that endeavor to quantify and rank a company’s corporate sustainability performance. Especially, in reference to those programs that try to cover all spheres of sustainability.

At the Corporate Advisory Council (CAC) of the American Red Cross this week we had very similar discussion about charity ratings programs. The issues were very much the same.

The very influential Charity Navigator recently downgraded The American Red Cross from a four star to a two star rating. Charity Navigator's ratings can significantly influence donations from individual donors. Ratings are based on publicly available information drawn from financial reports, IRS 990, that charities are legally bound to produce. This is a logical approach, but it also limits the breadth of information from which the conclusions can be drawn.

The ratings offer an evaluation of financial health relative to similar charities. This precludes evaluation of how many people are served by the organization per dollar spent for example, or the value of the service provided per dollar spent. These sorts of measures can generically be called return on mission and are perhaps an even better indication of a charities performance. But they are much harder to quantify from publicly available information and even harder to compare on an apples to apples basis.

I draw the same conclusions as I did in my December posts. These types of ratings programs have a part to play, but their limitations must be recognized. For ratings intended for public consumption there is an even greater obligation on the program organizer to express the limitations to their audience than there is for ratings intended for business to business consumption.

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