There's an old fable about a great storm that comes along and blows over the tall strong timbers - pillars of an important forest. But the younger, more flexible trees and plants sway with the winds and remain standing once the storm is over.  They become stronger with time and thrive and eventually become the pillars of another forest.

I think we can apply this today to the storm rumblings arising over how nonprofits are evaluated.  For decades the ratio between funds received and dollars spent on program vs. administration/fundraising has been the rule of thumb.  Supposedly, if more than 20% of income was going towards anything other than program, a nonprofit was not handling its finances properly; the greater the percentage toward program, the better run the charity. Perhaps this became a popular way to judge performance because it's so easy to decipher and it's so easy to understand. But it never made sense to me when looking at the bigger picture.

The call for more transparency has actually helped many supporters see the relationship of their support to the outcomes of a charity's work.  This is what should be a donor's rule of judgment in my opinion.  If one charity's ratio appears "better" than another's and the outcomes are equal for all intents and purposes, then it may be easier to decide which will get the gift.  But what if a charity has a less attractive ratio but significantly better results or impact?  I know where I would put my money.  Perhaps a nonprofit is willing to pay more for superior skills; perhaps travel expenses are higher because the reach of programs is geographically broader; perhaps the light bill is higher because people are working around the clock.  All of this could result in superior program results, despite a less attractive ratio. But donors don't want to think their gifts are paying a salary or the light bill. 

So, while greater transparency is helping to educate donors about how revenues are spent,  nonprofits will also have to better demonstrate how a new measure will play a role: the "success ratio".  Money spent vs. improvement or growth, or the lack thereof.  This doesn't mean that the program vs. administration/fundraising ratio will become irrelevant.  In fact, I think it will have a lot more meaning as just one piece of evaluating a nonprofit's work.

The willingness to be more flexible in the methods used to judge the worthiness of nonprofits is a definite sign that the philanthropic community is growing in knowledge and sophistication - and bodes well for a more productive future for this community.

What do you think?



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