Charity Navigator’s Proposed Rating System: Thoughts, Anyone?

Posted on 07 March 2010

By Sherine Jayawickrama

For the past year or so, Charity Navigator (the major US charity rating agency which rates nonprofit organizations on a scale of zero to four stars) has been in the process of overhauling their rating system. After Ken Berger became CEO of Charity Navigator in 2008, he took to heart the criticism that the organization’s rating system did not provide a full and meaningful measure of the effectiveness of nonprofit organizations. 

Charity Navigator’s rating system was heavily weighted toward financial measures like overhead and program-to-fundraising expenditures, and it provided no assessment of an organization’s accountability or effectiveness.  Especially when it came to nonprofit organizations working in international development and humanitarian relief, this rating system was seriously flawed.  However, NGOs realized how much private donors had come to be influenced by the four-star rating system.  So most NGOs worked hard – sometimes begrudgingly – to obtain a good rating.  NGOs often displayed Charity Navigator’s rating in prominent places on their marketing and fundraising material. 

Under Ken Berger’s leadership, Charity Navigator has undertaken a process by which this narrow rating system will be expanded to include measures that seek to provide an assessment of each nonprofit organizaiton’s accountability and transparency systems as well as their effectiveness in terms of program outcomes.  The changes underway are explained in this interesting podcast.

On the face of it, providing a fuller assessment of nonprofit organizations seems to be an unambiguously good thing.  However, evaluating the increasingly complex work of nonprofit organizations is no easy task.  The combination of the opportunity presented by the spirit of these changes – and the complexity of making such a new system work without creating perverse incentives – makes this a very interesting moment.

I would like to explore this issue from different perspectives on this blog and would welcome guest posts with a variety of opinions on the merits of Charity Navigator’s proposed approach and how a better system can be made to work effectively.  Please join the discussion!