Charity Navigator Leader Takes Fire at Nonprofit Conference

Charity Navigator will consider publicly rating itself this year, its president said. That would be one of a slew of sweeping changes officials are trying to hammer into place at the prominent watchdog organization.

The comments came as Michael Thatcher, who became president and chief executive of the charity-ratings group in August, faced a barrage of questions during the Direct Marketing Association’s Washington Nonprofit Conference on Friday.

Mr. Thatcher spoke during a lunch Q&A session.

The fundraisers in attendance asked him about changes in the Charity Navigator ratings methodology, whether the organization belonged on its own “watch list,” and whether it might, for the first time, publicly rate itself.

“You have enough data, you have the ability to do it, and you should be doing it as a self-appointed watchdog of a multimillion-dollar organization,” a nonprofit fundraiser in the audience said. “You owe it to your donors, you owe it to us, and you owe it to yourselves.”

Mr. Thatcher said he would bring the topic up at a board meeting next month. He noted that Charity Navigator does rate itself internally, currently giving itself four stars, the highest on its ratings scale.

“I can make that data available,” he said. “We need to make it available.”

Mr. Thatcher told the audience that the watchdog group had 40,000 unique donors in 2015. According to the group’s latest tax filing, they contributed around $1.5 million.

Since its founding in 2001, Charity Navigator, which ranks nonprofits on fiscal management and transparency issues, among other things, has faced criticism, largely due to a methodology that punishes groups with high fundraising costs.

The group’s “watch list” was fresh on audience members’ minds: Direct Marketing Association member Wounded Warrior Project was added last month following scathing reports by CBS News and The New York Times.

A six-staff-member committee meets weekly to determine which organizations belong on the “CN Watchlist,” with the intent of highlighting information the watchdog deems relevant for donor decision-making.

The committee, which Mr. Thatcher said will expand to seven members, reviews “noteworthy incidents raised by a credible source.”

Another conference attendee asked Mr. Thatcher whether an opinion piece published last month in The Chronicle titled “Charity Navigator Must Grow Up or Shut Down” might qualify to put the group on its own watchlist.

“That’s a great question,” Mr. Thatcher responded. “There’s a difference between an opinion piece and actually something that’s been researched by a journalist.”

“So journalists’ articles are basically guaranteed for truth?” the questioner responded.

“I won’t say that,” Mr. Thatcher said. “Your point’s well taken.”

He vowed to submit the piece for the watchlist committee to review on Wednesday.

“We’ll see what happens,” he said.

Charity Navigator gives organizations two days’ notice before adding the group to its public list. Nonprofits on the list can provide publicly available information for the watchdog to consider. And groups can be removed from the list at any time.

The Bill, Hillary & Chelsea Clinton Foundation, for example, was removed from the watchlist after filing its 2014 Form 990 and amended tax forms for 2010, 2011, 2012, and 2013. The American Red Cross was removed January 8 after the charity provided supplemental information responding to claims made in articles by ProPublica and NPR.

Mr. Thatcher said that Charity Navigator is in the process of rebranding the watchlist. It is often incorrectly perceived as “more toxic” than the group’s “Donor Advisory” classification, he said. A charity may receive a Donor Advisory label for reasons including an attorney-general investigation or failure to report fundraising expenses on a Form 990.

Changes Ahead

For years, Charity Navigator scored groups largely based on Form 990 data, giving strong marks to groups that kept fundraising and administrative costs low as a percentage of overall spending.

In recent years, it has labored to broaden its methodology to include more information about charities’ impact. Officials there called it “results reporting,” and dubbed the pivot “CN 3.0.”

The effort has already stumbled. Last year, the group brought in results reporting information from around 3,000 charities before its new evaluation effort was put on hold.

“Organizations were not clear on how they were tracking their own impact,” Mr. Thatcher said, adding that ultimately, “we want that to be a key part of the rating system, if not the most important part of the rating system.”

The group is looking to make changes to its financial metrics this spring, which may include ending the practice of rewarding groups that see growth in revenue.

Fundraisers in the audience expressed concern about the watchdog’s position that charities should ask donors to opt-in to allow their names and contact information to be shared with other organizations.

While Mr. Thatcher said his organization isn’t categorically against “list sharing,” he urged charities to share donors’ names only if they opt-in, out of privacy concerns.

“The biggest complaint we get from donors is the excessive amount of mail they receive,” he said.

Mr. Thatcher’s comments generated pushback not only from the audience but also from his interviewer. Shannon McCracken, vice president for donor development with the Special Olympics and chair of the Direct Marketing Association Nonprofit Federation’s advisory council, who moderated the Q&A session, said the opt-in would be a “game changer for charities.”

That practice, she said, would significantly increase overhead costs and make the groups less efficient, thereby lowering their ratings. It would force charities to use mass mailings instead of a more targeted approach.

Mr. Thatcher emphasized that the evolution of his group will depend on collaboration.

“I’m realizing that there are elements of our rating that are not necessarily clear to all of you,” he said. “If you’re not happy with the way something’s been treated in your rating, call us up. Talk to us.”