I’ve done an arguably excessive amount of ranting on what I’ve dubbed the “Straw Ratio”: the idea that we can find the best charities by seeing what percentage of their total expenses goes to program expenses, or, in Straw Man parlance, goes “straight to the people who need it.” It’s about time for me to stop devoting every post to this, but before I do, I want to wrap up with why I’m so obsessed with this issue.

To me, the Straw Ratio is more than a bad metric: it’s an emblem of the biggest single problem with charitable giving today. The problem is the fallacy – specific to charity – that how much you spend is more important than how you spend it. That, in the end, is the fallacy behind the Straw Ratio: that what matters about a donation is not what it pays for, but how much it pays for.

It’s the same problem that sits behind the success of “microcharity” sites such as DonorsChoose and GlobalGiving and Kiva, which I will complain about more later – the attitude that getting your money straight to where it’s needed, bypassing administration and planning, is an exciting and intelligent way to give it.

It’s the same problem that sits behind some of the excessive restriction/designation of donations, both by individuals and foundations, which I will also complain more about later. Too many donors feel that if “someone else” pays for all the planning, evaluating, and administration (or if they simply aren’t paid for at all?), they’ve gotten more bang for their buck.

It might be the same problem that makes charities so reluctant to embrace transparency and admit that not everything they do is perfect – the obvious benefits of global dialogue, in terms of figuring out how to spend money, are offset by a fear that there will be less money to spend.

And in the end, it is probably the same problem that explains why donors are not smart about their giving, and nobody aside from GiveWell seems interested in helping them to become more so. From the (RED) campaign to the “Don’t Almost Give” campaign to, well, everything, “being charitable” is identified with “giving a lot.” The nonprofit sector is naturally obsessed with getting people to give more, and donors think that the only thing that determines how good you are at giving is how wealthy you are. That’s wrong.

The world’s needy don’t just need your dollars, they need your thoughts. If your friend gives more than you but gives it worse, this is pretty much the equivalent of their having a vastly superior tennis racket and being a vastly inferior tennis player. You are better. Why does that make so much sense in every context except charity, but sound so foreign here?

In all, I can think of a whopping two activities where money alone will buy you success. 1. Arcade games (the ones where you can continue as long as you have more quarters). 2. Strip clubs. Nothing else comes to mind.

Money can’t buy you a great movie. Money can’t buy you a great product. Money can’t buy you love. It can’t buy you a better world either.

Anyone who has ever had a job knows that throwing money at a problem is worthless, and that a single great idea can dwarf the impact of a bigger budget. Anyone who has ever watched a tiny startup business take down a Goliath knows the same thing. Anyone who has ever had a hobby knows that how much you spend is going to account for half, at most, of how good you are.

Anyone who has ever had 5 minutes of consciousness knows that intelligent thoughts are gold, and that next to them, money is cheap. So next time you give, expect your donation to help pay for salaries and self-evaluations. And when it comes to choosing where to donate, don’t use the Forbes list or the first slickster who sends you a picture of a baby. Put in some time, and donate some of your own intelligence as well. The world needs it.

If my extended, multi-post rant on the Straw Ratio has been at all convincing to you, you should be concerned about what the Internet thinks “charity evaluation” means. I’m not just talking about the top result, but about the whole shebang.

Give.org’s criteria don’t say a single thing about the nature or effectiveness of a charity’s program activities – only its organizational policies and, of course, our friend the Straw Ratio (see “FINANCES”). The next link is referencing the American Institute of Philanthropy, whose ratings criteria will look familiar to fans of Charity Navigator’s: program expenses good, administrative and fundraising expenses bad, lots of assets/reserves good, content of programs irrelevant. Next one down gives a whole list of links to charity evaluators with more (or less) of the same.

Then you’ve got the bold Put your money where our math is (I’ll admit that’s a great pun), which says “Don’t worry. We’ve done your homework for you,” before laying out criteria for the charities that are “run the most efficiently” – criteria that, again, look mighty familiar, except these guys penalize charities for saving a lot where the above watchdogs reward them. (There are arguments both ways … and both arguments are pretty bad. I haven’t spelled out why I think how much a charity saves is a pretty crazy thing to look at when trying to help people … leave a comment if you want me to.)

And on and on … not to mention the ads for charities claiming to be “Top ranked in efficiency” and the like. One guess as to how they’re measuring that.

Not cool, Internet.

Measuring success at helping people is hard; it has inherent limits; it’s time-consuming; and it’s expensive. But it has to be done.

The first reason is that no matter how much sense an idea makes in your head, translating it to reality is another matter. I’d argue that acceptance of this basic idea is the single reason that we now have medical alternatives to prayer.

The second reason is that there are a a LOT of different charities out there for a donor to choose from – and without some sense of what they’ve actually accomplished, a donor has nothing to go on but theories and brochures. To me, that’s not much better than flinging our money randomly around the globe, with anyone who has a good story and a good accountant getting a chance to play. That isn’t a reasonable approach to solving the world’s problems.

The question of how to evaluate a given charity’s activities is a question for another day. It depends on the charity and it’s pretty much never easy. The question for today is, why isn’t it done more thoroughly and more often? And the answer for today (though it’s only one factor) is that funders don’t want to pay for it.

Children’s Aid Society has explicitly told us they’re concerned about funders’ reactions to the amount of their budget that is going to evaluation, “as opposed to” helping people – and that they’ve been unable to execute a major community school evaluation they’ve mapped out because it exceeds the “evaluation budget” designated in their grants. We asked New Visions for Public Schools why they don’t seem to have had the same problem, and they told us that they have, but that they’ve made a priority of fighting for larger evaluation budgets from their own funders. Over and over again, when we ask charities why they haven’t measured things that seem measurable, they’ve responded that the people who fund them don’t want it: many of their funds are often officially earmarked for non-evaluation purposes, and even when they’re not, they’re concerned about donors’ wishes to “get the money right to the people who need it.”

You and I are lucky that the people who build our bridges, cars, and airplanes don’t decide they can get more money directly to us if they cut their testing budget. The people served by nonprofits should be so lucky.

It’s very unlikely – maybe impossible – that the Straw Ratio bothers you as much as it bothers me. So I’m going to try to spill out all the ranting I have left on this topic over the next few posts, and then we’ll completely be done with it, at least until the next time I tell someone about our project and they go “Oh yeah, I’m really into giving intelligently. Like have you seen these websites that show you how much of your dollar REALLY goes to helping people?”, causing me to completely black out with rage and do things I can’t remember days later, like write incoherent blog posts or light Form 990s on fire. (FYI, this happens about 2x per day on average.)

So. My last post focused on one component of those evil, evil administrative expenses: salaries. Another common administrative expense that jumps to mind (although “administrative expense” is subject to some interpretation, as has been pointed out to me) is information technology. This is something I haven’t seen from the inside, but anecdotes about the generally poor state of nonprofit tech abound. Here’s a pretty good example: Today I Cried, an aborted (as of a few days ago) blog by a nonprofit IT director.

“I think I’m done with nonprofit. I’m looking at corporate – the bigger the better.”

“So much energy wasted on bull[bunnies].”

“Do you know what a modem-router is?”

Oy.

But the most relevant post here is Non-Profit Technology vs. For-Profit Technology. First overarching difference? “Money (restricted/unrestricted funding; discount pricing; used/donated technology; Tech Soup; technology grants)”. What do you know. Those dollars that you’ve so diligently been marking “FOR NEEDY CHILDREN ONLY” made it past that greedy tech department after all.

Ever try to do good work with bad technology?

Is that what you want to be funding?

Whoa, no way – young nonprofit sector workers don’t want to stay in the sector because of low pay? Young people don’t aspire to become nonprofit leaders? Well where are we going to get great leaders? We need great leaders at nonprofits if we want them to get great things done, right?

Man, that’s rough. Anyway, my attention span isn’t so hot, so I forget what I was just talking about, but you know what pisses me off? Charities that blow their money on fat salaries for their greedy executives!! Oh, man. Don’t get me started. At least I have a friend in Charity Navigator, which puts the CEO compensation right on that profile page so I can spot crooks like that Curtis R. Welling. Guy makes 275 THOUSAND DOLLARS (as much as a mid-level investment banker!) for running Americares, which barely cracks the top 20 largest nonprofits in the country. I mean, the AVERAGE nonprofit CEO makes ~$150k/yr – who needs that kind of money? That’s, like, entry-level MBA money!

Listen to me. I want my donation going to needy children, not to some jerk in a suit. I want great leaders in the nonprofit sector. I am confused.

Oh, actually, I think I’ve sorted it out. The problem seems to be that pesky Straw Ratio again, and the mentality that goes along with it: that we should evaluate charities by nitpicking their balance sheets and questioning their operating costs, rather than by looking at what they do and whether it works.

It’s important that everyone involved in a nonprofit’s mission be accountable. We are working to find the organizations that use their resources in the best possible way. You all are hopefully keeping an eye on our work to test the reasoning in our reviews, and to make sure that we are choosing the best organizations for each cause. And watchdogs like our colleague Mr. Straw Man are always checking to make sure that certain line items in the budget don’t get too out of hand.

What about nonprofits’ employees? From my experience starting a national non-profit and working with a number of others, one difference between the nonprofit sector and for-profit sector that has really struck me (and I can only speak for what I’ve seen) is that nonprofits are much worse at doing internal evaluation of personnel, and most of the time it barely happens at all. What does it matter if Bill is not as good as he could be at fundraising, or if Jane is as good as she could be at managing a project, so long as they have their hearts in the right place? That’s what matters: people who share a common goal to make the world better in their cause, and who are willing to work toward that goal, regardless of whether they are necessarily the best at what they are doing…

Go ahead, ask a non-profit that you are considering donating to:

“Hey, when is the last time that you fired someone? Ok, not recently … well, how about a negative review, gave a salary cut as punishment, or put someone on probation?”

In a for-profit enterprise this sort of thing happens constantly, and most would argue that companies are better off because it leads to better employees and a better company. However, I bet that non profit organizations would be shocked if you asked that sort of question as part of a list along with the laundry list of questions related to program and financial management. But it’s the same thing: spending money wisely includes making sure that your employees are as good as they can be, and that is only accomplished through honest and fair evaluation … sometimes that means firing people.

So make sure you’re asking this question. And executive directors, have the heart to fire anyone who isn’t the best person for the job.