Tuesday, March 17, 2009, at 12 noon, U.S. Eastern time

As the economy continues to struggle, many charities are becoming more aggressive in their efforts to seek gifts from donors.

But for donors, many of whom are already facing tough choices about how to best direct their charitable contributions, the influx of appeals can be paralyzing.

How do charities work? Where do nonprofit groups direct your money? How do you conduct due diligence on a charity? How do you make the best possible decision about where to donate?

Join The Chronicle for a live discussion that will help donors answer those questions -- and allow fund raisers an opportunity to hear what's on the minds of people who are deciding whether to support their causes.

Related Articles

• Donors Seek Better Charity Evaluations(12/13/2007)

The Guests

Ken Berger is chief executive of Charity Navigator, a charity watchdog group, in Mahwah, N.J. He previously spent more than 30 years working in the nonprofit world.

H. Art Taylor is chief executive of the BBB Wise Giving Alliance, in Arlington, Va. From 1990 to 1999 he was the head of Opportunities Industrialization Centers of America, a nonprofit organization that operates a network of employment and training programs for disadvantaged and underskilled people.

Steven DiSalvo is president of the Hopewell Group, a New York company that advises individuals, family foundations, and corporations on philanthropic giving. He was the executive director of the Joe Torre Safe at Home Foundation, and was chief operating officer of Junior Achievement of New York. He served as an executive assistant to the president of Loyola University, in Chicago, and has worked on capital campaigns at Fairfield University, and at Fordham University.

A transcript of the chat follows.

Peter Panepento (Moderator):
    Thank you for joining us for today's live discussion. Typically, we focus these online chats on topics that are important to those who work in the nonprofit world. But today we're going to take a slightly different approach. For the first time, we're making this a forum for and about donors. For the next hour, we hope to have a discussion about what is on the minds of those who contribute money to charities. It should be a valuable conversation for those who give -- and for those who raise money for nonprofit groups.

Peter Panepento (Moderator):
    Our guests today include:

* Ken Berger, chief executive of Charity Navigator, a charity watchdog group, in Mahwah, N.J.
* H. Art Taylor, chief executive of the BBB Wise Giving Alliance, in Arlington, Va.
* Steven DiSalvo, president of the Hopewell Group, a New York company that advises individuals, family foundations, and corporations on philanthropic giving.

Peter Panepento (Moderator):
    For the next hour, this panel will answer your questions. To get your question on the record, simply click on the "ask a question" link on this page and type in your query. One of our experts will then offer a reply. Participants are also invited to post comments and reactions to what they read by using the same tool.

Peter Panepento (Moderator):
    For those who are new to this format, this is a text-based discussion. There is no audio, so there is no need to call in or turn up your speaker volume. This page will refresh every minute with the latest information. We also offer a full transcript, free of charge, at http://philanthropy.com/live. If you like what you see, please feel free to spread the word to others who might have missed it.

Peter Panepento (Moderator):
    Now that we have all of the introductions and instructions out of the way, let's get started. It should be an interesting conversation.

Ken Berger:
    Thanks to the Chronicle of Philanthropy for inviting me to participate in this discussion along with my colleagues!

At Charity Navigator (CN) we believe that wise giving decisions occur if 3 components are evaluated by donors:

1. Financial health - CN currently focuses on this component using 7 variables to measure each charity. Our methodology is explained at our web site - www.charitynavigator.org. An organization that is not financially strong, especially in the current economy, may not be here for the long haul. That's one reason why this component is so critically important and a good place for a donor to start their evaluation once their heart has led them to want to give. 2. Accountability & transparency - This component focuses on how open the organization is to the outside world including elements such as governance, whistleblower and compensation policies, etc. It's also an indicator of the character, integrity and quality of the charity's leadership. We intend to begin to report on this later this year. 3. Outcomes - Also referred to as the results, impact, accomplishments or effectiveness of the work of a charity. Unlike the other components, the IRS is not requiring reporting on this. In addition, there are no agreed upon standards of measurement. Therefore, we and others are trying to come to consensus on measures of outcome. In the meanwhile, more often than not, a donor will have to ask the charity directly to describe their outcomes. If they can't, beware.

I hope during the course of this discussion we can explore each of these components in more depth.

Steven DiSalvo:
    The Hopewell Group is a philanthropic advisement firms that works with high wealth families/private foundations and public charities, both non-profits than run programs and ahtlete/celebrity foundations that serve as pass through funders. Steven DiSalvo, PhD is the founder and president with over 25 years of experience in this sector. Hopewell has offices in New York City, Chicago and Boston.

Question from Julie Shapiro, Pride Foundation donor:
    I read all the time that we can help the economy by spending money. I don't particularly want to consume more than I already do. Does making charitable donations have the same stimulus effect as buying a flat screen TV? Will some sorts of donations have a greater impact than others?

H. Art Taylor:
    Interesting question! I suppose most donations are stimulative. Giving to a social services charity will help pay the salaries of workers who get to buy things. Likewise, donating to a charity's building project allows it to hire construction workers, who also spend their salaries, equipment companies and building supply companies. These companies must order products or draw from their supplies and inventories. This is all stimulative.

Question from Jennifer Adrio, Louisville Kentucky charity:
    In light of high wealth donors having less to give, what kind of advice are high end donors requesting and what kind of advice are you giving them?

Steven DiSalvo:
    The issue for high wealth families is how to become more strategic and continue to give to organizations when you now have a much smaller financial portfolio. We have been advising families to spend the required 5%, lower their allocation amounts and, where, applicable, leverage their philanthropic resources to suggest collaboration among organizations with similar missions.

Question from Concerned Citizen:
    I have information on a specific charity I believe should be reported, but I'm just not sure who to talk to. Could you point me in the right direction?

Thank you ~ H. Art Taylor:
    Please send me an email with particulars. I will follow up. ataylor@council.bbb.org

Question from Joan Matyshak:
    What percentage of donations go to help people with MS if given to the National Multiple Sclerosis Society of New York? Ken Berger:
    85.5 % is budgeted for program services. The rest of the funding goes to overhead.

Question from Ira Kaminow, Tzedakah, Inc.:
    Charity Navigator's Web site states that with regard to the percent of total functional expenses spent on management/general, lower is better. How can I tell if a charity is spending too little or too much on management/general? Should I just assume that if a charity reports on its 990 that it is spending zero on management/general that that's automatically better than another charity that reports it is spending 5%? Ken Berger:
    The answer varies depending on the category of charity. However as a general rule, we find that the most financially efficient charities have an overhead rate of 25% or less (15% or less administrative cost and 10% or less fund raising cost).

Question from Craig Weinrich, Nonprofit Coordinating Committee of New York:
    For the smallest organizations (under $100,000 in budgeted expenses) what would be your advice for raising new money?

Steven DiSalvo:
    Like most organizations, fund raising is driven by the top of the donor pyramid. Building a board with clear fund raising objectives for each member is critical. Identifying those with personal resources and accessibility to others takes proper research and strategy. Given the economy, we have several smaller clients launching social networking initiatives to drive volume among the $25-$50 donors. My suggestion is to cast a wide net at all giving levels.

Question from Peter Panepento, moderator:
    We're seeing an increasing number of charities solicit money solely online. Are there ways donors can evaluate online charities that differ from more traditional charities? Ken Berger:
    The basics remain the same. However, if the charity is soliciting solely online you would hope to see lower fundraising costs and a great percentage of revenues plowed into program services. I think you should also expect to see a high degree of transparency of information on their Web site including information about their finances and their accomplishments. They should also afford you the opportunity to interact with them, so you can provide feedback and commentary.

Question from Peter Panepento, moderator:
    What are some signs of assurance the donors can get from organizations to prove that they are a worthy investment? Ken Berger:
    To begin with, whenever you interact with the charity, you should expect them to be highly responsive and open to your questions. Their financial information should be readily available showing that they are good stewards of donations they have received. They should be able to show you measurable accomplishments as well. A good book to consider on this topic is by Renata Rafferty - Don't Just Give It Away.

Question from Susan D, a certified fundraiser:
    Are donors exploring other ways of giving because of the decline in value of their portfolios - e.g., attracted to charitable annuities for their guaranteed payments? Have you noticed a change in vehicles for giving? Steven DiSalvo:
    There is a trend toward collaborative giving among families and organization with similar interests. Private foundations are now less likely to make long term pledges. We have not noticed any other changes in gift vehicles but I suspect more planned giving will take place for the preservation of capital.

Question from Peter Panepento, moderator:
    What are some red flags that donors should look for when they are solicited by a charity that they have not heard of? H. Art Taylor:
    First, I would consider the mode by which I was solicited. I'd have more concern if I received an unsolicited email, call on the phone at night, or was solicited on the street, than I would if I got a letter in the mail.

Secondly, I would avoid making an immediate gift to give me time to check out the organization, starting with its Web page and moving to bbb.org/charity to see if the BBB WGA has a report on them.

Lastly, I would consider if the organization has any mission appeal to me. If not I would hold onto my money and look for an organization better suited to my taste for giving.

Question from Concerned donor:
    Dan Pallotta's book "Uncharitable" is critical of both BBB and CN. Do you think there is any substance to his criticism? What books would you recommend? Ken Berger:
    I have posted a blog on the book. Go to www.kenscommentary.org and look for the entry called - Is it a Sacrifice to Work for A Charity? Generally I find the book interesting, but very wrong-headed. Fundamentally, I disagree with his premise that a charity should not be operated like a for profit. I ran charities for 25+ years and that is the last thing I would recommend! The only part of his feedback I agree with is, we need to find a way to measure outcomes. However, to reject what we currently do is to throw out the baby with the bathwater (see my opening remarks for this online discussion).

Question from Employee, Philanthropic Organization:
    What factors do you think are most important in building donor networks and attracting High Wealth Individuals to particular issues or organizations?

Steven DiSalvo:
    There must be passion for the cause. When we build leadership around an organization, it always begins with those individuals who have a personal interest in the mission. Sometimes this requires educating the public about the cause and then rallying key people around it. When I ran Mr. Torre's foundation, people only knew him as the then manager of the New York Yankees. We had to re-brand him as a philanthropist and educate the public about a cause nobody wanted to speak about: domestic violence. However, once we were able to communicate the message, we were able to attract a large number of high wealth individuals. Marketing and awareness go hand in hand with attracting wealthy families. And wealthy families want to get involved in organizations with other wealthy families!

Peter Panepento (Moderator):
    We're about halfway through today's conversation and I'd like to use this opportunity to remind those in the audience that they are encouraged to ask questions or offer comments at any time. To do so, simply click on the "ask a question" link and type away.

Question from Leann:
    As a small donor, is it better to give several $25 gifts per month or one or two $100 gifts per month? Ken Berger:
    We generally recommend to give a small number of larger gifts. We think it will go further in helping the organization to help others. There are some basic costs (like processing your check) that make smaller donations less efficient.

Question from Concerned donor:
    Dan Pallotta's book "Uncharitable" is critical of both BBB and CN. Do you think there is any substance to his criticism? What books would you recommend? H. Art Taylor:
    While a point can be made of over reliance on financial data to make giving decisions, the truth is that most organizations have little difficulty meeting our standards that are based on financial ratios. Many more fail to meet one or more of our other standards. So I don't believe we hold back a good meaning organization from spending appropriately on fund raising or administration.

In addition, charities can't have it both ways. Many of them will promote the fact that they have low spending on fund raising and administration but complain when they are criticized if it gets past what is considered reasonable.

As far as a book is concerned, I would read Cass Wheeler's You've gotta have Heart

Question from Nonprofit Enterprise at Work (NEW):
    How do you see social media influencing donor decisions? Would you encourage charities to develop a sense of transparency through Twitter, Facebook, and more? Ken Berger:
    We believe that charities should become as transparent as possible and should be using social media to the max! We are on Twitter (CharityNav and kenscommentary) and Facebook ourselves. The challenge is to determine what is the most efficient use of your time to be transparent. Twitter and Facebook are in their infancy when it comes to charities, but I believe media like this will become more and more important as time passes.

Question from Nonprofit Enterprise at Work (NEW):
    How do you see social media influencing donor decisions? Would you encourage charities to develop a sense of transparency through Twitter, Facebook, and more? H. Art Taylor:
    I believe the verdict is still out on social media but charities certainly can't afford to ignore this phenomena. Most money comes to charity through traditional fund raising means and not through social media. Will that change in the future? We'll have to watch and see.

Question from Peter Panepento, moderator:
    Ken, your organization has published research that has been highly critical of the costs nonprofit groups pay to stage fund-raising events? What should charities do to keep their costs under control and to report their costs to prospective donors? What should donors look for when they attend these events? Ken Berger:
    To begin with, we often find that professional fundraisers are not worth the expense. In-house staff is generally more cost effective and focused. Also, the charity should develop a budget for the event in advance, to make sure it is getting the bang for the buck. If not, it should not be pursued. Often times events are one of the least efficient ways to raise money.

Nonetheless, if you plan to attend such an event, find out how much the event cost to hold and what they anticipate to raise over and above their costs. We find the best fundraising efforts for most charities, cost no more than 10 cents to raise a dollar.

Ken Berger:
    In my answer on the book Uncharitable, I forgot to mention a book I recommend. That would be the book by Ms. Rafferty - Don't Just Give It Away.

Question from Tina Campbell, United Way Vancouver BC:
    What is your advice on working to maintain a donor base in a market where there is considerable job loss? If we look at our donors, there are MANY who have lost their jobs...do we keep soliciting them, or what is the best course of action? Steven DiSalvo:
    Great question. Just because they lost their jobs does not mean they do not have the financial resources to continue with their philanthropy. It may be at a smaller scale but I would not take them off the list. I think it is very important for them to realize that you are sensitive to their situation. In fact, you have something that they need: an opportunity to network among their peers. Think about hosting a no frills gathering for networking purposes. When they get back on their feet they will remember who offered assistance in their greatest time of need.

Question from Carig Weinrich, Nonprofit Coordinating Committee of New York:
    There are some nonprofit startups that are looking to measure outcomes in a meaningful way, like SocialMarkets. What are your thoughts of comparing one organization's outcomes to another?

Ken Berger:
    We have been researching this question and believe that comparisons of outcomes between organizations is doable. The tools we are looking at for our purposes, are broad enough to evaluate multiple categories of charities, while specific enough to the unique qualities of a particular charity. There are at least two we have seen that may fit this bill. We are now entering the testing phase.

Question from Frank McKay, Riverside Military Academy:
    Background: a 100+ year old school, that has only recently begun fundraising efforts.

One of my donors recently told me, "Frank, you've got a tough job. You're trying to build new donations from people like me, who are being forced to cut back our contributions to the organizations we already support."

What would be your advice about connecting with and reaching these new donors in a way that helps them see that this 'new donation' doesn't interfere with their current support plans? Steven DiSalvo:
    Set reasonable targets and cultivate the right relationships. There are two types of fundraisers: the used car salesman (asks for a gift and you never hear from him again) and the relationship builder (the ask is an extension of a trusted conversation). Find key people to come on board and use them as your leadership team. By asking for a modest gift up front and educating them about the great work of the school, you have a good chance of it paying large dividends later. They should think of giving to you as a replacement of funds that would go elsewhere, but rather as an additional gift that will change the lives of young people.

Question from Peter Panepento, moderator:
    How does your experience in the nonprofit world color the advice you give to your philanthropic clients? Steven DiSalvo:
    I have had experience running non-profits, raising money for educational institutions, managing a foundation for an athlete (Joe Torre) and facilitating a family office for a family foundation. Each of these experiences has given me great insights into the philanthropic process from a wide variety of angles. I am able to offer advice from the perspective of the donors while being sensitive to the needs of the recipients, and vice versa. When we see programs in need of funding that match up with donor interests, we become the broker of the relationship.

Question from Jeff Sliger, aSEOpro:
    I have seen a lot more action on social media by charities. Some are doing a pretty good job of reminding people "we're still here" without overwhelming their followers with constant updates. As online interaction improves, I think a properly run ongoing social media program could be a powerful tool for the industry. Plus it lends toward trust and transparency. Do you have any specific recommendations to offer charities that are looking to take advantage of this? Ken Berger:
    I totally agree with you, Jeff. I think charities need to dip their toe in the water and realize that they can maintain a presence in the social media arena that is not that demanding of their time. The book - Causewired - can give neophytes a starting point on what is out there. Then the charity should brainstorm what is most advantageous to maximize transparency.

Question from Kathy Reed, Public TV and Radio, Rochester, NY:
    I am involved with Major and Planned Giving and currently in a mode of stewardship, making our donors feel appreciated even if their gifts must be smaller this year or even eliminated, and hope that they will be with us for the long haul. Certainly planned giving is a topic we can discuss, but people are more concerned than ever that there "won't be anything left". Your thoughts on dealing with these fears? Steven DiSalvo:
    Kathy, this is an issue that most people around the globe are dealing with today. My suggestion is to stay close to them, let them know you share their feelings but convey how critically important their stewardship is to the organization. It is also a good time to emphasize that you are judged in part by participation and not just giving levels. Keep them involved so that when things turn around you can approach them at a higher level.

Question from Michael Wesolowski, MHAUS:
    Please talk about your good and not-so-good experience in surveying donors; what have you learned? H. Art Taylor:
    There are many services that offer grant writing. You may want to check with the Association of Fund Raising Professionals at afpnet.org. They can help you with tips and ideas for selecting a fund raising consultant.

Question from Julie Shapiro, Pride Foundation donor:
    Do you think there will be some sort of shake-out among charities? Did the boom times lead to too much expansion too quickly so that now some won't survive? If so, what do you think about which ones will make it--older and more established ones? More narrowly focused ones? Or will there be mergers and consolidation? Ken Berger:
    We believe there will be a shake-out. A small silver lining of sorts in this economic downturn could be some positive mergers and consolidations. The bigger organizations who can make cuts and still carry on (for better or worse) are the most likely winners in all of this. Many small agencies (good and bad) who barely were getting by, are probably going to either fold or get acquired. The sad thing about charities is that they often wait until they are over the cliff before they seek out partners. Part of this is due to the lack of financial incentives ("golden parachutes"). We think foundations can play a critical role in helping encourage positive mergers at this time.

Question from Rhesa J, Social Capital Investing:
    Does CN review groups like NPC (New Progressive Coalition) in SF. They call their model a "mutual fund", redistributing giving across a portfolio of themed giving. Ken Berger:
    No I am not familiar with that group and we do not currently evaluate them. Here are a few criteria that must be met to be evaluated by us - 501(c)(3) IRS designation, at least 5 years old, over $500,000 in annual receipts, at least one-third of funding from private contributions.

Question from Peter Panepento, moderator:
    I'm going to pose this question to all of you: What are the first things donors should look for on the Form 990s provided by nonprofit groups? Ken Berger:
    We believe there is a need to look at multiple elements of the agency's finances. No one measure will suffice or you run the risk of oversimplification.

Question from Peter Panepento, moderator:
    I'm going to pose this question to all of you: What are the first things donors should look for on the Form 990s provided by nonprofit groups? Steven DiSalvo:
    Most people look at income right away. It is a clear indicator of the financial health of the organization. I scroll down to the Board list and five highest paid employees. It gives me a sense of the quality of the team that has been assembled. After all, the long term health is really driven by the people around the table.

Question from Peter Panepento, moderator:
    I'm going to pose this question to all of you: What are the first things donors should look for on the Form 990s provided by nonprofit groups? H. Art Taylor:
    First, I try to gather the seriousness of the organization from the quality of its mission statement. If the mission is vague and does not clearly articulate the programs of the organization, I loose patience.

Secondly, I look to see if there are conflicts of interest among the board and staff. That's another turn off for me.

Third, I am interested in knowing how long they have been in business. Given the number of organizations already in existence, a newer organization has to sell me that it's better positioned than one that's been around for a while.

Peter Panepento (Moderator):
    Thank you, everyone, for joining us today for an interesting discussion about charitable donations, fund raising, and more. A special thank you to our guests -- H. Art Taylor, Ken Berger, and Steven DiSalvo -- for taking the time to join us.

Remember, we'll be back next Tuesday, March 24, at noon Eastern time, to talk about managing your organization through hard times. You can find that discussion here: http://philanthropy.com/live/2009/03/decisions/

Thanks.

Ken Berger:
    Thanks again to the Chronicle of Philanthropy for hosting this important discussion. Ultimately we all share the same goal, which is to be as certain as we can that, when we make a giving decision, every penny counts. If we follow the steps discussed today, I believe that the highest performing charities will get more donations and therefore, we can help change the world for the better, which is more important than ever in these challenging times.