Ratings systems by groups like Charity Navigator and Charity Watch are at best "horribly ineffective and misinformed" and at worst "outright misleading the public," says the chief executive of a fast-growing veterans nonprofit.
Steven Nardizzi said the Wounded Warrior Project could have tweaked its operations to earn better scores with the "self-described watchdogs." Instead, in 2008, the charity decided to ignore the ratings after determining that such changes would diminish its ability to care for veterans.
Working against the prevailing view that overhead is bad and spending money on fundraising signals inefficiency or fraud, the Wounded Warrior Project made significant investments in its fundraising operation, he said. It has grown revenue by about 65 percent each year since and is on track to bring in more than $300-million this year, he said.
Mr. Nardizzi made the comments Thursday at the Bridge to Integrated Marketing and Fundraising Conference in Maryland.
Ratings groups all use financial ratios as a significant portion—and in some cases, the only criterion—of their ratings, Mr. Nardizzi said, factoring in things like how much a charity has in reserves and fundraising costs.
"Essentially what these groups are doing is passing judgment on decisions that were made by charity boards and staff on how to best fulfill their missions, meet the needs of their constituencies, and sustain their organizations over the long term," he said.
The data on overhead expenses are woefully inaccurate, Mr. Nardizzi said. Research shows that many organizations misreport their fundraising costs and the costs associated with pursuing grants, among other things.
"So while the ratings group say effective charities spend less on overhead, we know their numbers are wrong," he said.
Nonprofit professionals need to take back the narrative, Mr. Nardizzi said, pointing out that Charity Navigator and CharityWatch combined have 23 staff and $2-million in annual budget. Nonprofit leaders should be the voice of the industry and lead the dialogue about charity ethics and charity effectiveness, including doing a better job of measuring their impact and adhering to high professional standards.
Charity Navigator gives the Wounded Warrior Project an overall rating of three out of four stars, with only two stars for its finances. Charity Watch gave the nonprofit a C+ rating.