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"In this provocative exposé, the former CEO and COO of National Public Radio takes a critical view of today’s nonprofit world, calling for reform and a redefinition of what constitutes a charity. For anyone who has given time or money to not-for-profits, Stern’s critique will prove both disturbing and thought-provoking ... An engrossing read, this look at the evolution and current state of the charitable world is sure to stimulate debate."
"[Stern] fills the text with insightful, vivid examples ... A trove of useful insider wisdom."
"Important and thought provoking analysis"
The difficulty of identifying effective charities is well captured in the creation story of a New York–based charity evaluation organization called GiveWell. In the summer of 2006, eight friends working in the financial services industry decided to pool their efforts and make a common commitment for their end-of-year charitable giving. All of them were single, in their twenties, and doing very well financially for having relatively little professional experience. They worked for a publicity-shy hedge fund called Bridgewater Associates, a company little known outside the clubby financial world but one of astonishing reach and wealth. Bridgewater, now reputed to be the world’s largest hedge fund, manages about $160 billion in assets—a number roughly equivalent to the combined gross domestic product of Kuwait and Bulgaria. The group of friends, informally headed by two recent Ivy League graduates, Elie Hassenfeld and Holden Karnofsky, agreed to research and share information on different charities. Given the mind-numbing number of charities, they decided to focus on one industry per person (Karnofsky chose New York educational charities; Hassenfeld picked water charities in Africa) and limit themselves to charities awarded three or four stars by Charity Navigator, a reputable rating agency. They thought it would be easy; this was, after all, what they did every day for a living—research, analyze, and recommend the best investment opportunities.
Throughout the late summer and fall, the group met regularly in a conference room at Bridgewater to discuss their findings; in between sessions they searched the Web for data and called and asked for information from a vast number of charities. They discovered that the Charity Navigator rankings were unhelpful, as they were based largely on ratios of overhead to programmatic spending that they quickly realized had no correlation to organizational effectiveness and impact. They also found out that even if they wanted to rely on these ratings, it was unwise to do so because Charity Navigator depended on self-reports from the charities, which could easily, and frequently did, game the ratings. They read annual reports and IRS filings. They were mailed glossy brochures full of vivid pictures and stirring anecdotes. UNICEF even sent an oral rehydration package as proof of its good work—along with a donor card. None of the materials, from dozens of organizations, hinted at what they were trying to find out: Do the charitable programs effectively solve the targeted social problems? Their frustration wasn’t for lack of trying, on the part of either the Bridgewater 8 or the staff of some of the charities they contacted. When pressed for more information from the Bridgewater group, the charities often furnished their own confidential internal reports and data—the inadequacy of which led the group at Bridgewater to understand that the charities themselves did not know whether they were helping or hurting a given situation. In a small number of cases their inquiries were met with hostility tinged with paranoia. As part of his inquiry, for instance, Karnofsky contacted Smile Train, a prominent charity that sponsors cleft palate surgery for third-world children. He was looking for basic information on effectiveness: In what parts of the world was Smile Train operating? How many of the Smile Train children come from financially disadvantaged families? Was Smile Train able to track the children after surgery to assess the impact of the operation? Smile Train staff refused to provide any of the answers, eventually telling Karnofsky that he would have to pursue the questions directly with the organization’s president. Eventually, he received a call from the Smile Train CEO, who told him that no donors had ever sought this information before and openly accused him of spying for Operation Smile, a rival medical charity. Needless to say, Karnofsky never received any of the requested information. After six months of inquiry, the Bridgewater group found itself no closer to identifying effective charities than when they had started. In the end, they threw up their hands and made the best guess possible with their year-end charitable gifts, an unfulfilling outcome perhaps but one that closely tracks the thought process behind billions of dollars in giving each year.
The exercise, frustrating as it may have been, was a revelation to the Bridgewater group; they concluded that there had to be a better way of evaluating charities and helping donors find effective outlets for their contributions. In the summer of 2007, Karnofsky and Hassenfeld left Bridgewater to set up GiveWell, an organization dedicated to identifying demonstrably effective charities where donor money could be put to good use. Their approach was based upon the methodologies they had learned at Bridgewater: in-depth, research-driven evaluations supported by facts and data, not formulas and marketing brochures. By its nature, it is slow and handcrafted work that cannot be mass-produced, certainly not by a team that originally comprised only two people. Hassenfeld and Karnofsky determined to focus their work on a few charitable segments where they figured there would be reliable data (HIV, malaria prevention, water, and education, to name a few) and only on top-tier charities willing to provide access to relevant data.
Over the past five years, GiveWell, by now expanded to seven employees, has produced over five hundred investment grade reports, both on entire charitable sectors and on individual charities. After all this work, it has identified only eight organizations that can fully demonstrate material and effective impact and efficiently use additional funds. This is not to say that each one of the other 98.5 percent of charities is a failed organization, but it is to say that none of these charities can concretely demonstrate that they can effectively deliver promised results. In 2009, the GiveWell group decided to rate only charities that met a minimal standard of transparency—that the charity published on its Web site some meaningful self-evaluation. There was no requirement that the self-evaluation be positive, simply that the charity offer some proof of its commitment to making results publicly accessible. Only fifteen out of more than four hundred charities reviewed passed over this low bar—even though the organizations they targeted for review were culled from lists of the most respected and prominent charities in America. When Hassenfeld and Karnofsky dug deeper, they met resistance from startling quarters. Many nationally prominent charities simply refused to share relevant data with them. The Harlem Children’s Zone and the Carter Center—organizations with outsized reputations for being effective, businesslike, and data-driven—both stonewalled the GiveWell team. Heifer International and the Millennium Villages Project required confidentiality and then still provided no pervasive research. This projects a deeply unsettling image of many of the stars of the charitable world—Geoffrey Canada (Harlem Children’s Zone), Jimmy Carter (Habitat for Humanity), and Jeffrey Sachs (Millennium Villages Project)—as unable or unwilling to show whether their organizations are effective. It is hard to know what is worse, that Karnofsky and Hassenfeld can only find a handful of highly effective charities after years of intensive effort or that the organizations that failed their test are among the best that the charitable world has to offer.
The GiveWell staffers are not muckrakers. It is not their purpose to expose the failed, the muddled, the hopelessly un-strategic; rather, it is their goal to drive donations to the most measurably effective charities and create incentives for other charities to adopt similar standards of evaluation. In this, they have a long way to go. As we shall see, the market incentives of the nonprofit world push charities toward happy anecdote and inspiring narrative rather than toward careful planning, research, and evidence-based investments, to crippling effect.
I experienced some of these skewed incentives in my own work in the charitable sector. I joined National Public Radio (NPR) as chief operating officer in 1999 and became its chief executive officer in 2006. During my nine years running the company, NPR more than doubled its audience, despite the general national decline in radio listening, and more than tripled its revenues. We launched numerous successful digital initiatives, ranging from NPR’s satellite radio channels to the award-winning NPR Music site. From the outside and by all reasonable measures, NPR was a high-performing organization, one doing almost uniquely well in a difficult media environment. On the inside, however, I found myself endlessly embroiled in diplomatic logjams with the NPR board and the public radio stations that controlled the board.
Public radio was in the midst of a media revolution, a transformation almost as profound as that brought on by the printing press. I knew that NPR needed to change just to survive. I wanted to see results demonstrating how NPR was reshaping itself to be more competitive in the digital age, results that were not merely anecdotal but specific and measurable: the reach of NPR to tens of millions of people, the growth of online and digital services, the impact of new programming to reach more diverse audiences, the financial health of the organization. We implemented a strategy to broaden NPR’s reach beyond radio to the Internet, mobile phones, satellite radio—to meet and serve the audience wherever it was going to be—and to expand the historic definition of NPR’s audience by creating new programming for younger audiences and audiences of color. In many ways, this clashed with the historic view held by many public radio stations that NPR should be an organization that served public radio stations first, with other activities viewed as either irrelevant or threatening. The NPR board was sympathetic to that view. The board was made up of donors and public broadcasting system politicians—station managers elected by their peers. They were not indifferent to measures of the organization’s health, but they valued system peace over anything else. The results didn’t matter as much for them.
This book is not my story. This is a story about how the charitable sector has lost its way. The NPR board, as it turns out, was far more in tune with the culture of the nonprofit world than I was. As a country, we direct enormous resources to and place substantial social responsibilities on the charitable sector, yet the vast majority of nonprofits can’t demonstrate any commensurate return on this investment. The glossy fundraising brochures, the moving videos, and the carefully crafted inspirational anecdotes often mask problems that range from inefficiency and ineffectiveness to outright fraud and waste. There is little credible evidence that many charitable organizations produce lasting social value. Study after study tells the opposite story: of organizations that fail to achieve meaningful impact yet press on with their strategies and services despite significant, at times overwhelming, evidence that they don’t work. These failures are often well known within the nonprofit community but are not more generally discussed because the studies either are buried or tend to be so organization—and issue—specific that broader sector-wide conclusions are easy to avoid.
It’s no joy to write these words, no fun to suggest that hundreds of thousands of people may be toiling in vain, but it is critical to ask how this can be, how the well-intentioned efforts of so many can result in so little concrete progress toward common social goals. The answer starts with the absence of market mechanisms that reward good work and punish failure. Those mechanisms are missing because the funders, the true customers of charitable organizations, are generally indifferent to results, for a number of reasons we shall explore. And even when donors do care, there is little available to guide them in their funding decisions. Few charities even try to measure their results in a meaningful way, and neither government regulators nor online charity monitors provide useful alternatives.
This could have been a bleak book. My early research was not promising. I found story after story of organizational and service failure, of charities that refused to evaluate their programs or, worse, swept unfavorable results under the rug. But over time, another story began to emerge, of a nascent movement to rethink how the charitable sector works, to build market mechanisms to reward effective charities and discourage the ineffective ones, and to create tools that will allow people to turn themselves from donors to investors. It is a small movement, operating in the millions at the edges of a trillion-dollar industry, but it’s a sign of what the charitable sector can become. This book begins with the story of charitable failure, a narrative of systematic shortcomings, but it ends with a glimpse of those who are beginning to reshape the charitable world and show us what it can be.