Last month, GuideStar, a usually staid organization whose website serves as a repository for electronic copies of tax and other documents prepared by the nation’s 2 million nonprofits, found itself in the midst of controversy. The reason: its decision to flag organizations classified as “hate groups” by the Southern Poverty Law Center, an Atlanta nonprofit that has been monitoring such groups since the 1970s.
Following protests from conservative organizations, nationwide news coverage, and threats against its staff, GuideStar eventually changed its mind and took down the SPLC labels.
“This has been quite a learning experience,” Jacob Harold, GuideStar’s president, wrote in a Chronicle of Philanthropy column. But what exactly is the lesson?
The most obvious one is that defining what is — or is not — a “hate group” can be contentious. But perhaps the more lasting impact will be the questions this episode raises about the approaches used by groups that provide information to help donors decide where best to steer their money.
The Southern Poverty Law Center has long been criticized for adopting an overly broad definition of “hate group” and singling out more right-of-center organizations than left-leaning ones.
“As of today, journalists investigating domestic extremism have few alternatives to the SPLC when seeking information about the size and shape of extremist movements in the United States,” J.M. Berger, a fellow at the International Centre for Counter-Terrorism in The Hague, wrote in Foreign Policy in 2013. “Reporters have to work with the information they can obtain,” he cautiously added, “but they should read — and carefully explain — the fine print.”
While noting that the SPLC has critics, GuideStar published only the group’s designations, not the “fine print.” It has now acknowledged this was a mistake.
“We are launching a process to explore how we might more effectively highlight those rare cases when individuals abuse nonprofit status to advance an agenda of hate,” Mr. Harold noted in The Chronicle. But outside of easy-to-pin-down groups like the Ku Klux Klan, it’s questionable whether agreement can be reached on what constitutes an “agenda of hate.”
An American Way of Accountability
The GuideStar controversy offers another lesson that is of broader importance for the nonprofit world: Organizations seeking to help donors evaluate the nation’s charities need to be monitored themselves.
Spurred by well-publicized scandals, media exposés, congressional hearings, and other kinds of revelations, such monitoring organizations have multiplied in recent years, although none are as comprehensive in their coverage as GuideStar.
Some, such as the Better Business Bureau’s Wise Giving Alliance, CharityWatch, and Charity Navigator, primarily focus on financial and governance standards. Others, such as Give Well, chiefly examine how effectively groups achieve their goals.
Several, such as the Evangelical Council for Financial Accountability, scrutinize only particular types of charities. In addition, associations of donors and fundraisers, such as the Council on Foundations and the Association of Fundraising Professionals, have promoted codes of conduct for their members.
These efforts reflect a particularly American view about who should hold nonprofits accountable. In other countries, government agencies usually provide oversight, exercising considerable authority over how charities operate and are funded or establishing “compacts” that specify permissible behavior. In the United States, while both federal and state governments have power to regulate nonprofits, constitutional protections of speech, religion, and assembly have generally compelled them to wield that power cautiously.
It’s not just the Constitution that has limited regulation, but also Americans’ deeply rooted belief in the value of voluntary efforts in civic life. As a result, when problems surface, the usual response is to call for greater self-regulation (or higher ethical standards), not new laws or stricter sanctions. The proliferation of monitoring groups and codes of conduct is a result of the American tradition of limiting government control of nonprofits.
Yet, to monitor is to judge, and making judgments requires criteria. For the most part, GuideStar has been more of a digital clearinghouse of information than a monitoring agency. But by adding SPLC’s assessments to its website, it went beyond what has been called its “just the facts” approach to include a judgment, based on a particular set of criteria. So do other monitoring agencies, and the standards they use, if less controversial than the SPLC’s, are by no means indisputable.
Take, for example, the often-used financial yardstick that an organization should ideally spend no more than 25 percent of its revenue on administrative costs. CharityWatch, for example, says it considers nonprofits to be “highly efficient” when they spend at least 75 percent of their revenue on programs and spend $25 or less to raise $100.
GuideStar itself, along with numerous scholars, has criticized this “overhead myth” for failing to take into account the wide variety of circumstances nonprofits face. For example, start-up groups may need to spend a larger share of their incomes on administration than well-established ones. In any case, since expenditures can be reported in a variety of ways, this standard may reveal more about bookkeeping practices than about financial probity.
Diversity vs. Single-Mindedness
Governance criteria provide another example. Three years ago, GuideStar decided to query charities about “essential board leadership practices” developed by BoardSource, including one suggesting nonprofits should be expected to have an “inclusive board member recruitment process that results in diversity of thought and leadership.”
Just what that might mean for a particular organization is impossible to say: Single-mindedness can sometimes be an asset, too. Moreover, since GuideStar relies on organizational self-reports, the responses it posts may not tell the real story. Still, despite the potential for considerable disagreement about it, this standard is widely used as a measure of board strength.
Assessing the effectiveness of charities can present even more challenges. Probably for that reason, few monitoring groups have tried to make such assessments. After years of work on a method to measure performance, Charity Navigator remains mired in what it calls a “multi-phase, multi-year project.”
Although it has been assigning ratings based on the results of charity-evaluation efforts for nearly a decade, GiveWell acknowledges that the costs and difficulties of measuring results limit the number of organizations it can review to a handful. Even so, if not for what they actually accomplish, then for what should charities be held accountable?
The answer will not be found by replacing self-regulation with more government oversight, which will face all the same problems, plus legal and political complications of its own. Rather, the real lesson of the GuideStar controversy is that the criteria used by monitoring agencies and organizations that promote codes of conduct by which to judge nonprofits should not be immune from criticism. Even the watchdogs need watching.
Leslie Lenkowsky is an Indiana University expert on philanthropy and public affairs and a regular contributor to these pages. He and Suzanne Garment, a visiting fellow at Indiana University, write frequently on philanthropy and public policy.