Charity Intelligence released its Top 10 List of Impactful Charities in November 2019, following Maclean’s list the month prior of 100 Best Charities in Canada. The latter sparked criticism amongst social impact sector leaders who vocalized their concern with the ranking criteria. 

These lists, produced annually by publications like The Globe and Mail, The Nonprofit Times, Moneysense, and Givewelln generate a fair bit of buzz. In addition, websites like Charity Navigator and GuideStar rate charities and have been criticized for placing too much emphasis on financial reporting. 

“The idea of our best charities being measured by how little they’re spending is a concerning trend,” says Sona Khosla, the vice president of marketing at Benevity, a software company that helps corporations incorporate technology in their charitable giving. 

Khosla says donors are looking to have an impact, which is often not associated with low overhead. Although Dan Pallota’s TED talk on this false association (that the less a charity spends, the better) has garnered millions of views, public opinion on charity overhead largely remains unchanged, with donors still concerned about administrative costs. 

According to Khosla, charities are partly responsible for this. “[They] have perpetuated their own myths. Some non-profits used to say, ‘100 percent of what you’re donating goes to the cause.’” 

On the other hand, some rating organizations want to ensure money is being spent on administrative costs. Charity Intelligence Canada, which analyzes and rates charities and whose data informed the Maclean’s ranking, ensures charity overhead is not “too low”, according to managing director Kate Behan. 

“I have a call today with a charity that received [a low rating] because its overhead was too low. They didn’t report any overhead, so it made me think: are their financial statements reliable? When we see overhead costs too low or too high, it’s a red flag,” she says, adding that if overhead is outside the 5% to 35% range, it arouses suspicion. 

Behan says the average reader isn’t likely to dig deep into the ratings criteria. They would not know, for example, whether a published list of top charities is based on annual filings or audited financial statements, which she refers to as the ‘gold standard’. 

“Maclean’s looks at financial transparency, salaries, and overhead costs in a reasonable range. It’s a much more holistic metric,” she says. “When you look at these lists you need to understand what they include and don’t include.” Behan is disappointed that Maclean’s excludes post-secondary institutions from their rankings, despite accounting for nearly 20% of charitable giving along with research organizations, according to the Canadian Centre for Philanthropy. 

Khosla agrees. “Not enough people really understand the challenges of the sector to determine whether the criteria used to rank them is good or not.” She points out that, while ratings bring better awareness of the sector, they don’t bring better decision making. 

“I think there is no perfect rating system, [but] people need a place to start,” Khosla says. In addition to individuals relying on this data to inform their giving, she says corporations also use charity rankings. “They’re using a combination of Charity Navigator or GuideStar data, and are often applying their own lens too.”

The question remains: are charity ratings doing more harm than good? According to Charity Intelligence Canada, the answer is yes, to some extent. The organization conducted a self-reported survey showing that 4% of website visitors learned information that influenced them against donating to a non-profit. 

However, the survey also showed that after seeing the data, 77% of people were confident in donating more money. According to a 2017 study by the Angus Reid Institute, 30% of Canadians would give more money to charity if they had increased confidence in the charitable sector. Behan says Charity Intelligence Canada collects data and rates charities with this in mind — hoping that providing this information will “release” additional donations.

She also says the question of harm is “based on the premise that all charities are equal,” which she does not believe to be true, referring to charities that are mismanaged or illegitimate. 

Canadian charity Beth Oloth, for example, which had over $60 million in donations in 2017 alone, was ranked zero out of a possible four stars by Charity Intelligence based on poor financial transparency and a low demonstrated impact. In early 2019, the government revoked its charitable status, citing a failure to issue proper tax receipts and engaging in non-charitable activities such as supporting the Israeli armed forces.

While charities often speak about having an impact, Behan says many of them do not have the data to support these claims. “Charities always say they want their impact measured, but that’s not our experience with them. We go back and forth with them and a lot of charities say we don’t collect that [impact] information.” 

Behan explains that some charities collect surface level data on the number of clients they serve, but lack deeper information to measure how exactly they helped their clients. 

Charity Intelligence is researching how to measure social impact, which Behan says “is like rocket science”, and comprises the largest part of the organization’s research budget. 

While Charity Intelligence data shows that charity ratings have a negative impact on donations, Behan says this can be outweighed by the positive impact which happens when independent rankings give donors the confidence they need to give more — which in the end, is what they’re aiming for. 

Overall, it is difficult to compare and rank charities when the sector struggles to measure its own impact, with little to no standardized systems in place. And while rankings may generally keep charities accountable and help donors identify the organizations with the greatest impact, it is by no means an exact science.

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