Ever taken a good look at Charity Navigator?

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(Note: This post was originally authored by Holden Karnofsky, co-founder of Givewell. For a more up-to-date discussion check out the blog post "Transforming into a More Mission-Driven Charity with the Help of Technology" at TechSoup. -KL)

75% of the giving in the U.S. is given by individual donors, not to or through foundations. You think looking through 150 proposals is tough - how are they supposed to figure out which of 1.5 million well-meaning organizations to fund? Currently, the "leading" online resource for helping them figure this out is Charity Navigator ... and that is nothing short of a tragedy, for them and the people they're trying to help.

To its credit, Charity Navigator is completely transparent with its methodology, which you can read about in all its detail right here. Unfortunately, this methodology is completely useless in separating the good from the better.

The cornerstone of the rating is the program expenses divided by total expenses, or "how much of your dollar 'really' goes to the charitable purpose." This may be useful in weeding out the charities that are literally trying to scam you, but it is a backwards way to figuring out who actually helps people as effectively as possible. Great businesses have great people (who need high salaries); great infrastructure (including technology); and constant self-evaluation. All of these are "overhead." Nobody tries to minimize overhead in business - they just try to get things done as well as possible, and that usually involves a lot of "overhead" because the quality of your plan is so much more important than the size of your budget. The emphasis on "low overhead" in charity means that charities are trying to do one of the most difficult things in the world - helping people - while skimping on salaries, technology, and evaluation. We've seen the results first hand, and we believe the needy deserve better.

The rest of Charity Navigator's criteria are even more nonsensical. Charities are rewarded for having growing revenues (i.e., good fundraisers) and growing expenses (so apparently finishing a project or reducing costs is a bad thing). They're rewarded for accumulating large amounts of assets rather than spending (makes sense sometimes, no sense other times - not a reasonable rule). Maybe the "fundraising efficiency" metric would have some meaning if ability to raise funds were at all connected to ability to help people ... but that's just the problem. It isn't, as long as donors have no sources of real information.

The Gates Foundation, and other major grantmakers and megadonors, wouldn't rely on this stuff in a million years. They have their own staffs; they question charities thoroughly; they evaluate them by doing difficult studies; in short, they gather information on what charities actually do and whether it actually works. This takes money and time, and a heck of a lot more than a glance at the IRS Form 990.

What's too bad is that these grantmakers don't and won't share any of what they find. So they're doing the useful research and hiding it in a safe; meanwhile, 75% of the pie has absolutely nothing to go on except for ratings that barely narrow the field and border on farcical. That's why I think it's about time for the world's most transparent grantmaker, and that's why I'm devoting myself to GiveWell. Please question us; please criticize us; please don't dismiss us as a Charity Navigator knockoff.