Estimated reading time: 14-16 minutes
As we begin to explore how to research and select charities for donations, it’s essential to understand what makes a charity effective. As mentioned in the introduction, the key question is: which organization will do the most good with our donations? In this chapter, we’ll dive into charitable effectiveness to address this question.
Having explored the history and structure of Canada’s charitable sector, we have seen some of the building blocks for assessing effectiveness. We’ve seen that charity in Canada initially focused on immediate suffering, but over time, the need to address root causes emerged. We examined how the rise of the welfare state in Canada and the colonial era’s impact on international aid have shaped the missions of key charitable organizations. We’ve also explored the evolution of charity funders – from religious groups to private donors to government support – which has driven a growing emphasis on performance measurement. Finally, we discussed the rise of regulation and oversight, which has shaped expectations for transparency and accountability.
Given the professionalization of the sector, is charitable effectiveness still a relevant concern? Isn’t all modern charitable work inherently worthwhile and deserving funding? The challenge of how to best allocate donations has existed for centuries. Aristotle, as early as ancient Greece, noted, “To give away money is an easy matter and in any man’s power. But to decide to whom to give it and how large and when, and for what purpose and how, is neither in every man’s power nor an easy matter.” He emphasized that giving money doesn’t guarantee a positive outcome – it requires intentionality, wisdom, and careful evaluation. This question persists today, echoed by Warren Buffett, who said, “Giving away money is easy. Giving away money well is fiendishly difficult.”
So, the short answer is, no, not all charitable work is worthwhile – some can even cause harm. We have already discussed one prime example, the residential school system in Canada, once seen as a noble charitable effort but later revealed to have caused immense damage. There are many instances of well-intentioned charity producing harmful unintended consequences. These include health initiatives that backfired, housing projects that harmed the environment, relief item distributions that disrupted local markets, and even aid which has unintentionally supported corrupt governments and armed groups. One example is the Bangladesh arsenic water crisis (1970s-1990s), where a UNICEF and World Bank project to provide clean drinking water through underground wells inadvertently poisoned the population with arsenic[1]. This disaster, caused by negligence, became the “worst mass poisoning” in history, with 43,000 deaths annually.
Even when it’s clear that a charitable activity creates more good than harm – though this is often a difficult judgment – there remains a wide spectrum between marginally impactful and highly impactful initiatives. Given the limited overall funding in the charitable sector, which pales in comparison to the scale of needs, this funding should be directed toward the causes with the greatest impact.
To organize this topic, I’ll break it down into two key components: 1) effectiveness – how much good is being accomplished, and 2) efficiency – whether the work is being done with minimal waste.
Effectiveness
To assess how much good a charitable organization is accomplishing, I focus on two components: first, the impact of the overall mission, and second, whether the organization is achieving that mission.
Impact of the mission
Assessing the potential impact of a charity’s mission first requires a definition of what “impact” means. Several factors contribute to understanding impact: the depth of the impact, the scale of the response, and the long-term effect of the solution.
Depth refers to the extent of good provided by the charity’s activities. For example, consider a local food bank and an international food charity working in conflict areas. While both alleviate hunger, the international charity has a deeper impact since, in conflict zones, food can be a matter of life and death, whereas food bank users typically have other options available. Scale refers to the breadth of the impact. A local food bank might serve a few hundred people, while an international charity could reach millions. Long-term effect considers how a charity’s work creates lasting change. Neither the food bank nor the international food aid addresses the root causes of food insecurity, and both could contribute to aid dependency, making them relatively weak in terms of long-term impact.
This example is relatively simple, as both organization’s missions involve feeding the hungry. However, comparing different types of charitable work is more complex. How do we compare the impact of a food bank to organization preventing Ebola, or an orphanage, or an organization addressing climate change? This requires comparing two “good” activities, raising the question: how do we determine which creates the most good?
This is a philosophical question. Immanuel Kant’s deontologists would argue that actions are good if done out of a sense of duty and adhere to moral laws – so then should we judge charities just based on their intentions? Aristotle’s virtue ethics would focus on the character traits behind the actions, like kindness and generosity – so then should we judge charities by the character of their people and organizations? The Divine Command Theorists, stemming from thinkers like Thomas Aquinas, would say that actions are good if they align with God’s will – so then should we judge charities based on their adherence to God’s will? Bentham and Mill’s utilitarianism holds that actions are good if they maximize happiness or well-being – so then should we try to assess this, and is it measurable?
This is just a sample of various moral theories that could be applied, and each of us may have our own idea of which is correct, informed by our personal values. This sets the stage for the next chapters, where we’ll explore how choosing charitable organizations for donations is a deeply personal decision.
Relating to these moral theories, one contemporary movement in the charitable sector that has gained significant attention is effective altruism. You may have heard of it due to its association with Sam Bankman-Fried, the convicted fraudster and founder of cryptocurrency exchange FTX. Effective altruism draws from a utilitarian approach, believing that happiness and well-being can, in fact, be quantified. This movement originated at Oxford University in the late 2000s, and was influenced by Peter Singer’s 1972 essay Famine, Affluence, and Morality. This essay argued that suffering and death are bad, and that people have a moral obligation to prevent them if they can do so without comparable harm to themselves. Singer contended that people in affluent societies could save lives and reduce suffering by donating some of their income to famine relief.
Building on this, effective altruism aims to maximize the “good” of donations by reducing suffering and increasing well-being. It applies a rational approach to quantify these outcomes, using evidence-based methods and complex formulas, and then ranks charities based on effectiveness and efficiency. We will revisit this approach in the coming chapters when discussing charity selection and rankings.
A key element to this question of what constitutes the “most good’ is the third factor we noted above – long-term impact. Consider two charitable interventions in a post-earthquake scenario: emergency search and rescue, and a training program for the construction industry. The search and rescue effort has high depth of impact but low long-term impact, as it addresses immediate needs without tackling the root causes of vulnerability, such as poor building codes. The training program, while not meeting immediate needs, has low depth in the short term. However, in the long term, it has a high impact by addressing the poor construction practices that contribute to building collapses.
When considering long-term impact, we must also factor in aid dependency, which is one of the most significant criticisms of charitable work. Dependency occurs when groups become reliant on external assistance over extended periods. This can weaken local systems, reduce self-sufficiency, create cycles of vulnerability, and disrupt local markets. Aid dependency can occur at the community or even national level. To avoid this, charities must design interventions that promote self-sufficiency and plan for a gradual transition to sustainable, long-term solutions.
There are many past examples of aid dependency, particularly when examining the role of Official Development Assistance (ODA) in certain countries’ economies. For instance, Afghanistan’s reliance on foreign aid is evident when we look at ODA as a percentage of its Gross National Income (GNI). Data from the World Bank over the past 25 years shows that Afghanistan consistently received over 20% of its GNI from ODA, with the peak reaching 46% in 2009[2].
Many Sub-Saharan African countries also exhibit high levels of aid dependence. For example, Burundi has had an average of 23% ODA/GNI over the past 25 years, while the Central African Republic has averaged 16%, Liberia 26%, Mozambique 16%, and Sierra Leone 13%. Additionally, the Pacific Islands region shows similar dependence, with countries like Micronesia receiving 35% ODA/GNI over the past 25 years, the Marshall Islands 32%, and Nauru 33%[3]. These figures illustrate the extent to which certain nations rely on foreign aid for economic stability.
Domestically in Canada, aid dependency is also a concern. Food banks, for example, have faced criticism for becoming a long-term solution to food insecurity instead of addressing the root causes of poverty and hunger[4]. Similarly, some Indigenous communities in remote areas are dependent on government support for essential services such as clean drinking water and housing, rather than managing these services independently[5].
So, returning to our three key factors of depth, scale, and long-term impact, it is crucial to give special focus to long-term impact due to the issue of aid dependency. Poorly planned aid may seem beneficial in the short term but can have significant negative consequences in the long run. Unfortunately, due to the fleeting nature of media cycles that shape our attention, most donors tend to have short-term mindsets.
Measuring if charities are achieving their mission
After evaluating the potential impact of a charitable organization’s mission, we can next assess whether the organization is effectively achieving that mission. While a charity may present a noble mission statement on its website, we cannot simply trust that this is being fulfilled.
As outsiders looking in, to assess a charity’s performance, we must first understand how the organization measures its own effectiveness. Many charities do this through ‘results-driven’ approaches, tracking short-term, tangible achievements. For example, a homeless shelter might measure how many beds are provided each month. Ideally, the organization also understands how these short-term results lead to long-term outcomes, such as improved well-being, health, and stability for the homeless. These connections are often mapped out in a theory of change, which outlines how a program’s goals, outcomes, and activities will lead to the desired long-term benefits.
These ideas follow the teachings of Peter Drucker, the father of modern management, who emphasized that organizations should focus on outcomes, not just effort or output. Drucker famously said, “If you can’t measure it, you can’t manage it,” highlighting that without evidence, it’s impossible to know whether a program is having any real impact.
While more professional charitable organizations often have a solid grasp of these concepts, less professional ones struggle with measuring their impact. They may fall into the trap of focusing only on short-term results without understanding the long-term outcomes those results lead to. They may also publish only their positive results, hiding the negative ones and complicating donor evaluation.
As we begin evaluating charities in the coming weeks, we will focus on researching the published results of these organizations. We’ll examine various information sources, such as annual reports, which can be biased toward highlighting only positive results, and third-party impact evaluations, which offer a more objective assessment of performance. Ultimately, our goal will be to identify organizations that genuinely understand and honestly report on their results.
Efficiency
Next, let’s examine the concept of charity efficiency, which refers to the level of waste involved in achieving its mission. This concept has gained considerable attention, particularly in the context of the US political climate and the Department of Government Efficiency (DOGE) initiative. A key focus of DOGE has recently been foreign aid, where efforts to reduce waste have been significant, and in many cases, they have clearly gone too far, cutting more than just waste. Public support for this cause remains robust, highlighting people’s dissatisfaction with the inefficiencies in this sector.
Within a charitable organization, waste can take the form of money, time, assets, or human resources. One common way to identify waste is by examining administrative overheads, which represent funds which do not go directly to the programs but to support costs (staff salaries, office costs, IT costs, travel, etc.).
Overheads often receive significant attention when evaluating charities, but they are frequently misunderstood. Rather than being viewed in isolation, they should be assessed in terms of how well these support functions contribute to the charity’s ability to achieve its mission. Dan Pallotta, entrepreneur and author of Uncharitable, has a great TED talk on this called The way we think about charity is dead wrong. In this talk, he explains that overheads are not inherently wasteful and that high overheads can serve the best interests of a charity, as long as they are investments in the organization’s future.”
Dan provides an example of two charitable fundraising organizations: one is a bake sale with minimal overhead and the other is a professional fundraising enterprise with 40% overheads. The bake sale generates only a few dollars for the cause, while the professional fundraising enterprise raises tens of millions, thanks to its substantial investment in fundraising. Despite the high overheads, the large organization achieves a high return on investment, leading to much more charitable impact. Given this, most donors would likely prefer to support the larger enterprise, even with its high overheads. And the people being supported by the charity are unlikely to care about the organization’s overhead – they care only about the service. Achieving scale requires investment.
This example illustrates that the real concern isn’t overheads, but the impact of those investments. A more effective way to assess efficiency is by evaluating impact per dollar spent, including both administrative and program costs. For instance, if the goal is to build houses, we should measure how many houses are built per total dollar spent on the project. The allocation of costs within the project is secondary.
The impact per dollar method enables us to track efficiency over time and easily compare similar charities. For example, if Organization A provides 100 meals to the homeless for $500, the impact per dollar is 0.2 meals per dollar. If Organization B provides 100 meals for $400, they can provide 0.25 meals per dollar, indicating a more efficient response. Without this overall calculation, comparing the overheads and program costs of these two organizations would be challenging, as they likely have different accounting procedures.
If you’re interested more in these topics, you can read the work of Mark Blumberg, Toronto lawyer and editor of https://www.canadiancharitylaw.ca/. He has a great article on overheads where he notes many flaws with how Canadian charities report overheads.
A key subset of overhead that often draws attention is staff salaries, especially those of top executives. Many donors criticize high CEO salaries, believing they have no place in the charitable sector. I once thought the same – why should a charity’s leaders be profiting so much? But the real question is whether their salaries generate a strong return on investment. Going back to the bake sale example, consider if a $1 million CEO was put in charge of that bake sale operation and they bring $10 million in donations – that’s a smart investment which will expand the impact of that organization’s work. Now, if the $1 million CEO generated very negligible results, then it could surely be considered waste.
Dan Pallotta also addresses this issue, noting that nonprofit CEOs earn less than a quarter of what their private-sector counterparts make, which makes it difficult to attract top talent to the charitable sector. This lack of competitive compensation weakens a charity’s ability to expand its impact. Additionally, low salaries contribute to burnout, creating costly cycles of rehiring and retraining staff.
Pallotta also challenges the double standard of why we accept corporate leaders making millions – often in harmful industries like tobacco – while balking at high salaries for charity CEOs. My theory is that this bias stems from Canada’s charitable roots in religious ideals of self-sacrifice and volunteerism, which has created the expectation that those working in this field should do so for little or no compensation. However, as the sector has evolved and professionalized, its human resources practices must adapt as well.
One thing that can be agreed upon, regardless of how effectiveness and efficiency are evaluated, is that transparency and accountability are crucial for donors to have the necessary data to assess these factors. We cannot make any meaningful evaluations if charities are not publishing their results and financial statements. Unfortunately, as we examine the available data in the following chapters, it seems likely that we will uncover this as a significant issue.
[1] https://edition.cnn.com/2024/03/21/climate/arsenic-contaminated-water-bangladesh-climate-intl/index.html
[2] https://data.worldbank.org/indicator/DT.ODA.ODAT.GN.ZS?locations=AF
[3] https://databank.worldbank.org/source/world-development-indicators/Series/DT.ODA.ODAT.GN.ZS
[4] https://socialwork.ubc.ca/news/hey-minister-its-time-to-end-our-disgraceful-food-bank-dependency/
[5] https://journals.sagepub.com/doi/10.1177/2158244019879137