Slaying the Dragon of Charity Overhead

 

 

It’s a double standard for making and losing money

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Here’s the question every charity dreads: “How much of my donation goes to your overhead?” And the answer should be: "Not enough."

 

There’s a welcome discussion going on in the industry about the 'overhead myth' and while I’ve grumbled about it for years, a shout out to activists (like Dan Pallotta and his 'equal rights for charities' manifesto), who are challenging funders about where the money goes.

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Nonprofits aren’t allowed to pay salaries that attract smart, motivated talent because incentivizing folks to work for social justice is deemed reprehensible. So talent flocks to better paying sectors, like finance and law, because the clear message is you can either make money or you can 'do good'. But doing development work shouldn’t be an act of self-flagellation. Pallotta calls this 'morality versus frugality' and social justice gets the very short end of the stick every time.

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Charity scorecards, such as those by Charity Navigator, are particularly egregious and same too those nonprofits flashing their score like a pitiful badge of honour. Those rankings fuel the economic apartheid that permits for-profits gazillions in overhead (bank executives’ annual bonuses come to mind), but forces nonprofits to share one coffee cup among staff, lest they be considered corrupt wastrels.

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Sure, some nonprofit claims that 97 or 100 percent of your donor dollar goes 'directly' to the 'needy', but then has to go begging for funding elsewhere to cover its administration. This particular charity makes it difficult, if not impossible, for everyone else. Who wouldn’t like those kinds of numbers to trot out to donors? But that’s sprinkling magical fairy dust over the books and it’s wrong.

 

Charity Navigator and others have since made a sheepish U-turn announcing that measuring overhead against performance is 'imprecise and inaccurate', but the damage is done. Donors want 'cancer cured' with a $5,000 donation and nonprofits scramble to justify every penny of a $300 donation because another donor wants to see a budget for it.

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So the benighted double standard persists. I write budgets capped at seven percent overhead (and with most funders, don’t bother submitting if you’re hitting 15 percent). Apple announced in its 2008 fourth quarter report expenses of 78% (i.e. administrative, general and sales). They’re allowed to advertise and to scale their mission. Nonprofits cannot because that’s 'wasting' donors’ 'valuable resources'. But I keep hearing one of my first boss’s mantras: “You gotta spend the money to get the money.” 

 

That means charities shouldn’t be castigated for the spend on fundraising, decent salaries, financial audits, evaluations, organizational learning and just keeping the lights on. The meek aren’t inheriting the earth anytime soon because all the scale goes to McDonald’s and Johnnie Walker.

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That charities need to be held to high standards isn’t the argument. But charities need to be evaluated on what they can deliver—their results—not just their expenses getting there. Do they have great leaders and a bold, creative approach?

 

Let’s stop nitpicking nonprofits’ administrative costs because it cannot continue that their reputation and performance hinges on the equivalent thinking of whether they use two-ply or one-ply toilet paper.

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Photo: Fairies by Coffee / pixabay.com

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This article originally appeared in Word Vietnam magazine and has been adapted.