(Overhead) Myth-Busting, Non-Profit Style

Saturday, July 13, 2013 (All day)

Overhead in business is simply a given. But in the nonprofit world?  It’s simply a dirty word.

Last week, three of the country’s leading charity watchdog groups launched a campaign that calls on donors – private individuals, as well as foundations, corporations, and government – to look beyond the overhead-to-service ratio to a more varied menu of factors when deciding where to give.

I wholeheartedly agree that it’s time to bust this myth about charity overhead. There’s a massive fiction alive in the land, a fairy tell that says nonprofit costs should be held tight as a Victorian corset – or else something fishy is going on. Problem is, organizations that are unrealistically lean have zero financial breathing room. Eventually they wither and die.  Conscious that our mere existence means we’ve promised the people we serve that we will always be there, my board of directors requires me as CEO to maintain a constant six-month operating cushion.  I can’t keep that cushion – and the implicit promise of uninterrupted service – without building in sufficient overhead to make sure it’s there.

And that’s what’s so wrong-headed about our obsession with direct service percentages as the ultimate bottom line. Impact is what we also need to look at. Effectiveness. Sustainability. Taking on our nation’s most intractable ills, tending to our poor and our sick, enriching our lives with art and music – the sheer magnitude of what we expect from the nonprofit sector cannot be addressed by armies of self-sacrificing volunteers working out of garages and warehouses in their spare time.

Overhead for a nonprofit, then, is about hiring leaders with the skill and vision to build something lasting, sustainable and that delivers on mission. It’s about growing organizations that value and can invest in the professional development of their employees. It’s about directing capital to vital infrastructure like technology, accounting systems, fundraising processes, office space and skills training.

Governments routinely expect charities they fund to operate and deliver public services at an overhead margin of around five percent or less of total operating costs. Donors may be wooed by organizations that claim close to 100 percent of their funding goes to direct service. But this is an illusion, because someone is underwriting administrative costs somewhere along the line.

While I agree that we must evaluate a nonprofit’s performance according to more than this one simple ratio, neither do I condone bloated salaries and unchecked spending. I don’t believe that nonprofit groups should behave just like corporations, as some have advocated in our sector. Commercial corporations have no “public benefit” accountability. They can line our arteries with saturated fat, hawk cancer with cigarettes or risk fouling underground water sources by fracking for oil, all with unlimited overhead, premium salaries, and nary a nod to the public good.  Nonprofits pledge themselves to a higher societal standard. And higher standards, I’m here to report, always cost money to uphold. 

It’s this work of nonprofit organizations that is at the heart of strong, caring communities. There’s a reason that Europeans refer to what we call the nonprofit sector as “civil society.”  It is by embracing civility – a concern for our common destiny – that we ensure a poor, pregnant mother will find a community clinic, receive the services she needs from a good doctor and deliver a healthy baby. That a worker tossed from a job in a down economy will find employment placement and referral services. Or that a child whose parents both need to hold down jobs will avoid trouble on the streets by having a safe, friendly after-school program to attend at a local youth club or Y. Nonprofits also organize us when a bad law needs changing or a good law needs passing, and focus fickle public attention on vexing problems like air and water pollution, the dangers of climate change, and the special interests contributing to political campaigns.

We as a society must begin to think of giving to nonprofits not as donation or handout or alms. Instead, we must think in terms of investment, a stake in the resilience and regenerative capacity of our communities. As affirmation of core civic values, like a concern for the greater good, reciprocity, and caring for people in need. If we continue asking nonprofits to scrape along anemically, underfunded and undervalued, we imperil the very democracy to which we teach our children to pledge their allegiance. 


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