Guest Post: The Overhead Solution

Back in June 2013, I wrote about the release of a letter by GuideStar, Charity Navigator, and BBB Wise Giving Alliance urging funders to discontinue the use of overhead ratios to measure the viability of non-profit organizations. They felt the number was an inaccurate assessment of  an organization’s effectiveness.

Since then, the subject of overhead ratio has appeared a number of times in my posts.

Recently, the GuideStar, Charity Navigator and BBB Wise Giving Alliance have released a second letter. This one is aimed at non-profits asking them to assist in the effort by educating their funders about the true costs of the programs and by providing alternative narratives about program effectiveness.

I was approached by GuideStar with a request to host a guest post on the subject. As this has been an area of interest for me, I was pleased to do so.

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A Message From GuideStar President/CEO Jacob Harold

In 2013, I joined with partners at the BBB Wise Giving Alliance and Charity Navigator in writing an open letter to the donors of America explaining that “overhead ratios” are a poor way to understand nonprofit performance. We named this campaign “The Overhead Myth.”

I’m glad to report that the response to the campaign, including the original Overhead Myth letter to the donors of America, far exceeded our expectations. More than one hundred articles have been written about the campaign. It comes up every time I hold a meeting or give a talk. For many in the field, it’s been a deep affirmation of something they’ve known a long time. And, indeed, many leading organizations– the Donors Forum, Bridgespan, the National Council on Nonprofits, and others — have been working on the issue for a long time.

But we also know we have a long road ahead of us. The myth of overhead as inherently “wasteful” spending is deeply ingrained in the culture and systems of the nonprofit sector, and it will take years of concerted effort for us to move past such a narrow view of nonprofit performance to something that fully reflects the complexity of the world around us. That effort is essential, however, if we want to ensure that we have a nonprofit sector capable of tackling the great challenges of our time.

That’s why last week the CEOs of Charity Navigator and the BBB Wise Giving Alliance and I released a second Overhead Myth letter—this one addressed to the nonprofits of America. In that letter, we suggest a set of steps nonprofits themselves can take to help dispel the Overhead Myth. We all share responsibility for allowing things to have reached this pass.  And it will take all of us to fix it.

We direct this letter to nonprofits not because we feel they are the originators of the Overhead Myth but because they are in the best position to communicate with their donors and funders. We want to recruit nonprofits to help us retrain donors and funders to pay attention to what really matters: results.  In the end, that means nonprofits have to throw away the pie charts showing overhead versus program—and step up to the much more important challenge of communicating how they track progress against their mission.

In simple terms, we must—collectively—offer donors an alternative. In the letter, and on the accompanying website, we call on nonprofits to do three things as their part of this evolution:

1. Demonstrate ethical practice and share data about their performance.
2. Manage toward results and understand their true costs.
3. Help educate funders (individuals, foundations, corporations, and government) on the real cost of results.

We have provided a list of tools and resources related to each of these goals. These tools give nonprofits tangible steps they can take to engage their stakeholders around this critical issue. As the sector develops new resources and tactics, we will add them to the website.

We believe it will take a shared effort to focus donors’ attention on what really matters: nonprofits’ efforts to make the world a better place. It doesn’t matter whether you work at a nonprofit or donate a few dollars to a favorite charity every year, please join us as we seek to move from the Overhead Myth to the Overhead Solution.

For more information, or if you have a resource related to this issue that can help advance the cause, please email overhead@guidestar.org.

 

— Jacob Harold is the president and CEO of GuideStar, is a 501(c)(3) nonprofit that connects people and organizations with information on the programs, finances, and impact of more than 1.8 million IRS-recognized nonprofits. GuideStar serves a wide audience inside and outside the nonprofit sector, including individual donors, nonprofit leaders, grantmakers, government officials, academic researchers, and the media.

This letter original appeared on PhilanTopic blog and is shared with their permission.[divider]