NONPROFIT OVERHEAD RATIOS - PART 3 - PROBLEM: FUNDER/DONOR EXPECTATIONS; WE ARE THE GREAT ENABLERS!
OVERHEAD RATIOS – PART III - DRIVEN TO A PREMATURE GRAVE BECAUSE OF INCESSANT, UNCEASING AND RELENTLESS ATTENTION TO NONPROFIT OVERHEAD RATIOS
Andrea McManus, ViTreo Group Inc
December 10th 2019
“One study revealed how 56% of Executive Directors reported plans to reduce their organization’s overhead expenses even though it meant jeopardizing their ability to achieve their charitable mission (Goggins 2009, 50).”
Just as the expectations of funders and donors lead to the nonprofit starvation cycle, talked about in last week’s blog in part 2 of our nonprofit overhead ratios series, we have a share in creating the incessant overhead ratio conversation. Nonprofits and fundraisers must take ownership of our participation in creating this problem. It’s a vicious cycle and the only way to end it is to get off.
When nonprofit leaders (i.e. Executive Directors, Boards) take the steps mentioned in the above quote, and others, in order to appease funders and donors, they become complicit in the decimation of the work we do. We become the enablers of the myths and misinformation.
The charitable sector needs to take a step back and rethink how it presents itself to funders/donors and other stakeholders. We need to look at how we communicate our mission, how we present the need and how we work with funders and donors. We do ourselves, and those we work hard to help, no good, in fact we do harm, by being complicit in this behaviour and the results generated by bowing to meet unrealistic expectations.
We need to take a stronger stance for our organizations, our staff and the beneficiaries of the work we do. We need to be truthful, factual and transparent and anything but apologetic.
We need to lead with boldness and courage and encourage our board, staff and volunteers to do the same.
From the Stanford Social Innovation Review article The Double Standard, a review of fundraiser, author and activist Dan Pallotta’s book Uncharitable, says this:
“Not only must nonprofits be allowed to use the tools of commerce to thrive and accomplish their missions, Pallotta argues, but the public also needs to get over its mistaken and tenacious fixation on fundraising costs and overhead ratios. He goes on to show how misleading, easily manipulated, and plainly irrelevant these ratios are, and suggests we instead ask 16 questions that would reveal ‘What has the organization achieved, and what can it achieve with my donation?’ Everyone who cares about nonprofit organizations and their potential accomplishments—from journalists to sophisticated donors to foundation officials—should read this section of the book. They’ll surely be convinced that fundraising ratios and program expense ratios are a silly, useless, and even fraudulent way to compare ‘efficiency’ across nonprofit organizations.”
- Stanford Social Innovation Review, The Double Standard, Renée Irving, Spring 2009
![“Too many nonprofits, [Dan Pallotta] says, are rewarded for how little they spend -- not for what they get done. Instead of equating frugality with morality, he asks us to start rewarding charities for their big goals and big accomplishments (even i…](https://images.squarespace-cdn.com/content/v1/560c190de4b0af26f727fe3d/1575926815195-RS95M7YZKB4X5FHJSR30/Dan+Pallota+book.jpg)
“Too many nonprofits, [Dan Pallotta] says, are rewarded for how little they spend -- not for what they get done. Instead of equating frugality with morality, he asks us to start rewarding charities for their big goals and big accomplishments (even if that comes with big expenses).”
- TED Talks, The Way We Think About Charity Is Dead Wrong, Dan Pallotta, March 2013
Renée Irvin is an associate professor of planning, public policy, and management at the University of Oregon. She also directs the university’s graduate certificate in nonprofit management program. Her research focuses on the economics of nonprofit and philanthropic organizations.
As Pallotta states, we must be allowed to use the tools for profit organizations use on a daily basis to succeed. Marketing, up-to-date infrastructure, sufficient staff, reasonable salaries, etc.
At TED2013, Pallota gave a talk which resonated with many and generated numerous emails and conversations; it also may have been a catalyst for a shift in thinking for three significant resources for nonprofit data….
“GuideStar, Charity Navigator and the Better Business Bureau Wise Giving Alliance — three leading resources for nonprofit data in the US — [announced] that they were ‘denouncing the ‘overhead ratio’ as a valid indicator of nonprofit performance.’
In an open letter to donors, the presidents and CEOs of these three organizations wrote: ‘We write to correct a misconception about what matters when deciding which charity to support. The percent of charity expenses that go to administrative and fundraising costs—commonly referred to as ‘overhead’—is a poor measure of a charity’s performance. We ask you to pay attention to other factors of nonprofit performance: transparency, governance, leadership, and results.’”
I would venture to say nonprofits are not being “transparent” in our reporting if we reduce or artificially reduce our operational costs to meet expectations; we are also not governing ourselves well if we don’t invest in decent infrastructure and if we allow working conditions to deteriorate to the point where our people leave. All of this trickles or pours down to mean a loss of help for the vulnerable. What kind of “leadership” is that?
And what kind of results are we achieving when we engage in this behaviour? Even though Guidestar, Charity Navigator and the BBB have gone public with a shift in their thinking, a sea change in our operational models is critical to shift the perceptions held by the public, funders, donors and other stakeholders.
In Underdeveloped, a A National Study of Challenges Facing Nonprofit Fundraising, A Joint Project of CompassPoint and the Evelyn and Walter Haas, Jr. Fund, the report says this:
“Defining a ‘Culture of Philanthropy’
What determines whether an organization has a culture that supports fundraising success?… Are its fundraising efforts ‘donor-centric’ and focused on building deep relationships over time, not just asking for money when it’s needed? In her recent book, Strategic Fund Development, Simone Joyaux, ACFRE, writes that organizations that can answer ‘yes’ to these questions have a ‘culture of philanthropy.’ She adds that when this type of culture is in place, ‘each volunteer and every employee feels it. Clients and donors recognize it whenever they connect with the organization.’ Because the term ‘culture of philanthropy’ is widely used by experts, but not yet well understood across the sector, we defined it in our survey as having these elements:
• Most people in the organization (across positions) act as ambassadors and engage in relationship building.
• Everyone promotes philanthropy and can articulate a case for giving. Fund development is viewed and valued as a mission-aligned program of the organization.
• Organizational systems are established to support donors…
All of these are widely accepted indicators that an organization is doing what’s needed, and yet our survey results indicate that many nonprofits haven’t created the conditions for fundraising success.”
The CompassPoint research goes on to provide a list of 10 crucial steps needed to create the change we seek, (I would highly recommend reading the report — it’s excellent) including:
Embrace Fund Development—A Mental Model Shift across the Sector
Because our mental models shape our views of the world, ourselves, our capabilities, and the tasks that we are asked to perform, leaders—at all levels—need to adopt a mental model that genuinely embraces and values fund development and philanthropy.Elevate the Field of Fundraising
Fundraising suffers from a bad reputation. As explained by Kim Klein, “Money is one of the great taboos in our culture. We are taught not to think about it or ask about it...With people so carefully taught that it is rude to talk about money, it’s certainly not an easy task to ask for it.”In a recent blog, ViTreo partner Scott Decksheimer talks about changing the narrative around fundraising and asks the question “Does Fundraising Need a Public Makeover?”
Invest Strategically in Grantee Fundraising Capacity
Funders typically inquire about sustainability as part of due diligence, but they don’t typically look deeply at an organization’s capacity to develop sustainable income. Drawing on the organizational factors highlighted in this report, funders could develop a more sophisticated “due-diligence” checklist to guide their evaluation of the leadership, governance and operational components of fundraising capacity. This would have the dual benefit of helping to identify strong and sustainable grantees while communicating to grant seekers what we think strong development capacity looks like.Leverage Technological Innovation — Embrace Creativity
In last week's The Provocateur, on the Overhead Ratio conversation, I talk about the “critical need for nonprofit investment is technological infrastructure. In the business world, current technology is a given (mostly). It’s difficult to run a business without it. Yet…we are expected to ‘make do’ and often ‘make do without.’ If it wasn’t so frustrating and the stakes weren’t so high, this worldview of our sector would be laughable. Instead, it brings many nonprofits to their knees…literally.”Set Realistic Goals for Development
All experts agree that goal- setting should be a collaborative effort inclusive of the development director from the start. Moreover, performance expectations defined in financial terms alone deny the reality of what it takes to get givers, not just gifts.Share Accountability for Fundraising Results
One of the tenets of a culture of philanthropy is deep and passionate engagement across the organization, which translates into shared accountability for the organization achieving its fundraising goals. Executive directors should consider setting clear expectations for staff other than the development director—identifying specific activities in which all can participate.
As with all aspects of organizational culture, executive directors have to commit deeply to inspiring and aligning their staffs and boards around a culture of philanthropy. This begins with their own beliefs and behaviors about cultivating and stewarding donors. It includes prioritizing and investing in fundraising capacity. It includes having a passion for asking for money for their organizations and movements. It includes ensuring a strong partnership with their development directors. And it includes partnering with their board chairs to engage the full board in ambassadorship and donor cultivation. It’s impossible to build a strong culture without an executive director; she or he has to be an instigator, a champion, and a role model to bring fundraising into the heart of the organization and keep it there.
Over and above everything else, it includes investing in people. Your people, your donors, your clients. Culture doesn’t thrive without people power. Innovation and change don’t happen without risks. And the work we all do in our communities doesn’t change anything if we are all scrabbling to make ends meet and not taking care of our people.
2020 is almost upon us. The new year can be a time of change, of doing things differently. Just as we are champions for vulnerable people, we must be our own champions. The stakes are high. If we cannot effectively carry out our work, who will?
As it’s the time year when nonprofit organizations work through their planning and their budgets, what are you going to do differently at your organization? How will you change your current model of donor engagement and stewardship, your activities as an Executive Director or a Board Member? It’s not a rhetorical question — we would love to hear from you!
Tune in again next week!
At its essence a culture of philanthropy is one that promotes philanthropy and has no need to apologize for fundraising. It is an understanding of and respect for the way that philanthropy serves to fulfill your mission. How does your nonprofit score on the top 10 indicators of a philanthropic culture? Take our quiz to learn more.
ABOUT THE AUTHOR
Andrea McManus, Chair, Board of Directors, Partner
ViTreo Group Inc
Andrea McManus is a Partner with ViTreo with over 30 years’ experience in fund development, marketing, sponsorship and nonprofit management. A highly strategic thinker and change maker, Andrea has worked with organizations that span the nonprofit sector with particular focus on building long-term and sustainable capacity.