A few months ago the three leading sources of information about charities issued a joint letter to “Donors of America” titled “The Overhead Myth.”
“We ask you to pay attention to other factors of nonprofit performance: transparency, governance, leadership, and results,” stated the CEOs of BBB Wise Giving Alliance (overheadmyth.give.org), Guidestar (overheadmyth.guidestar.org) and Charity Navigator (charitynavigator.org/thebestandworstwaytopickacharity).
The letter cites numerous studies that indicate not only that overhead is a poor measure of a charity’s performance, but that “underinvesting in overhead creates a range of negative outcomes which undermine quality and sustainability.” Noting that overhead costs include important investments charities make to improve their work: training, planning, evaluation, and internal systems as well as fund raising, the letter references what the Stanford Social Innovation Review has called, The Nonprofit Starvation Cycle.
One of the most dynamic spokespeople for the nonprofit sector, Dan Pollatta, author of Uncharitable, spoke to United Way professionals in May at the Staff Leaders Conference. A shortened version of his message is available on youtube as a TED talk (http://youtu.be/bfAzi6D5FpM).
The most compelling piece of Pollatta’s message, to me, is framed by his question, “Does the nonprofit sector have a serious role in changing the world?” His answer: business will leave behind the most disadvantaged and unlucky, and will not develop those markets for which there is no monetary measure. “The disabled need laughter, compassion and love in their lives. Where is the market for that? Philanthropy is the market for love.”
Yet, in the past 40 years in the US, poverty has remained at 12 percent of the population and nonprofits have remained at two percent of gross domestic product, with just 20 percent of nonprofit resources focused on health and human services. How can a sector without the tools to grow possibly gain the scale necessary to create real change?