Wednesday, June 26, 2013

The Overhead Myth

During the years I’ve served at Wheat Ridge Ministries, I’ve grown increasingly concerned by the expectations that the leaders of non-profit organizations, including those whose new ministry efforts have been seeded by Wheat Ridge, face related to the allocation of organizational costs.  Indeed, Wheat Ridge faces these same pressures.  Unlike the for-profit sector, where investment in growth and development is expected, there has been increasing assumption over the years by the general public that non-profits should be able to be effective and able to grow their impact without that same investment.  In fact, expenses related to sound administration, communicating mission and impact to donors, as well as other services that do not directly impact those served by the organization have been given a very uncomplimentary name – overhead. 
As a result, many of the organizations we serve are tempted to arrive at creative definitions of what constitutes “program services” in order to show evidence of low overhead.  Many of these organizations get stuck in a cycle of ineffectiveness stemming from a fear that investing in the kind of capacity needed to be effective in today’s world – technology, development staff, financial planning, fund raising, impact evaluation, staff development – will reflect negatively on them and cause their donors to question their support.  Instead of investing in the talent needed to increase their impact, these organizations are often understaffed.  Their leaders experience burnout and ineffectiveness as too few people try to accomplish more than is possible.  While such investments are celebrated in the for-profit sector, in the eyes of many, non-profit organizations are accused of being wasteful when they invest in growth.
Given all of this, I was overjoyed last week to read a joint letter to the “Donors of America” published by the Presidents and CEOs of the three the major and most respected non-profit “watch dog” organizations – Charity Navigator, Guidestar and the Better Business Bureau Wise Giving Alliance – under the banner of “The Overhead Myth.”  In it, these CEOs warn donors about the damage that is being done to the effectiveness of many non-profit organizations by placing concerns about overhead ahead of interest in impact.  In this letter, they reference a phrase used by the Stanford Social Innovations Review to describe the results of such misguided thinking: “The non-profit starvation cycle.”  I encourage you to check out to learn more about this important issue.
What I’ve seen during my years at Wheat Ridge are organizations and their leaders doing heroic and miraculous work given the resources they have available as they make a difference in the lives of people.  The press certainly loves to highlight the exceptions, but they are few and far between.  Most organizations are extremely grateful for the support they receive from donors and they do all they can possibly do to use contributions wisely and efficiently.  Ironically, by having to be so concerned about perceptions about what is an appropriate use of charitable contributions, many of these organizations are distracted from important activities such as measuring their impact and communicating their impact to donors.  This can create another vicious cycle since evidence of impact is something in which donors should be keenly interested.
If you’d like to dig into this important issue, another great resource is the book Uncharitable: How Restraints on Nonprofits Undermine Their Potential, written by Dan Pallotta.  Dan is also featured in a great TED video of his presentation called “The Way We Think About Charity is Dead Wrong.” 
I want to express my appreciation and respect for the understanding of this important issue demonstrated by our Wheat Ridge Ministries Board of Directors.  Our board recently endorsed a significant strategic growth plan that recognizes and provides for investment in capacity that is necessary as we work to increase our impact and effectiveness.  Our staff and board want to build on our impact as a seeder of new health and human care ministries by increasing the resources we are able to share with churches and other Christ-centered organizations.  I’m confident that the growth and development investment we are making in all aspects of our operations will make us more impactful and more sustainable in pursuit of our mission.
The church and the entire non-profit human services community face ever-increasing and ever-changing challenges and opportunities as the need for care for the poor and underserved increases and available funding, especially government funding at the federal, state and local levels, is unable to keep pace.  Thank you for making a difference through your generosity, engagement and trust in the charities of your choice and, of course, for your generous support for the seeding of new ministries of health and hope through Wheat Ridge Ministries.  We are greatly blessed to serve with you and on your behalf so that more lives are touched by the healing hands of Christ!

1 comment:

  1. Thanks for this thoughtful post, Rick. I've been hearing a lot about Dan Pallotta's TED Talk and analysis / advocacy. Definitely interesting!