Five prominent foundations recently pledged to support more overhead expenses. This is good news—but will it really be a radical shift in the landscape of fundraising?
Like many fundraisers, I was encouraged last month when the leaders of five prominent foundations pledged to do more to help nonprofits pay overhead expenses.
The foundation execs said they have come to recognize that “many of the organizations they supported…face major deficits because of stingy policies that provide just a sliver of the money they need to operate and run projects.”
It’s a dynamic fundraisers know all too well. Foundations—and many individual donors—often want their money to be used in the direct service of a nonprofit’s constituents. In other words, they want their money to buy soup for the soup kitchen, not to pay the accountant who files taxes for the soup kitchen. This is a perfectly understandable attitude, even as it often leaves nonprofits struggling to pay the bills.
Despite this announcement, it’s difficult to foresee a significant shift in the way donors understand and carry out their giving. For starters, it’s important to note that most people who give to charity don’t even think about overhead expenses in the first place. “Professional” donors like big foundations and mega-wealthy philanthropists might demand to see a nonprofit’s overhead ratio before writing a check, but average donors don’t do much research before making a gift.
So when prominent foundation leaders call on other foundation leaders to quit worrying so much about overhead, it’s more of a conversation among a small (but influential) group of peers. Will their pleas be heeded? I’m skeptical for two reasons.
First, I think nonprofit leaders and fundraisers are often too willing to perpetuate the overhead-versus-everything-else dichotomy. Talk of “reducing overhead” flows naturally from a fixation on “program outcomes” and “efficiency,” which has become all too common among fundraisers. When we tell stories about nonprofits that focus on supposed ROIs, on “scaling up,” and on “solving” social problems, and when we talk about donations as “investments,” we take a blinkered view of our own organizations.
And this is tied up with the second reason: nonprofits are institutions. The value of institutions, of voluntary associations, extends far beyond their “outputs.” Unfortunately, Americans are distancing themselves from institutions. If you take a skeptical view of institutions and associations, you’re certainly going to exhibit a reluctance to help institutions and associations do the kinds of things that institutions and associations do—keep the lights on, buy office equipment, hire someone to answer the phone, update the website, etc. All the stuff we typically mean by “overhead.”
The good news is that fundraisers are in a prime position to restore faith in institutions. We’re the ones who get to invite other people to participate more fully in the life of the organizations we represent. We’re the ones who get to tell donors who we are, not just what we’re doing, and we have the pleasure of asking people to belong to our communities.
On balance, I think it’s good that the leaders of prominent foundations have signaled a willingness to dedicate more funding to the overhead expenses of nonprofit organizations. It’s a welcome recognition that nonprofits consist of more than a list of outcomes.
Lest we get too carried away, I would stop short of declaring that donors are wrong to question the way charities spend money. I’ve heard it argued that donors ought to make no real distinction between dollars spent on programs, on overhead, on fundraising, on equipment, on salaries—that it’s all part of an indivisible pie, and to question a nonprofit’s allocation of its budget is to subject it to undue scrutiny.
The nonprofit sector is as subject to managerial bloat and the temptations of bureaucracy as every other industry. I don’t dispute that thousands upon thousands of nonprofits across the country are working within shoestring budgets to accomplish incredible things. But I also know that part of what makes those nonprofits so incredible is their effort to share information with donors.
What’s almost certainly true—and what the recent announcement helps highlight—is that “overhead” isn’t a very useful word when it comes to thinking about and describing the work that nonprofits do. We fundraisers should do our part to find new ways of speaking to donors. Our organizations will be stronger for it.