How to deal with uninformed nonprofit-watchdogs around the holidays

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dog-1127486_1280Around this time of the year, we nonprofits work to bring in year-end donations, incurring paper cuts and envelope-tongues in the process (seriously, the glue stick is your friend). Around this time also is when people start pushing “guides” about which nonprofits to give to, warning of shady nonprofits that spend too much on “overhead” and leave nothing for the people they are supposed to be serving.

These guides often sound like this: “Don’t give to these horrible organizations! Only 3 cents of every dollar goes to the people they claim to serve! The rest goes straight to the greedy CEOs’ salaries! They sit on crystal-encrusted chairs and feast on caviar and unicorn steaks! Meanwhile, their staff live in actual houses and drive cars! They are paying their mortgages and buying organic blueberries with your donations! Organic blueberries!!!”

Here’s an example of that. It comes back again and again year after year like some sort of aggressive toenail fungus, despite being charitiesdebunked by fact-checking website snopes.com. WTF. It’s exhausting dealing with so much recurring ignorance. As if our work isn’t hard enough already, with many of us having involuntary eye twitches due to cashflow issues. So, let’s come up with a better strategy to handle this yearly irritation so we can focus on what matters: Writing hundreds of personal notes on our printed year-end letters and praying we don’t misspell donors’ names.

First, assume people mean well. I know it’s easy to get riled up by people who don’t know much about our work casting aspersions and judgment on us. But, let’s believe most people have good intentions, even those peddling this sort of blatant cluelessness about the nonprofit sector. If they didn’t care about the people we serve, they wouldn’t spend so much time and energy to ensure that money is being spent “properly.” Bless their little hearts. At least they’re trying. And trying is half the battle. Or something. 

Second, stop apologizing for admin costs. There are still many of us in the sector who are apologetic about our admin costs. We are embarrassed when it gets above 15% or 20%. Some of us still say things on our websites and at our galas like “Please donate. 100% of your donations go to programming.” If half of us in the sector don’t believe in and advocate for core mission support, after knowing first-hand how important it is, how can we expect the general public to be behind it? Really, a lot of our work is not convincing well-meaning, ignorant people from outside our sector, but to convince the well-meaning, anti-“overhead” people inside our sector. (By the way, “overhead” is such a ridiculous concept that I’m encouraging everyone to use quotation marks whenever you have to write it.)

Third, brush up on counter-arguments: Nothing raises my blood pressure more than the “overhead”-needs-to-be-low argument, except maybe the all-nonprofits-need-to-run-more-like-for-profits argument. So let’s get all our bunnies in the same basket when it comes to counterarguments to use when we run into our friends and neighbors who may have these views:

  • “Overhead is bad. Hiss! Down with overhead!” Counterargument: “Overhead is necessary in order for us to be able to serve people. It includes things like rent, utilities, insurance, marketing and communications, fundraising, office supplies, HR, technology, etc. You can’t serve people if you don’t have strong infrastructure and systems in place. And some of this stuff is not optional! As in, it’s legally required, like insurance, bookkeeping and accounting, etc. Some stuff is not legally required but we still need to do them: program evaluation and grant reporting, etc. Many donors want to know where their donations are going to. Well guess what, having someone figure that out, is overhead. Many donors want regular communications through newsletters, stories about how their money is making a difference. Guess what? Having someone manage the website, write the newsletters, etc., that’s overhead!”
  • “OK, I understand that some of that is needed. But shouldn’t it be kept as low as possible?” Counterargument: “Trust me, most nonprofits are trying to keep it low. To the point that some of us have terrible pay and benefits and are sitting on crappy chairs we got donated that may have possums living in them. But think about your favorite restaurants. Do you care how much they spend on electricity or rent? You only care about the food, atmosphere, price, and whether they treat their employees well, right? Do you decide which restaurants to eat at based on how low their ‘overhead’ is? Same goes for nonprofits. Focus on the quality of their programs, and the value they add to the community. The more you focus on overhead, the more you force them to waste their time trying to reduce costs to dangerous levels instead of developing strong programs. And since there’s not a standard definition of what constitutes ‘overhead,’ some nonprofits are just able to lower their ‘overhead’ ratio using expense allocation tricks.”
  • “Nonprofit EDs/CEOs shouldn’t be paid well.” Counterargument: “Nationally, the average pay for an ED/CEO is $64,000. So trust me, not many of us are sitting at mahogany desks inlaid with Swarovski crystals and polished with foie gras. Nonprofit work is as complex as for-profit work. Most of the time, it’s even more complex. Many of us are addressing deeply entrenched societal issues that are the result of systemic injustice over hundreds of years. Think about poverty or failed education systems. And nonprofit organizations still have all of the same requirements as any other businesses: managing staff, payrolls, strategy, community perception, legal compliance, etc. But with fewer resources. Yes, leaders of larger organizations do tend to make more, but they may be managing hundreds of staff and a budget in the millions, which they often have to fundraise for, in addition to all their other duties. Why should a nonprofit leader get paid less than a for-profit leader for having the same or higher level of responsibility and stress? Also, we should reevaluate what we value in society. Movie stars, athletes, and CEOs of companies that produce sugary drinks or violent video games can make millions each year, and we’re OK with that, but we’re not OK with paying one tenth of that to a CEO of a nonprofit that is working to end homelessness or cure cancer, things that would benefit all of us?”
  • “But…but, ya’ll are charities!” Counterargument: “The challenges out there are complex,
    "We named him Cashflow!"

    “Ed found him during the staff meeting. We named him Cashflow!”

    and nonprofits need to be equipped to handle them. Who do you think would do a better job serving people—an organization that underpays its staff, has a leaking roof, no website, no heating during the winter, a poorly paid leader, and everyone is terrified that the family of possums living in the cushion of the donated chair might escape? Or a nonprofit that pays its staff decent wages and benefits, has a modest but well-furnished office that is welcoming to its clients, an experienced leader who makes a salary that is on-par with their peers for the geographic location, funding for program evaluation and effective accounting, and chairs without marsupials living in them? If you knew someone who needed help, which organization would you send them to?”

  • Well, I’m giving my hard-earned money to nonprofits and not getting anything in return, so I have a right to determine how they use it.” Counterargument: “Here, read this article, ‘So, you don’t think you directly benefit from nonprofits.’ You benefit plenty from nonprofits, in ways you don’t even think about: Arts, culture, safety, parks. Imagine a community without nonprofits–which, by the way, includes zoos, museums, universities, and many hospitals. Would you want to live there? You want nonprofits to exist and be effective at their jobs, right? ‘Overhead’ ratio is not a good indication of how effective they are. It’s like determining how good a wine is based on how much the wine company spent on insurance and advertising: ‘This 2014 pinot grigio is only 14% overhead, while this 2012 zinfandel claims that only 5% goes to admin costs. I’ll go with the zinfandel.’ “

Fourth, provide alternatives. “OK, I like wine, and I don’t want anyone to be bitten by possums. But if ‘overhead’ is not a good way to determine nonprofits’ effectiveness, then what is?” Response: “Because nonprofit work is so varied and so complex, there is no simple answer. Overall, focus on the nonprofits’ impact: Who they serve, what results are they achieving, how many people they help, how they are bettering the community. It will take more investment of your time to figure out which nonprofits are right for you to donate to. One excellent resource is greatnonprofits.org, which uses the stories and testimonies of clients, volunteers, and donors who have had actual interactions with various organizations. [If your nonprofit is not there, go claim it, and ask your community to provide honest reviews]. Also, guidestar.org is another good resource. And you may want to talk to friends and neighbors about which orgs they donate to, and why. One of the best way to get to know an org, is to volunteer there; you’ll get to talk to actual clients and people who care about the org, instead of relying on numbers that reveal very little about the organization or are actually misleading.”

Fifth, we all need to speak up more. We are too nice sometimes. Our sector tends to attract really nice and very good-looking people. We need to speak up on behalf of our sector when we see ignorance being perpetuated. Write comments on credible online articles. Write op-eds and letters to the editor. Call radio shows when they start talking about this stuff. An ED colleague in another city tells me around this time each year, her local newspaper publishes a list of shameful organizations with the highest “overhead.” Says my colleague, “We are deathly afraid every year that we will be on that list.” Instead of spending all that time and energy worrying about the list, how about writing an op-ed or letter to the editor about how dumb and harmful that list is? When we remain silent in the face of ignorance, we give it power. The list gained influence because nonprofits in that city try to conform to it instead of challenging the very validity of that inane list in the first place.

Every year around this time, the Overhead Zombie comes back to life. Yeah, it’s probably more irritating than actually harmful, but it is a sign that we have much to do to inform much of the general public about our work. Like adorable possums, they often have terrible eyesight and can’t see very well. Let’s gently, but firmly, guide them toward the truth. 

Let me know your thoughts.  

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  • Amen

  • Lauri Goldkind

    Let’s not forget that the whole reason we have this bacon and date wrapped sector with it’s dysfunctional relationships is the lack of a functional nation-wide saftey net program(s) to support all citizens.

    • Unicorns for Hire

      And where we do have something basic in place, it is very much full of holes for people who do not have an anticipated workforce connection due to chronic health or complicated disability.

      • dc matthews

        Yes many disabled like me have been pushed back out to the road in favor of placing more desirable others.

  • Mothra

    Possums eat a lot of ticks. There are worse animals to have living at your non-profit. Like social conservatives.

  • Kerry

    I LITERALLY posted about this last night. Vu. Get out of my head! https://instagram.com/p/BNVbPJTgLlJ/

  • kevin

    As a donor who repeatedly gets asked for donations, I do not think it’s unfair to ask for charity efficiency. At the end of the day, I have limited funds as well and they are purposed for paying for the mission, not someone’s paycheck. Sure, I understand that overhead must exist and I am not arguing that it must be zero. However, unless you are in a very very niche market–in which case I have questions on the impact, why should my money go to your non-profit with a 60% efficiency when there exist orgs with 80+ doing similar things? You are not entitled to that money, you have to prove that you deserve it.

    With regards to your comment about CEO pay, no one is arguing about the 60k CEO. People are frustrated at CEOs that get paid half a million and up.

    In response to your question about the comparison to the laxness in for profit companies, that exists for a reason. For profit companies do not operate in the clear, they answer to investors and their primary metric is profit. As a non-profit, you must answer to donors. And obviously you can not be measured by profit, you must be measured by your impact, which includes efficiency and effectiveness.

    Remember that you are asking people for donations without any return. The least they can do is ask for your impact. To expect less wreaks of entitlement.

    • Mehitabel

      The last paragraph of the above post says a great deal. People have this mindset that their donations have no “return”. I hear this a lot, and it’s really dispiriting.

      Vu, I’d love to see you follow this article up with one that talks about this issue.

    • MThompson

      At the end of the day, the mission doesn’t get accomplished UNLESS you pay for someone’s paycheck to work on the mission. We don’t work for free.

      • Cloggie

        Also, no, non-profits can’t just get x,y, or z donated to lower overhead.

        For-profits who provide things like toner cartridges or office space are pretty attached to that whole profit thing. They donate things now and then or some give non-profit discounts but aren’t going to give to everyone who asks.

      • kevin

        Agreed, I mentioned somewhere that I don’t expect it to be zero, but when there are a lot of alternative non profits doing the same work, the bigger, efficient ones should be favored.

        • Linda

          But what is efficient? Would you be upset learning that 1/3 of an agency’s funding goes to salaries if you knew it paid for the social workers who deal with children in crisis? What defines efficiency when dealing with human lives? My dad volunteered for a Meals on Wheels program serving 12 counties that switched from hot meals delivered 3 days a week with frozen meals for the days in between to only one delivery truck one day a week delivering frozen meals. More meals were served with less money, but was it the best for the client? The client lost out on having a friendly face spend 20 minutes checking to make sure they were okay 3 days a week. They also lost out on a hot meal, which can be difficult for some clients. My dad personally saved one man from a home fire who tried to cook a potato in a skillet and forgot about it. He also saved another blind woman who fell behind her couch and was trapped. I don’t want to imagine the outcome if the woman was trapped for an entire week, as opposed to hours.

          The Metropolitan Opera now offers broadcasts of its productions in movie theaters around the country. One could argue that’s a really efficient way to make opera available, but is it best for the consumer? Is it equitable to assume the biggest organization centered in one location of the country be the only arts source and offer the best artistic outlet for every community in the country?

          Many regions of the country have a large foodbank that supply many smaller food pantries. Sure, the central foodbank has lots of storage and warehouse capacity, but is it convenient for those in need to make the 45 minute trek for necessities when they don’t have transit? What about the smaller food pantries on the ground in communities that understand what’s going on locally, have a great volunteer base, and can offer other services to clients such as cooking and budgeting classes as well as help with obtaining employment? Should they be sacrificed to the altar of efficiency just because “overhead” can be kept low with one centralized facility?

        • Mehitabel

          It’s a huge mistake to assume that the bigger the nonprofit, the more efficient it is. That may be true in some cases; it’s definitely not true in all.

    • Cloggie

      There should be efficiency but “overhead” is not an effective way to actually measure it. No one is encouraging reckless spending, but most of the overhead numbers are not comparable to each other.

      Also, no, a donor to an organization is not comparable to an investor.

      • kevin

        Investors and donors both share the role of providing funding to an organization, so they’re comparable. I didn’t say they were the same, but they are comparable.

        Do you have a better suggestion to decrease reckless spending?

        • Cloggie

          Why do you assume there is rampant reckless spending?

          Donors have no ongoing rights to a say in the running of an organization once a donation has been given. Investors do.

          • kevin

            It is up to the org to show that it is using donor funds responsibly. I’m not saying staff should work for free, but the expectation is to minimize the overhead, or justify the spending. You don’t get a blank check to spend as you please, there are numerous stories of irresponsible spending.

            I’m not saying they’re the same, but the distinction you pointed out is not relevant to the conversation. I was not referring to donor participation after fundimg, but before. And I think donors have the right to evaluate the non profit spending and overhead costs just as much as investors can evaluate the profits of a for profit.

          • Cloggie

            Which is what 990s are for…

            If your point is actually that donors should evaluate an organization before donating, I doubt you’ll find any resistance here. The issue is that “overhead” can mean a lot of things and be rewritten a number of ways, so it isn’t a useful measurement.

    • SophieB

      Everyone fully appreciates that donors want to ensure the money they contribute to a nonprofit is spent efficiently and effectively. Obviously in making a donation everyone wants to contribute to an organization that makes a difference–provides a return on investment. But, the amount a nonprofit spends on “overhead” does not tell you this. This is the big “overhead myth” that has been perpetuated by charity watchdogs and nonprofits themselves.

      How much a nonprofit spends on overhead tells you nothing about their outcomes or impact. In the past couple of years even GuideStar, Charity Navigator, and the BBB Wise Giving Alliance have come out publicly and said that they were wrong to use overhead as an indicator of efficiency and effectiveness. They even went so far as to say that a lot of nonprofits should be spending more on overhead. Spending too little reduces efficiency and effectiveness.

      Who decides what is the “right” amount to spend on overhead? There can be huge variations in what is needed based on the type(s) and numbers of programs and services provided, organization size, type of funding, allocation methodology, etc. Universities typically have rates in the 50% or 60% range and no one thinks a thing about this–not that most nonprofits would typically be this high. But the artificial limits of 10% to 20% are hurting nonprofits and their outcomes. Bridgespan and others have determined that most nonprofits should probably be spending in the 25% to 35% range on overhead to be efficient and effective–but this still differs from outcomes and impact.

      And, regarding CEO salaries, if you look closely the vast majority of nonprofit CEOs making over $500,000 are at hospitals or universities. Personally, I think the salary should be based on the budget size, complexity of the position, and cost of living for the area, and experience. Do you think you are going to access the most qualified people to run a $100 million nonprofit in New York City for $199,000 a year when they can make 5 or 10 times that much in the for-profit sector? ($199,000 is the salary cap set by the NY State for nonprofits that have government grants and/or contracts regardless of budget size. The federal government has set caps lower than this for some services.)

      We get the obligation to be good stewards of the funds we receive, no matter where they come from. In return, we simply ask that people are realistic about what it really costs to provide high quality services that make a difference.

      • Mehitabel

        Bravo, SophieB!

    • Theresa Curry

      Paying for someone’s paycheck IS paying for the mission. How do you expect the mission to be carried out without staff at the organization??

      • kevin

        No, the mission is to alleviate poverty or provide water or educate youths. Overhead is a means to get that done. As mentioned, I don’t expect this to be zero. But it should not be ignored as there are a lot of non profits that can further the mission more efficiently. I’m not saying this is the only criterion to evaluate a non profit, but it cannot be ignored. 50 cents to the dollar of my funds were not meant to fill the million dollar paycheck of an executive.

    • 1614omra

      Also, You have TO PAY PEOPLE TO DO THE WORK. You can’t just pay for supplies that make the world a better place. You have to pay someone, who has expert knowledge and passion, to use the supplies, make sure the supplies get to the people served by the organization, evaluate the effectiveness of the effort and the supplies, manage the accounting of the supplies, etc. Then you must pay the people who make sure that the organization has a steady stream of supporters to make the supplies possible. It takes work. It takes salary. These are educated, dedicated citizens who have one title that really means 3-6 different jobs. They deserve to pay rent/mortage and insurance, transportation and student loans. By the way, grants/contracts don’t typically pay for salaries. The unrestricted funds we receive from donors like yourself are usually what pay the salaries of nonprofit employees. We spend far too much time dividing an employee’s paycheck between 7 different sources in Quickbooks.

      • kevin

        Never said they’d have to work for free, just it should be lowered. half a million salary even for execs is too much in my book.

  • Andrea Michelbach

    Do you know about Charity Defense Council’s “I’m overhead” campaign? Pretty great. http://shop.charitydefensecouncil.org/products/charity-defense-council-shirt

    • Esther Landau

      LOVE this.

  • Unicorns for Hire

    There is nothing helpful about a charity that is always having to deal with survival crises, staff turnover and orientation, needing to scrounge to get the most basic resources to meet their missions. Proper, 360 evaluation is necessary to ensure that effective charities of whatever size thrive and that they have access to the resources that will ensure they can continue to be so.

  • MThompson

    Yes, yes, and yes! And, more importantly, thank you from the bottom of my heart for properly punctuating “…the greedy CEOs’ salaries.”

  • Mehitabel

    I suspect that the new FASB rules about what constitutes “management and general” expenses may present a challenge to at least some nonprofits that have been, um…. aggressive about allocating certain costs to programs in order to get that “overhead” percentage down to the teens. If they are unable to allocate so aggressively, they may see their “overhead” increase, not because of a change in their spending but because they’ll be more limited in what they can allocate. It’s going to be a learning process for nonprofits and donors, but I think that the new rules are going to create a “new normal” for that overhead percentage that’s going to be higher than what a lot of people are used to seeing.

    As it is, if I see an org claiming to have super low overhead, and I know that they are not harboring a possum family in their furniture, then I assume that they are aggressively allocating costs to programs. I think that the new rules may be a bit of a jolt in some ways, but the intent is to try to ensure more consistent reporting across the sector, which can’t be a bad thing as long as we aren’t being dinged for it by funders.

    • Cloggie

      I was just about to post this. “Overhead” is a fuzzy concept that they’re trying to nail down but I’m skeptical.

  • In addition to Vu’s great suggestions about standing up for the sector, may I suggest beating these guys at their own game. Charity Navigator posts the methods it uses to rate and rank charities. Take a look! Some of their suggestions make a lot of sense, such as posting a LOT of information on your results. So post results, folks! Results are relatively simple: number of people served, or seen, or mentored, or trained, and so on. Post the names of your staff members and board directors, preferably with a little photo and a thumbnail. Post your guidelines. Include your fundraising expenses in your 990’s.

    Make your impact clear and obvious. Use data. “Watchdog” agencies like data! Even if your results are modest, show trends. You might even consider what it COSTS to achieve certain results. A foster-care group home we know did some calculations and found it costs them $7,500 per child per year, above what the local government allocates, to provide kids with certain services; they can also show data about the extent to which their kids outperform other foster kids on school performance, truancy, and the like.

  • Sheri Simonsen

    Oh – at first I read this as “UNIFORMED” nonprofit watchdogs…my nervousness about police states, I guess.

  • Esther Landau

    Well, then you have orgs like Tipping Point, where 100% of their “overhead” is covered by the board, so they can legitimately say that 100% of donors’ gifts support program. My board members look rhapsodically at Tipping Point and I want to just shake them.

  • Carol Clarke

    Vu, would it be okay for me to quote you? Your arguments are well thought out, and I would love to zing the antipathy of the pompous when they righteously put forward the contempt for overhead.

  • Susan DeJarnatt

    I just sent Vu some bucks–because I enjoy this blog immensely and the trumpocolypse has made me determined to reach for the wallet to support people doing good work! And I like unicorns and puppies.

  • Charlotte Sangster

    LOVE this quote:
    “we should reevaluate what we value in society. Movie stars, athletes, and CEOs of companies that produce sugary drinks or violent video games can make millions each year, and we’re OK with that, but we’re not OK with paying one tenth of that to a CEO of a nonprofit that is working to end homelessness or cure cancer, things that would benefit all of us?”
    I’m not a CEO but I can’t wait to go home and eat my unicorn steak tonight! 😛

  • dc matthews

    a homeless disabled single female (short-timer WAC) veteran now with a claim after all the big groups including free legal failed at everything. Most shelters are special needs unfriendly and have inclusive photos on flyers but say able to be working in 30 days on applications. I wonder what groups really support us a sadly growing population.. I also see another group females wiht teenage boys who have almost no shelter or other options across the USA. I was recently berated by a group of female vets one who claims to be a champion for disabled , we disagreed she who got help in her situations and had supports all along the way wrote i let disability ruin my life before she FB blocked me. We need real skilled advocacy and real supports not out there that I can find. Ayone who knows of those really doing it for our groups left out , please let me know.

  • dc matthews

    PS: Doesn’t American Legion and other groups have a separate funding source/ ledger for salaries and other items? Can we see those to make more informed decisions than these watchdogs supply?

  • Lisa Daleiden-Brugman

    This TED talk was really fantastic. And a little overwhelming. But lots of food for thought when thinking about how to get donors to engage with our non-profits.
    http://www.npr.org/programs/ted-radio-hour/?showDate=2016-11-23