A GuideStar Initiative to Improve Donor Choice

Letter to the Donors of America

The following letter to the donors of America was penned by the leaders of the country’s three leading sources of information on nonprofits – GuideStarCharity Navigator, and BBB Wise Giving AllianceThe letter is made available the the public under the Attribution-NoDerivs Creative Commons license, which allows for it to be shared and distributed for any purpose so long as it remains unchanged. You may download a PDF of the letter here

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To the Donors of America:

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.  For years, each of our organizations has been working to increase the depth and breadth of the information we provide to donors in these areas so as to provide a much fuller picture of a charity’s performance.

That is not to say that overhead has no role in ensuring charity accountability. At the extremes the overhead ratio can offer insight: it can be a valid data point for rooting out fraud and poor financial management.  In most cases, however, focusing on overhead without considering other critical dimensions of a charity’s financial and organizational performance can do more damage than good.

In fact, many charities should spend more on overhead.  Overhead costs include important investments charities make to improve their work: investments in training, planning, evaluation, and internal systems—as well as their efforts to raise money so they can operate their programs.  These expenses allow a charity to sustain itself (the way a family has to pay the electric bill) or to improve itself (the way a family might invest in college tuition).

When we focus solely or predominantly on overhead, we can create what the Stanford Social Innovation Review has called “The Nonprofit Starvation Cycle.”  We starve charities of the freedom they need to best serve the people and communities they are trying to serve.

If you don’t believe us—America’s three leading sources of information about charities, each used by millions of donors every year—see the back of this letter for research from other experts including Indiana University, the Urban Institute, and others that proves the point.

So when you are making your charitable giving decisions, please consider the whole picture.  The people and communities served by charities don’t need low overhead, they need high performance.

Thank you,

 

Art Taylor
President & CEO
BBB Wise Giving Alliance

Jacob Harold
President & CEO
GuideStar

Ken Berger
President & CEO
Charity Navigator

46 Responses to “Letter to the Donors of America”

  1. Harriet Levy

    It’s about time! I feel that we have spent more time trying to defend the rationale for our higher “overhead” than the impact and outcomes of our programs for people with developmental disabilities. These expenses are investments in the strength and security of an organization – technology helps us become more efficient, marketing and communications makes sure that people in need of our programs hear about us, training and conferences ensures that we keep up in our fields of expertise, a strong development team works in partnership with our board to ensure that our financial resources are sustainable and can carry us well into the future. This is an “aha” moment that is long overdue. When we are compared to other organizations who have what looks like minimal to no fundraising expenses, I scratch my head in wonder how that can be – as this system encourages misrepresentation and under-reporting of non-program expenses. How refreshing it will be to be part of a nonprofit culture that encourages innovation, sustainability and growth through responsible investment rather than a “30% or less guideline” that encourages stagnancy and dishonesty.

    Thank you!

    Reply
    • Jim

      I read several of the replies and for the most part do concur with your comments, I truely think that msot people are referring to the outrageous salaries that CEO get paid. Let us be realistic. Do you really think CEO should be paid what they are paid. IE: Memorial Sloan Kettering Hospital in NYC. He recieved 2.3 million for 2013. REALLY. This is what makes people…….. Think about it.

      Reply
  2. Rachael Grossman

    Hallelujah!
    Thank you all for raising this issue. Anorexia in any setting is absolutely life-threatening. And the crazy pressure on nonprofits to keep their expenses below a sustainable level is so unhealthy. There is a cost to doing business and nonprofits should be able to spend what is needed to keep them alive and well.

    Reply
  3. Michelle Hensley

    We as a group do very well on conserving the donations the public and foundations generously give to us and sincerely appreciate every dollar that comes in. Unfortunatley, this has been an issue for us to stay within certain boundaries but it has helped us to make sure we are accountable to those that give. I agree that this is an important issue to discuss and possibly for some donors to pay attention to.

    Reply
  4. James Walker

    Thank you for raising the subject, but the letter is entirely oversimplified. It ignores the difference between “good” and “bad” overhead. Reminiscent of our current government’s refusal to acknowledge the existence of much less address fraud, waste and redundancy. There is a long distance between “starving” and “wasteful profligacy”. On this basis, nay entirely fraudulent “charity” schemes get a free pass.
    Of course, any donor wants to know about overhead, especially about officer’s compensation. If two organizations have similar missions, and have similar donor basis, but one has 2X the other’s “overhead” – that is meaningful.
    Moreover, combining administrative and fundraising costs into a catch-all “category” such as “overhead” sounds like a ramp to a coverup.

    Reply
    • Ampers

      I don’t thinnk the writers would have felt that was their remit. I felt their intention was to stimulate discussion.

      Reply
    • CJ Sharp

      James: I think you are missing one point from the letter. When you say looking at 2 non-profits and one has 2x the overhead as the other, “that’s meaningful”, how? The letter clearly states that donors need to look at an organization’s effectiveness and not only the figures related to overhead. If the organization with 2x the overhead demonstrates significantly greater impact via more people served, documented effectiveness such as reduced costs to the community, and other viable and measured outcomes, then yes, THAT is meaningful but in a positive way, isn’t it? By my take, simply judging the two organization’s exclusively by those figures is exactly what the letter and the authors are saying is what donors should NOT be doing when looking at where to send their support.

      Reply
  5. Kathy Swayze, CFRe

    As a nonprofit fundraiser for 25 years, I’m thrilled to see this letter and sincerely hope that the author’s organizations will invest in its wide distribution. When you are building widgets, cutting costs is a paramount concern. But as nonprofits, cutting costs often results in fundraising and marketing efforts being short changed–resulting in reduced revenues over the long haul. That’s not a recipe for ending poverty and hunger, curing disease or advancing positive change.
    Kudos to Guidestar, Charity Navigator and BBB for taking a step in the right direction on this issue.

    Reply
    • Sally J. Tyler, CFRE

      Bravo and thank you for addressing the importance of looking at the whole picture. Nonprofits spend much time inefficiently “doing without” in order to keep overhead low. That can include staff and board training, as well as limiting infrastructure and marketing improvements. I agree that we need to look at overhead costs, but to use those as a sole basis of funding consideration is to miss the full importance of the work we do. Executive Service Corps of Houston has advocated good business management practices for nearly 30 years; 25 other such business/nonprofit service corps exist throughout the country who have been encouraging the same. We applaud you.

      Reply
  6. Aubrey Chalira Phiri

    Thank you for formally putting this myth in a letter to Our donors. I just hope there will be concerted effort by the three organizations to get our donors appreciate and adopt the “Non-overhead based” performance indicators for non profits. As Nonprofits we have always been pushed into management by ratios and such ratios are at times dysfunctional even leading to “creative accounting” for to enhance program costs.

    Reply
  7. Ellen McCarty

    Thank you for speaking on behalf of nonprofits of all sizes. It’s the “starvation cycle” that drove me away after being a nonprofit executive for 15 years. After a four year absence I’m back in the sector as an executive and it is encouraging to see the effort from key leaders to educate donors regarding overhead myths.

    Reply
  8. Riley Green III

    Thank you for this letter. It was timely and important for the nonprofit community.

    Reply
  9. Nyange Musombo Chirac

    Congratulations! For what you have writen and appreciate your ideas. Because the nonprofit organizations are struggling and they deserve more funds from the donors. Thanks

    Reply
  10. Candide33

    Pay no attention to the man behind the curtain!

    Just take our word for it that we are not stealing the hard earned money that you give to help your fellow man…. trust us!

    Not likely

    Reply
  11. » Stop Donating Start Investing Moving On…

    […] Recently three very influential people in the nonprofit community have released a letter to the public, and to nonprofits warning about the obsession with keeping costs low. You can read the letter at http://overheadmyth.com/letter-to-the-donors-of-america/. […]

    Reply
  12. Measuring Charity Effectiveness: Manage Your Mission, Not Your Rating - NEWS | Phones | Nigeria Science | Technology |Computers

    […] These rating schemes tell the public that if you spend more on fundraising, you are bad. They equate fundraising and overhead to fraud and judge the business decisions charities make in order to best fulfill their missions, serve their constituents, and sustain their organizations for the long-term. They tell the public they have done the research and they know better. In fact research actually shows the opposite: that by limiting your growth in infrastructure and fundraising, you may have a lot of good intentions, but you’re not going to help a lot of people. Even some of the rating groups are now admitting this and you can read their open letter to the public here: The Overhead Myth. […]

    Reply
  13. Measuring Charity Effectiveness: Manage Your Mission, Not Your Rating | CauseHub

    […] These rating schemes tell the public that if you spend more on fundraising, you are bad. They equate fundraising and overhead to fraud and judge the business decisions charities make in order to best fulfill their missions, serve their constituents, and sustain their organizations for the long-term. They tell the public they have done the research and they know better. In fact research actually shows the opposite: that by limiting your growth in infrastructure and fundraising, you may have a lot of good intentions, but you’re not going to help a lot of people. Even some of the rating groups are now admitting this and you can read their open letter to the public here: The Overhead Myth. […]

    Reply

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