“Bizarre” …  “Startling” … “Surreal”

Those were just a few of the adjectives in reaction to this week’s news that Guidestar, Charity Navigator and the Better Business Bureau’s Wise Giving Alliance have done an about face and launched a campaign to now convince donors they really shouldn’t focus too much on overhead costs when evaluating a nonprofit.

The effort includes a new website, press release and social media campaigns, and a petition encouraging folks to “end this overhead myth”.

Of course the news should also be labeled ‘Welcome’ and  ‘Long overdue’ — an admission that what really matters as a measure of effectiveness is a charity’s results, not some knee-jerk calculation of ‘overhead costs’.

What is surreal and somewhat bizarre is that the ‘founders’ of this new movement are the very organizations — especially Charity Navigator with its scoring system heavily influenced by overhead ratios — that have helped grow and sustain the ‘overhead myth’. Partly as a result of their previous efforts, 62% of the American public now believes nonprofits spend too much on overhead.

So why the change of heart?

If you had to pick a single reason, my choice is Dan Pallotta, whose TED talk — The way we think about charity is dead wrong — has now been viewed by nearly 2 million folks. Dan effectively demolishes the overhead-is-more-important-than-results arguments  and has put the charity watchdogs on the defensive.

Of course, there is no single reason for the awakening, reaction and very important discussion and debate over ‘costs’ and ‘overhead’. A growing number of academics, fundraisers, and nonprofit executives are standing up to overly zealous journalists, regulators and watchdogs, claiming their overly sharp focus on overhead discourages groups from investing in staff, systems, evaluation and capacity building — all essential expenditures if nonprofits are to meet the growing needs of the society they serve. The Stanford Social Innovation Review calls this phenomenon The Nonprofit Starvation Cycle. I urge you to read their take.

So, what happens next? Are the watchdog groups really serious? I sure hope so, but my email inbox contains a ream of doubters. Only time and their actions can answer that question. Will, for example, Charity Navigator and Guidestar really change their simplistic financial analyses that highlight overhead costs?

In our world of direct response, a positive signal would be a willingness on the part of Charity Navigator to accept GAAP (Generally Accepted Accounting Principles) when it comes to allocating joint costs (fund solicitation vs. education) for acquisition and house file communications.

This week’s announcement of the new End The Overhead Myth campaign is further evidence of a rising and healthy tide of discussion and debate over the issue of measuring and communicating the business of raising and spending money.

What’s your take on the watchdogs’ new “End The Overhead Myth” campaign?


P.S. For some earlier Agitator posts on the issue of costs and overhead:

This article was posted in: Nonprofit management, Transparency.
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