We’re all on board with the mandate of mission-driven work. Funders and nonprofit (for-purpose) organizations get it—the mission is the reason the organization exists. But the traditional way we’ve focused on the mission is dangerously off target. After years of buying into a mistaken approach, both funders and nonprofits have unwittingly conspired to undercut their mutual ability to influence the issues their missions embrace.
For years, the focus on mission has been expressed through unrealistically low investments in the infrastructure of nonprofit organizations. Funders offer grantees a token for administrative overhead, or nothing at all. Their justification is easy: “We fund programs and services, not overhead.” Over time, that approach has produced a draconian set of rules that stigmatizes administrative expenses as bad. These archaic rules have sabotaged the ability of nonprofits to produce results and institutionalized the starving of organizations to feed programs. Nonprofits are now subjected to a rating and ranking game in which their quality is defined by the percentage of their overhead expenses rather than the value of their impact.
Hungry for resources and afraid of losing funding, nonprofits have swallowed the bitter pill and agreed to define their value in terms of their program budgets. They publicize their value to donors in websites bragging that “99% of donations go to feeding children,” or “95% of donations go to providing shelter for the homeless.” But by buying into oppressive overhead rules rather than challenging them, nonprofits have eroded their capacity and become entrenched in a culture of scarcity.
Starving organizations to feed programs has resulted in a nonprofit ghetto characterized by decaying infrastructure and economic inequity. The great majority of nonprofits operate on shoe-string budgets and survive by making do with outdated technology and inferior facilities, and by obliging staff to work long hours, accept low wages and flimsy benefits, and forego professional development.
In many nonprofits, staff members qualify for public benefits even though they work full time. But when nonprofit staff members earn wages similar to those paid by McDonald’s and Starbucks they rarely get the health, educational, retirement, or product-related benefits offered by those businesses. Businesses advertise investment in the long-term economic and social mobility of their people. They view that investment as a social value that sets them apart. Unfortunately, the same cannot be said of most nonprofits even though their missions focus on public good and quality of life. When nonprofit organizations fail to invest in their workforce out of fear of inflating overhead, they end up contributing to economic injustice by building their service programs on the backs of idealistic workers who are undervalued and, all too soon, burned out.
There’s a lot at stake here. Underfunding administrative costs depletes philanthropy’s impact by destabilizing the organizations that do the work. When it comes to social change, nonprofits are at ground zero. They’re the muscle that turns dollars into results. Unless nonprofits are financially stable and have the necessary people and tools, they can’t feed the hungry, house the homeless, care for our children, combat climate change, confront the opioid epidemic, bring art to enliven our communities, or do the thousands of other things that so desperately need doing. They can’t do their job.
As government cuts safety net supports, abandons humanitarian concerns, and marginalizes science, breaking away from the archaic view of overhead expenses has never been more urgent. A vibrant, robust nonprofit sector is essential to all of us, but can only be fully realized if the sector opts out of status quo overhead rules, advocates for full-cost funding, and insists that impact be the measure of value.
By refusing to equate quality with diminutive overhead costs and making the case for full-cost funding, nonprofits can escape the culture of scarcity and build a sector characterized by high-performing boards of directors, cutting edge technology, quality facilities, and a culture of valuing and investing in the people who will become the visionary leaders of the future.
Recognizing the problem, some grantmakers and donors are making course corrections. Philanthropy California’s Full Cost Project is documenting the problem and exploring solutions. Other donors are now funding organizations rather than projects. Social Sector Partners is offering Think Money First! workshops to help organizations move from a culture of scarcity to a culture of sustainability. There’s progress. But our social challenges are massive, and the nonprofits we expect to do the heavy lifting are fragile. It’s past time to turn this around.
Trash website banners about low overhead costs and boast instead that 100% of dollars go to impact.Tags: impact, measuring, metrics, Nonprofit, philanthropy