From an historic blizzard that blanketed the country, to tackling poverty, to the leadership of Black Lives Matter, to technology in the new year, to using social media to stop ISIS, to advice for Charity Navigator, January was an interesting month in the world of social change.
- Winter storm Jonas dumped several feet of snow across the country, but also offered a couple of interesting lessons in social change. First, the sheer amount of snow piled up on east coast urban streets provided a glimpse into better urban design. And after the blizzard hit Washington, DC it seems only female senators were brave enough to come to work. Among them, Senator Lisa Murkowski wondered: “Perhaps it speaks to the hardiness of women…that put on your boots and put your hat on and get out and slog through the mess that’s out there.”
- Writing in the Nonprofit Quarterly, Tom Klaus took issue with those who criticize the Ferguson and Black Lives Matters movements as being “leaderless.” Instead, he argued that they demonstrate a more effective “shared leadership” model: “Shared leadership…means that multiple members of a team or group step up to the responsibility and task of leadership, often as an adaptive response to changing circumstances. Multiple members may emerge to lead at the same time, or it may be serial as multiple leaders emerge over the life of a team or group.” And The Chronicle of Philanthropy profiled three of the leaders of the Black Lives Matter movement.
- One of my favorite bloggers, David Henderson, has made a new year’s resolution to write more often. Let’s hope he keeps it up because he offered us two great ones this month. First, he wrote a scathing critique of the nonprofit and philanthropy sectors for not standing up against presidential candidate Donald Trump’s hate-filled ideology. And then he took it further in a later post arguing that the philanthropic sector must get more political: “It seems a strange consensus that philanthropy and politics do not mix. Yet it is our politics, and more specifically our collective values, that creates the maladies we aim to address. Martin Luther King was a civil rights pioneer not for creating a nonprofit that provided social services to help African Americans live a little better, but by challenging the laws and social values that subjugated a significant portion of our community. Social interventions like homeless shelters, food pantries, and tutoring programs are fundamentally responses to injustice. While these programs are wrapped in apolitical blankets, they are plainly and intuitively critiques of the system we live in.”
- And speaking of critiques, columnist Tom Watson wrote a sharp commentary on American philanthropy arguing that it is going the way of American politics — moving from democracy towards plutocracy: “The disparity between democratic philanthropy and its plutocratic cousin is nowhere more apparent than in the importance placed on the Facebook co-founder’s commitment to giving away much of his vast personal fortune compared with the potential of the largest digital social network in the nation. Mr. Zuckerberg’s billions may create major causes and eventually steer public policy, but many nonprofits will struggle to find in their budgets the money required to purchase desperately needed social-media eyeballs from his advertising department. If there’s a better example of the power gulf in American philanthropy, I’m not sure what it is.”
- And other critiques of philanthropy in January went even further, with some arguing that modern American philanthropy attempting to address growing wealth inequality (illustrated by a new Oxfam infographic “An Economy for the 1%“) is a paradox because philanthropy itself emerged from the wealth excesses of capitalism. A new book by Erica Kohl-Arenas argued that philanthropic interventions to solve poverty have been flawed because they don’t address the structural issues causing the poverty in the first place. And her argument was extended when she wrote about her view of a January 7th public event at the Ford Foundation where Darren Walker (who recently announced a new foundation focus on overcoming poverty) and Rob Reich discussed these issues.
- Caroline Fiennes argued that nonprofits should not try to “prove their impact,” since proof of impact is impossible, but rather use evaluation to gain knowledge that can help “maximize our chances of making a significant impact.” Patrick Lester, writing in the Stanford Social Innovation Review, offered a similar caution about outcomes, but this time to the Obama administration: “A dose of…realism, combined with a greater reliance on evidence and a willingness to learn from the past, could transform the administration’s focus on outcomes into an important step forward. By openly acknowledging the challenges and dangers, recognizing the difference between mere outcomes and true impact, and demonstrating how this time we will do better, the administration could show that what it’s really calling for is not just an outcomes mindset, but an Outcomes Mindset 2.0.”
- Speaking of proving results, Charity Navigator’s new leader, former Microsoft exec Michael Thatcher, and the board that hired him came under attack in January for not moving quickly enough away from rating nonprofits on financials and towards rating them based on results. But Doug White, writing an opinion piece in The Chronicle of Philanthropy and who created the beginning data behind Charity Navigator many years ago, took it even further took it even further: “Charity Navigator is far worse than nothing. The best that could happen is for the group to sink into oblivion, with no charities, no news outlets, and no donors giving it any thought. Or the group could take serious steps to grow up, humbly taking the time and effort to truly try to understand the charitable world.”
- Wanting to get further into the social change game, Facebook COO Sheryl Sandberg announced a new effort to use Facebook “Likes” to stop ISIS recruitment efforts on social media. It will be interesting to see how effective this slacktivism effort becomes at creating real change.
- Kivi Leroux Miller released her annual Nonprofit Communication Trends Report, including lots of data about how and where nonprofits are marketing. And while she found that YouTube is currently the #3 social network for nonprofits, that may change since YouTube just announced new “donation cards” that allow donors to give while watching a video.
- And finally, in January we lost David Bowie. But Callie Oettinger urged us not to be sad, but rather, inspired: “I [am] comforted in thinking of Bowie…on Mars, mixing it up with other artists…a place where the greats go to keep an eye on the rest of us and send down jolts of inspiration from above.” Yes.
Photo Credit: Northside777
April was another busy month in the world of social change writing. From Google’s shift to mobile, to the Baltimore protests, to using sitcoms to change public opinion, to the pace of social change, to teens and social media, to a new way to measure a country’s performance, there was much to read and digest.
Below are my 10 picks of the best in the world of social change in April, but please add to the list in the comments. And to see what else I found beyond these 10, follow me on Twitter, Facebook, Google+, or LinkedIn.
And you can read past months’ 10 Great Reads lists here.
- There was much analysis about what went wrong in Baltimore, but I found the most insightful to be Dan Diamond’s Forbes piece about how it is fundamentally a “tale of two cities” and the persistent inequality between two very different Baltimores.
- As is Google’s way, they made a huge change to their search algorithm in late April that will affect us all. Google is now favoring websites that are mobile friendly. But fear not, Beth Kanter offers some advice for upgrading your nonprofit’s website.
- For those in the trenches, the pace of social change can seem glacial. But this great graphic from Bloomberg demonstrates that for many issues (prohibition, interracial marriage, women’s suffrage, same-sex marriage) there was a tipping point at which America very quickly changed its mind. Fascinating.
- Civic Tech, or using technology to make citizens more engaged and government more effective, is a huge investment opportunity, says Stacy Donohue from the Omidyar Network. With venture capitalists, the federal government and nonprofit and for-profit solutions all poised to make change, Donohue sees civic tech as a “very real, very now investment opportunity.” Let’s hope that new ideas and (most importantly) lots of new money can turn our struggling democracy around.
- Social change can happen in many different ways, including by altering popular culture. Former Daily Show correspondent Aasif Mandvi is attempting this kind of shift with his new web sitcom that takes a “Cosby Show” approach to portraying American Muslims in order to combat Islamophobia.
- Writing in Slate, Krista Langlois takes a hard look at her fellow environmental journalists and whether they have failed to adequately describe the environmental challenges facing our planet since American concern about climate change has actually declined in the last 20 years.
- One of the most common hurdles to nonprofits raising capacity dollars is the challenge of articulating to funders the potential impact of a capacity investment. Grantmakers for Effective Organizations (GEO) have put together some tools to help funders understand the importance of and return on capacity investments. Share these with your funders.
- In April, MIT and the Social Progress Imperative launched the Social Progress Index, an effort to create a complement to the Gross Domestic Product that measures a nation’s social and environmental performance. The Social Progress Index looks at 52 indicators of a country’s social and environmental performance (like child mortality rate, adult literacy rate, greenhouse gas emissions). As Michael Porter, one of the chief architects behind it puts it, “Measuring social progress offers citizens and leaders a more complete picture of how their country is developing. And that will help societies make better choices, create stronger communities, and enable people to lead more fulfilling lives.”
- Writing on the Huffington Post Politics blog, Robert Reich describes a worrying trend where nonprofits are silencing themselves for fear of losing their big donors. As he writes, “Our democracy is directly threatened when the rich buy off politicians. But no less dangerous is the quieter and more insidious buy-off of institutions democracy depends on to research, investigate, expose, and mobilize action against what is occurring.”
- And finally, if you want to understand where social media is going, Pew Research Center released their most recent findings about teens use of social media and technology.
Photo Credit: Patrick Neil
December is often a fairly quiet month in the world of social change writing because of the holidays and time off, but there was still some great stuff to read. From Giving Tuesday, to Teach for America’s 25th anniversary, to philanthropy buzzwords, to social media trends to watch, to a critique of Charity Navigator’s naughty and nice list, there was a good bit to think about in the world of social change.
You can read past months’ 10 Great Social Innovation Reads lists here.
- Writing in the Harvard Business Review, Umair Haque provides a scathing critique of American politicians and pundits and the dirty little secrets they are harboring about our economy. As he puts it: “We don’t live the lives we were meant to by merrily shoving Artificially Fried Chicken Flavored Dorito Slurpees down our gullets while watching our societies crumble. We live them when we build things. Great things. Worthy things. Noble things. And the greatest, worthiest, and noblest of all things that mankind has ever built are not apps, drones, corporations, or profits. They are societies in which every life counts. In which every life is truly, fully lived.” Wow.
- And speaking of the disparities in our economy, there is growing concern that wealth inequality is making its way into philanthropy. The super rich are disproportionately making up American giving and are supporting their own self interests (i.e. their alma maters, donor advised funds that provide personal tax benefits but no social benefits) as opposed to a redistribution of wealth to the poor.
- Teach For America, the often heralded nonprofit that sends recent college graduates into challenged schools to teach for 2 years, marks its 25th anniversary this year. NPR reports on the challenges the organization faces, including a “self-described TFA resistance movement [with] former corps members [who] say their youthful idealism was cynically co-opted by a group that, in the big picture, acts to the detriment of public education.” Yikes.
- Amazing blogger David Henderson from Full Contact Philanthropy took a writing hiatus earlier this year, but he’s back with a vengeance, and I am loving every one of his posts, especially December’s critique of Charity Navigator’s “naughty and nice list”.
- As is her annual tradition, Lucy Bernholz offers her 2015 philanthropy buzzwords. My personal favorite are “artivists” and “citizen science.”
- I would love to see more nonprofits (and foundations) getting into the advocacy game. Rick Anderson, writing on the Markets for Good blog, provides a really interesting case study of how Washington Nonprofits, the state association for the 58,000+ charitable organizations in Washington State, has been using data to better coordinate with state agencies, elected officials, other nonprofits and foundations.
- December marked the third annual Giving Tuesday, and it was the most profitable yet, raising over $45 Million. Perhaps we have a movement?
- The Wild Apricot blog offers 5 Social Media Trends That Could Impact Nonprofits in 2015.
- Kate Barr from the Nonprofits Assistance Fund encourages nonprofit leaders to stop fearing money. As she puts it, “Let’s eliminate the fear of finance from the nonprofit sector. It doesn’t serve us personally or organizationally. Why? Because nonprofits with strong financial leadership are better equipped to deliver on their promises to the community, explore new territories and foster innovation.” Amen to that!
- The fundraising anomaly of last summer’s ALS Ice Bucket Challenge left a lot of outstanding questions. Not least of which is whether ALS would be able to retain any of those new donors. Beth Kanter talks to ALS CEO Barb Newhouse about exactly that question.
Photo Credit: US Department of Agriculture
In today’s Social Velocity blog interview, I’m talking with Ann Goggins Gregory, Chief Operating Officer at Habitat for Humanity Greater San Francisco where she oversees programs, the social enterprise called the ReStore, HR and Operations.
Previously, Ann was a Senior Director at the Bridgespan Group, where she led the organization’s work on organizational learning; managed consulting engagements with human services, education, and youth-serving nonprofits; and spearheaded research efforts on a variety of nonprofit management topics. She remains a Senior Advisor to Bridgespan on issues related to the starvation cycle.
You can read other interviews in the Social Velocity Interview Series here.
Nell: You and your colleague Don Howard are in some ways the catalysts behind the Overhead Myth campaign because of your seminal article, The Nonprofit Starvation Cycle in the Stanford Social Innovation Review back in 2009. How far have we come since that article? How prevalent is the starvation cycle today and what can we do to move beyond it?
Ann: “The Nonprofit Starvation Cycle” names what I consider to be a fundamental truth: “Organizations that build robust infrastructure…are more likely to succeed than those that do not. This is not news, and nonprofits are no exception to the rule.” For decades, researchers and practitioners have argued that low overhead does not equate with efficiency and efficiency, in turn, does not equate with effectiveness.
We are seeing (productive) focus and movement now versus five or ten years ago, yet that starvation cycle is still an entrenched issue. On a positive note, the Overhead Myth campaign has been critical in communicating with donors directly and empowering nonprofits to communicate with “back up.” Though I have mixed feelings about some of the messages in Dan Pallotta’s video, it elevated paradoxes of how costs are treated in the social sector. We’ve also seen targeted efforts to help funders and nonprofits address cost-related issues together. Even the federal government is trying to shift practice: the Office of Management and Budget issued guidance requiring that nonprofits receiving federal funding receive a minimum of 10% indirect rate, or they can negotiate a rate. If this guidance is followed, it will be a major policy win.
Yet we have a long way to go. Talking about terminology isn’t scintillating, but it’s critical to breaking the starvation cycle. Overhead costs aren’t the same as indirect, yet we conflate them. General operating support and capacity building—often seen as ways to help break the cycle—aren’t the same thing. Many nonprofits do not know the full costs associated with their programs, and many funders don’t understand nonprofit finance. Bridging the skill gap on both sides of the equation is critical.
Moreover, a single figure like the overhead rate is appealing because it makes comparison easy. Until nonprofits have better ways to communicate outcomes, we will continue to battle against the simplicity of a ratio. Finally, power dynamics between funders and nonprofits inhibit change; candidly, there aren’t strong forces pushing on philanthropy and government to change their practice. In the absence of such change, nonprofits are understandably worried about shifting their stance on overhead if their competitors do not (I do think there are steps that any nonprofit can take, though).
Nell: Part of what keeps the starvation cycle alive is that it is being fed, as you so clearly point out in your SSIR article, by both funders and nonprofit leaders. One of the things you were working on at Bridgespan was the Real Talk About Real Costs series of nonprofit leader and funder conversations. How effective was it to bring nonprofits and funders together to talk about these issues? And is that potential solution to the starvation cycle scalable?
Ann: Real Talk about Real Costs, sponsored by the Donors Forum with Bridgespan as a partner, brought together 300 leaders from nonprofits and philanthropy to wrestle with what good outcomes really cost. The event built upon a nine-month Community of Practice focused on “tackling the overhead challenge.” This interview has more about how Donors Forum decided to put the cost issue front and center. Another such effort is slated to begin in California in 2015.
In watching funder-nonprofit “mixed company” interactions, I was struck by how many funders expressed dissatisfaction with the grant-making status quo, yet frustrated that foundation trustees did not feel the same way. And I noticed how uncomfortable both funders and nonprofits were about having a tough conversation about full costs. At the event, we gave participants a role-reversal case study where a fictitious grantee and grant-maker had to discuss the terms of a grant; nonprofit attendees acted the part of the program officer and vice versa. In feedback surveys, the majority of comments focused on the discomfort and lack of knowledge they felt in talking about costs. Finding more ways for nonprofits and funders to wrestle with cost issues together would go a long way to building empathy and skills.
I don’t see a single scalable solution, but what feels most scalable as a starting point is a fundamentally different approach to communicating about costs: on websites, in collateral, and in conversations between nonprofit and funder. I believe that most funders can still make restricted grants without making unrealistic demands about how the funds are spent. For instance, what if funders asked “what type of capacity will you need to deliver on this grant?” vs. “what is the overhead for this project?” What if funders moved away from prescribed budget templates that don’t align with how nonprofits think about their resources? Even these seemingly small steps would go a long way to empowering nonprofits to communicate differently. Below I share a few specific ways I think nonprofits can help break the cycle.
Nell: The starvation cycle is just one example of the many ways we hold the nonprofit sector to a higher standard than we do the for-profit sector (costs for R&D, marketing, infrastructure, technology are taken as a given in the business world). Why does that discrepancy exist and how do we overcome it?
Ann: Overhead in the for-profit world—sales, general and administrative costs as a percentage of total sales—is 25% across all industries and 34% for service industries. The cruel irony of holding nonprofits to a much tougher standard is that donors often say that they do this because nonprofits ought to “run more efficiently, like a business.” Most people don’t know the overhead of businesses because profitability matters more.
Unlike businesses, nonprofits can’t report results in a single figure that makes apples-to-apples comparisons easy. One way to overcome this challenge is to move toward highlighting outcomes. I don’t mean standardizing outcomes (although efforts like Perform Well are very powerful), and I don’t mean doing away with financial indicators entirely. I mean moving from touting our overhead to sharing our program results. In an ideal world, nonprofits would be able to share not only their outcomes but also the costs associated with producing them.
I know this doesn’t happen overnight. Starting immediately, I would love to see more funders speak out in support of—and actually fund—these investments. And nonprofits have a role to play in shifting the conversation: by sharing for-profit overhead as a way to challenge assumptions; by taking down the overhead pie chart and other “we’re lean!” messaging from websites; and using systems like the Guidestar Exchange to share our goals and strategies in our own words.
Nell: You recently left the consulting/thought leader side of the sector (as a senior director at The Bridgespan Group) to work in the nonprofit trenches as COO of Habitat for Humanity Greater San Francisco. What are you learning as you work to turn theory about overcoming the starvation cycle into action inside a nonprofit organization?
Ann: I am learning that it is doable and reminded that it is hard. In the last few months, we have taken down the efficiency statement on our website (“87 cents of every dollar goes to helping families…”) and will soon to replace it with statements of outcomes we see for Habitat homeowners. We walked away from a $100K+ funding opportunity because the grant would have allowed a maximum of 10% for indirect costs, and we estimated that the compliance costs alone would have been 2-3 times that. The grant’s focus aligned well with a nascent program, so it was a tough decision.
Under our finance team’s leadership, we also implemented a time tracking system. We now have better information on how people spend their time and can compare actual versus what was allocated in the budget. We learned, for instance, that in the last quarter we spent more time on G&A than we’d projected. This makes sense: this summer a small team of board and staff, including myself, negotiated a lease for a new office space, then transitioned to managing the move out- and move-in process. I don’t think anyone would say that was a waste of time; finding a space that met our budget in the San Francisco real estate market has been a challenging but important task.
Next on the list is an internal conversation about Charity Navigator and the way we promote our four-star rating on our website. It will be a healthy debate. On the one hand, I appreciate the focus on accountability and transparency, and I’d be naïve if I thought we hadn’t received donations from donors who use these ratings. On the other hand, I have deep reservations about Charity Navigator’s financial health methodology, particularly in that it penalizes nonprofits with higher overhead regardless of context. If we invest to support our growth—spending time finding a new office in a tough market, or upgrading our HR systems to find and retrain the best staff—we ought not to feel embarrassed about that, nor be penalized for it.
I am fortunate to work with a board and staff who are open to these changes and debates. My hope is that our experiences can serve to keep my perspective about the starvation cycle grounded and productive.
Photo Credit: Habitat for Humanity Greater San Francisco
In today’s Social Velocity blog interview, I’m talking with Jacob Harold, CEO of GuideStar, the clearinghouse of information on nonprofits. Jacob came to GuideStar from the Hewlett Foundation, where he led grantmaking for the Philanthropy Program. Between 2006 and 2012, he oversaw $30 million in grants that, together, aimed to build a 21st-century infrastructure for smart giving. Jacob was just named to the 2014 NonProfit Times’ Power and Influence Top 50.
You can read other interviews in the Social Velocity Interview Series here.
Nell: It has been over a year since the Letter to the Donors of America about the overhead myth. Where are we today in getting donors (and board members) to understand that overhead is a destructive mindset?
Jacob: I’m glad to report that the response to the first overhead myth letter far exceeded our expectations. Hundreds of articles have been written about the letter. It comes up almost every time I hold a meeting or give a talk. For at least a few people, I think it’s been a deep affirmation of something they’ve known a long time. And, indeed, many others in the field have been working on this: the Donors Forum, Bridgespan, the National Council on Nonprofits, and others.
But we also know that we have a long road ahead of us. The overhead myth is deeply ingrained in the culture and systems of the nonprofit sector. It will take years of concerted effort for us to fully move past such a narrow view of nonprofit performance to something that reflects the complexity of the world around us. But it’s essential if we want to ensure we have a nonprofit sector capable of tackling the great challenges of our time.
Nell: The Letter to the Donors of America was obviously focused on the donor side of the problem, but how do we also change the mindset of those nonprofit leaders who perpetuate the Overhead Myth in their reporting, conversations with donors and board members, etc.?
Jacob: This is a critical aspect of the challenge. Every year nonprofits send out something like one billion pieces of direct mail to donors that prominently display their organization’s overhead ratio. It’s no wonder that donors think that’s a proxy for performance—we’ve trained donors to think so!
That’s why the CEOs of Charity Navigator and BBB Wise Giving Alliance and I are currently working on a second overhead myth letter—this one to the nonprofits of America. We’re still finalizing the text, but in it we will be calling on nonprofits to be more proactive about communicating the story of their programmatic work, their governance structures, and the real costs of achieving results. And, more, we want to recruit nonprofits to help us retrain donors to pay attention to what matters: results. In the end, that means that nonprofits have to cut the pie charts showing overhead versus program—and instead step up to the much more important challenge of communicating how you track progress against your mission.
Nell: At the Social Impact Exchange Conference you announced some pretty exciting plans with the GuideStar Exchange to, in essence, create a marketplace of information about nonprofits so that the best nonprofits receive more resources. Talk a little about your plans for the Exchange, and most importantly, how you plan to bring nonprofits and donors there.
Jacob: The GuideStar Exchange is our mechanism for collecting data directly from nonprofits. By going straight to nonprofits we can build on the data we already have from the IRS Form 990. The 990 is a regulatory document, it’s not meant to offer a comprehensive view of nonprofits and their programs—that’s what we’re trying to do with the Exchange. And it also lets us get information much more quickly!
So far we’ve had great success. More than 100,000 nonprofits have shared data with us through the GuideStar Exchange and more than 38,000 have reached one of what we call our participation levels—Bronze, Silver, or Gold. But we have a long way to go if we want to approach a comprehensive view of the marketplace. So we’re adding new incentives for nonprofits to share data through the Exchange, building new ways to distribute that data through other channels and improving the user interface to make the process easier. Right now we’re collecting quantitative financial data and qualitative programmatic data but later this year we’re going to release a tool for collecting quantitative programmatic data, too.
This comes back to the overhead myth campaign. If we’re going to ask donors to go beyond the overhead ratio when considering nonprofits, we have to offer an alternative. GuideStar Exchange is a critical part of that alternative: a chance for nonprofits to tell their story in a structured way that forces them to articulate in clear terms what they’re trying to accomplish, how they’ll get there, and how they’ll measure progress along the way.
Nell: The Money for Good reports that came out a couple of years ago rather discouragingly found that the majority of donors don’t give based on nonprofit results. With the GuideStar Exchange you obviously think that is changeable, so how do we go about changing donor interest and behavior?
Jacob: Well, I had a different read of that data. It is absolutely true that the Money for Good research showed that most donors don’t give based on nonprofit results. But it also showed that a significant portion—about 15%, depending on how you cut the data—do. That may not seem like much, but that represents 30 million people responsible for close to $40 billion in annual giving. So there’s already a huge unserved market, even if it represents a small portion of the entire system of philanthropy.
And at GuideStar we see this every day. We have 7 million unique users a year. And that’s just on our website, our data was used another 22 million times on other platforms last year through just one of our distribution mechanisms. So people want data. And as we get more and more programmatic data—data that is oriented towards results against mission—I’m absolutely confident that we’re going to unlock new behaviors among donors, nonprofit executives, journalists, and others. The nonprofit sector is about to enter a new phase, and I think it’s going to be remarkable.
Photo Credit: GuideStar
Ever since last year’s Letter to the Donors of America from GuideStar, Charity Navigator, and BBB Wise Giving Alliance there has been a growing movement to debunk the “nonprofit overhead myth,” the notion that donors should evaluate nonprofits based on the percent they spend on “overhead” (fundraising and administrative) costs.
More and more articles (a most recent one here) are cropping up explaining the overhead myth and highlighting donors who overcame it. And even fundraising journal Advancing Philanthropy is devoting their entire Spring issue to the topic.
But at the same time we have very obvious examples of the continuing strength of the overhead myth. The latest is nonprofit darling Charity:Water, which is often held up as the gold standard of innovative fundraising and nonprofit strategy, claiming that 100% of their donations go “directly to the field.” And thus the overhead myth lives on.
Will we ever be rid of the idea that nonprofits can somehow achieve a nirvana where very little (or no) money goes to boring things like salaries, technology, infrastructure, fundraising, leadership development, planning, R&D?
I wonder if we could gain more traction by talking less about the negatives of an overhead myth and talking more about the positives of nonprofit organization building.
For example, one of the things that is often considered “overhead” and rarely gets funded is nonprofit leadership development. But in the for-profit sector, leadership development is viewed as an incredibly important and worthy investment. According to a recent article by the Foundation Center, the business sector spent $12 billion on leadership development in 2011, whereas the nonprofit sector spent $400 million, or viewed another way, businesses spent $120 per employee on leadership development, whereas the nonprofit sector spent $29 per employee.
And leadership development can have such a positive return on investment. A stronger nonprofit leader can:
- Recruit, train and manage a more productive and effective staff
- Engage a more invested board of directors
- Use money and other limited resources more strategically
- Open a nonprofit to bigger and better networks
- More effectively manage to outcomes
- Create an overall more highly performing nonprofit
So what if we refocused the overhead myth discussion on the power of nonprofit organization building? Beyond leadership development, investing in nonprofit organization building means money for things like: talented, effective fundraising staff; smart long-term planning; performance management systems; effective technology.
At the core, organization building is about creating a smart, strategic nonprofit that can actually realize the outcomes it was set up to achieve. Organization building can make the difference between a nonprofit that is just getting by and a nonprofit that is actually solving problems.
Photo Credit: liquidnight
I’m really excited to announce that, as promised, I’m starting to move the Social Velocity Interview Series to video interviews, via Google Hangouts (for those interviewees who are willing). I launch next week with an interview, on the Social Velocity Google+ page, with Hope Neighbor, CEO of Hope Consulting and author of the Money for Good reports exposing an $15 billion opportunity to direct more private money to high performing nonprofits.
In 2010 and 2011 Hope, and her team of partners (like GuideStar and Charity Navigator) and funders (like The Gates Foundation and The Hewlett Foundation), conducted comprehensive studies of donor behavior, motivations, and preferences for charitable giving in order to understand how to effectively influence giving behaviors.
Money for Good I found that 90% of donors say how well a nonprofit performs is important, but only 30% of donors actively try to fund the highest performing nonprofits. So there is a disconnect.
In Money for Good II, Hope and her team set out to figure out what it would take to change donor behavior and direct more money to high performing nonprofits. What they found is that more information about performance and more “Consumer Reports” style reporting could encourage more donors to switch their giving to higher performing nonprofits.
This is all fascinating and helps inform the on-going question, “How do we funnel more money to social change?” Needless to say I have lots of questions for Hope.
Here is my list of questions for Hope, but I imagine since it’s a conversation the questions will evolve:
- With Money for Good you are hopeful that we can change donor behavior and shift more money to high performing nonprofits. But what will it take beyond providing more (and better information) to donors? How do we create incentives for donors to change?
- Money for Good estimates that $15 billion could shift to high performing nonprofits, but that is only 5% of the total private money flowing to nonprofits. And only 12% of all money flowing to the nonprofit sector comes from the private sector, so we are really only talking about shifting 0.6% of all the money in the sector to high performing nonprofits. Is that piece of the pie worth the kind of donor behavior change effort required? What about expanding the overall pie (only 2% of the annual Gross Domestic Product has historically gone to the nonprofit sector)? Is there any hope of growing the 2%?
- Where does impact investing fit in all of this? Typically only 5% of a foundation’s money is directed to social change efforts. What about the opportunity to encourage foundations to tap into their corpus and do more program-related and other mission-related investing?
- How do we ensure that more information means better information? What if low performing nonprofits simply start mimicking high performing reporting? How do we ensure that accurate performance evaluation is conducted and reported across the sector? And how do we fund that?
- What about the problem of donors misconstruing information? For example, if nonprofits provide more financial information, and donors still have a bias against overhead spending, could that just shift more money to nonprofits with lower overhead, not necessarily higher performance?
Watch for the interview on the Social Velocity Google+ page next week.
And stay tuned for more video interviews soon!
In this month’s Social Velocity blog interview, I’m talking with Laura Zumdahl, Vice President of Nonprofit Services at Donors Forum. Donors Forum provides networking, education, leadership and advocacy for philanthropists and nonprofits in Illinois. Laura provides leadership to Donors Forum’s efforts to strengthen nonprofits. I wanted to talk to Laura and Donors Forum primarily because of their innovative work bringing nonprofits and philanthropists together to talk about the real costs (including administrative costs) of creating social change through their Real Talk about Real Costs effort I highlighted earlier this year.
You can read past interviews in the Social Innovation Interview Series here.
Nell: What was the impetus for Real Talk about Real Costs and what is your ultimate goal with the project?
Laura: We’ve long known “overhead” has been a challenge in the nonprofit sector. Over the past few years, we’ve been engaged in some conversations and education about overhead and the “starvation cycle” that encumbers nonprofits, but it had been in fits and spurts.
In 2012 Donors Forum decided we needed to do more to directly address the issue with our membership and see what kind of change we could make locally on this tough issue. So we launched a “Community of Practice” focused on bringing together a group of dedicated funders and nonprofit leaders to tackle the issue over the course of a year through education, sharing of stories, and collective action to move the needle on funding nonprofit overhead.
Ultimately, we want to see change in the sector related to funding the full cost of service delivery. We want nonprofits to be able to understand and articulate their true costs of delivering their missions, and we want funders to understand those costs and fund organizations accordingly. We want funders to invest in the impact they can have with their dollars, not just a limited portion of a program that doesn’t include the real costs. For nonprofits to have a greater impact, they need to have their mission fully-funded.
Nell: The underlying assumption behind Real Talk about Real Costs is that it is possible to get nonprofits and funders to talk openly and honestly with each other. But that is something that rarely occurs in the sector because of the power imbalance between grantor and grantee. How do you overcome that imbalance and get to open, honest, productive conversation?
Laura: The power dynamic you articulated is often a huge barrier for authentic, productive conversations between grantors and grantees. We recognize that as part of the challenge of this work and know that we are only going to make change by helping people to shift that in their own work and experience so they can understand the perspective of the “other”.
When we first started this effort we formed a community of practice comprised of about 30 leaders – half grantors and half grantees. This community spent a year coming together every six weeks or so to learn more about overhead cost issues, hear each others’ stories about the challenges related to their work, and develop relationships. We intentionally focused on helping them to create a trusting and safe space where they could understand and learn from each other. It’s not easy to get to open and honest conversation when power dynamics are at play, but we saw this happen when we were deliberate about getting a commitment from participants to engage in this way and create a space for them to develop relationships and trust to allow these conversations to take place.
Nell: What are your plans, or do you have any plans, to take these conversations to a national level? How do we encourage these conversations beyond Illinois?
Laura: We do! We are continuing to work with our national partner, The Bridgespan Group, on the ongoing conversations at the local level in Illinois. We plan to launch another community of practice later this year, which will continue this work that has evolved over the past few years. We also are working with other great national partners, such as Guidestar and Grantmakers for Effective Organizations (GEO), to take the conversations to a national level and encourage change in other locations, not just Illinois.
We need to encourage these conversations across the country – and that happens when people take the risk to build relationships that enable authentic conversations so stories can be shared and nonprofits and funders can work together to make change on how we address the issue of overhead costs in the sector.
Laura: We were thrilled to see Guidestar, Charity Navigator, and BBB Wise Giving Alliance make such a strong statement to the donors of America. Their recognition of how overhead rates can be wrongly used as a measure of effectiveness helps to raise awareness about this misconception and the importance of donors investing in impact.
Their leadership on this issue and the pledge that they’ve asked donors to commit to is an important step in helping to clarify the myths that have long surrounded overhead costs. They are looked to by many donors for signs of what to consider when selecting nonprofits to invest in, and their plea to donors to consider the real cost of outcomes and impact of an organization – not just a ratio that doesn’t tell the whole story – is a clear directive that we hope will affect both individual and institutional donors substantially.
Nell: What do you think it will take to really move the needle and get a majority of donors to recognize and invest in real nonprofit costs?
Laura: Change is hard when you are trying to affect behavior in a whole sector, so it’s not going to happen overnight. It’s a long process of affecting change in some areas that can build and eventually influence others to reconsider how they invest in real costs. We believe that if we can take the lead on making change in Illinois and share that experience with others, it’ll eventually help to influence behavior in other geographic areas across the country – hopefully leading to a wide-spread sector shift somewhere.
Several years ago nonprofits and funders weren’t talking about this issue together – and now, in some small pockets – they are. That’s a step in the right direction. And those of us in the sector need to support this work by making a personal commitment to address the myths around overhead whenever we can so we are part of making change happen.