Grappling With Nonprofit Overhead

This semester I have been grappling with the overhead ratio as a means to determine whether or not a nonprofit organization is successful. I knew this was what I wanted to discuss from the second Professor Burton said we would be talking about our call for change. I have been heavily involved with nonprofits for the past few years and plan to spend the rest of my life helping them (check out my website: stephanietannergrants.com).

Over the course of this assignment my idea hasn’t really changed, but my delivery definitely has changed. I began by thinking of just the overhead ratio and how we should pay more attention to the impact that a nonprofit organization is making. This isn’t the whole picture though, because nonprofits are accountable for the money they are spending and it honestly might not be right that a CEO of a nonprofit makes a million dollars a year. Then again, I think back to Dan Pallota’s TED talk where he discussed that we don’t have a problem with a video game company’s CEO making a million dollars to make violent video games, but we cringe when we see someone in the nonprofit sector make that much. When I think about this then I feel like I want to root for those in the nonprofit sector who are making a lot of money, but at the same time I wonder why we can’t be happy with a little less salary and helping a few more people.

Overall, this situation is a lot more complex that I initially thought. There are the issues that come with salaries, but that is only a small portion of the overhead ratio. We also need to look at fundraising, buildings, rent, etc. Many of these expenses are necessary to a degree, but the question is, how much can we spend on overhead before it is bad? I think that the answer is different for every nonprofit. I also think that this depends on the time we are looking at the nonprofit sector. For example, when Andrew Carnegie started giving away a large portion of his wealth for building libraries and concert halls, etc., he was already a wealthy business man and he was simply donating his money. The sector has changed drastically and now people devote their entire careers to the nonprofit sector. Therefore, we need to realize that these people need to make a living as much as the lawyer next door. Times have changed, and while it is great that people are willing to give away some money for the poor, we need full-time staff in the nonprofit sector who are willing to turn that money into lasting impact. 

I think that rather than just look at the overhead ratio, we ought to look at the wholepicture. We need to especially examine what impact the nonprofit is making on the communities that they serve. Are they truly making a lasting impact that is sustainable? Are they helping people learn how to fish or are they simply giving away a fish?

POST UPDATE

I think it is really hard to give a specific way of determining whether a nonprofit is successful. I have said that we really shouldn't just look at the overhead. We shouldn't simply look at how much the CEO is making or how much they are spending on advertising, but it is hard to say what we should do. Personally, I think it is getting to know the individuals who's lives are touched and seeing if they have been taught "how to fish" (so to speak). This is really hard to do because there are so many complex issues in nonprofits and it is not always easy to see a good nonprofit's impact.

For example, there was a nonprofit that developed "play pumps" in Africa. These are water wells that were powered by children playing on the toys. This seems like a great idea and you could see smiling children's faces on their website describing the good that they were doing, but in the long run, it wasn't as positive as they thought. The people in those communities were not personally invested in those play pumps and the kids didn't want to play on these strange toys. So, a great nonprofit with a great idea didn't have a great impact.

Another example is a for-profit business with a nonprofit mind. This is TOMs shoes. The idea is that you buy a pair of shoes and they will donate a pair of shoes to someone in poorer countries. This sounds so great, but the fact is that they donated shoes to places that still had people who made their livelihood by repairing shoes. Also, the children found out that they could make money by selling the shoes that they received for free, so that is what they did. In the long run TOMs donations has ruined the economies of quite a few communities despite their desire to do good.

One more example is Kiva. Kiva is an organization that sends micro loans to people who want to start their own businesses. It is a great, large nonprofit, but they aren't actually making much of an impact. According to research about 7% of the people in similar situations to Kiva recipients start their own business AND about 7% of Kiva recipients themselves start businesses. Therefore, these people are just as likely to start a business without a micro loan as they are to start a business with a micro loan.

I would recommend that if you want to donate money to an organization, you should really invest time into looking at what the organization does and how it does it. Here are a few ideas:
1. Are they making a lasting, positive impact on a community?
2. Is the impact sustainable or is it going to break down as soon as the nonprofit leaves?
3. Are they serving a community that has a lot of help or are they focused on an area that really needs them?
4. Is this a cause that I personally believe in?
5. Does this organization show exactly how they are being sustainable and do they have tangible proof that their efforts are making a difference? (For instance, I would expect MANY more people to have started businesses through Kiva mice loans. I would expect for a lot more children to receive an education through TOMs, and I would expect the play pumps to be doing a lot of good for the communities in Africa five years after they were implemented.)

Overall, it is extremely difficult to know what nonprofit's to donate to. We need to become as educated as we can and donate to organizations that are sustainable and actually helping.