Three Information Organizations Join Forces To Dispel Charity Overhead Myth

By Emma Koch

Three Information Organizations Join Forces To Dispel Charity Overhead Myth

June 19, 2013 Updated Dec 19, 2013 at 8:20 PM EDT

WASHINGTON, D.C. (www.incnow.tv) -- In a historic move, the leaders of the country's three leading sources of information on nonprofits -GuideStar, Charity Navigator, and BBB Wise Giving Alliance - penned an open letter to the donors of America denouncing the "overhead ratio" as the sole measure of nonprofit performance.

The letter, signed by all three organizations' CEOs, marks the beginning of a campaign to correct the common misconception that the percentage of charity's expenses that go to administrative and fundraising costs-commonly referred to as "overhead"-is an appropriate metric to evaluate when assessing a charity's worthiness and efficiency.

In response to donor expectations and funder requests, the nonprofit sector, which all three organizations provide information to and about, has often erroneously focused too heavily on overhead over the past few decades, which has starved some nonprofits from investing in themselves as enterprises and created what the Stanford Social Innovation Review calls, "The Nonprofit Starvation Cycle."

The open letter, published Wednesday on the websites, states that "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. When we focus solely or predominantly on overhead...we starve charities of the freedom they need to best help the people and communities they are trying to serve."

The letter goes on to recommend that donors focus their attention on more relevant factors behind nonprofit performance: transparency, governance, leadership, and results. The Overhead Myth letter is under a Creative Commons license, and nonprofits are welcome to print it for free and use it how they wish.

"We hope the Overhead Myth campaign will inspire nonprofits to focus on results, not ratios, when engaging with donors and funders. Our Money for Good II research shows that donors care about far more than just financial ratios," said Jacob Harold, president and CEO of GuideStar, the leading source of nonprofit information. "Through this campaign we want to encourage donors to give with their heads as well as their hearts, and consider the whole picture when determining which charities to support. As we wrote in our open letter to donors: 'The people and communities served by charities don't need low overhead, they need high performance.'"

The Overhead Myth campaign is an unprecedented collaboration among the leaders of the three major nonprofit infrastructure groups in the nonprofit sector. Reams of literature from academics and researchers, including the Indiana University's Center on Philanthropy, the National Center on Charitable Statistics at the Urban Institute, and the Bridgespan Group, among others, back up the statement from the three organizations that donors should focus on more meaningful factors of nonprofit performance, including transparency, governance, leadership, and, most importantly, results. You can read these reports and more on the back of the Overhead Myth letter: www.overheadmyth.com.

GuideStar, Charity Navigator, and BBB Wise Giving Alliance have been working to offer donors and other stakeholders alternatives to overhead, and will continue to do so.

"All three of our organizations - BBB Wise Giving Alliance as well as Charity Navigator and GuideStar - have been speaking publicly but separately for some time about the need to shift the conversation from overhead to impact and broad accountability standards," stated Art Taylor, president and CEO of BBB Wise Giving Alliance, a charity reporting organization. "This campaign is a big step forward in harnessing each organization's unique voice to distribute one powerful message: let's move beyond overhead."

"A one-dimensional focus on overhead is not the right way to assess a charity's performance. We believe that for a donor to correctly assess a charity, the organization must be viewed on three dimensions: its financial health (not just overhead), its governance practices, and the results of its work. We are working mightily to see to it that in the not too distant future, donors will have available to them information on all three dimensions. Meanwhile, there is already good information on financial health and governance matters that we believe should be given equal consideration in charitable giving/social investment decisions," said Ken Berger, president and CEO of Charity Navigator, a charity evaluation organization.

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