BBB Wise Giving Alliance, Charity Navigator, and GuideStar Join Forces to Dispel the Charity “Overhead Myth”
Chief Executives of Three Leading Nonprofit Information Providers Publish Letter Condemning Administrative Expenses as Measure of Performance
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.”
Washington, DC—June 17, 2013—
The open letter, published today on a new website, www.overheadmyth.com, as well as overheadmyth.give.org, and www.charitynavigator.org/thebestandworstwaytopickacharity, 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.
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“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.
“There are many ways to get involved in the Overhead Myth campaign,” added Harold. “I encourage nonprofits across the country to visit www.overheadmyth.com. We invite them to include the letter in their donor solicitations and marketing materials, and to join the campaign to publicly show their support. I also urge nonprofits as well as donors who really want to make an impact with their charitable gifts to spread the word to their own networks using our communications and social media tool kit: www.overheadmyth.com/press. Last, nonprofits can, and should, share their data. Our one-of-a-kind GuideStar Exchange program allows nonprofits to share their data with stakeholders for free.”
To learn more about the Overhead Myth campaign and get involved, please visit www.overheadmyth.com.
About BBB Wise Giving Alliance
BBB Wise Giving Alliance, http://www.give.org, produces reports on more than 1,200 nationally soliciting charitable organizations, and local Better Business Bureaus report on another 10,000 local and regional charities. BBB Wise Giving Alliance does not rank or rate charities but rather seeks to assist donors in making informed judgments by providing objective evaluations of charities based on 20 standards that address charity governance, finances, fund raising, appeal accuracy, and other issues. There is no charge to charities for the evaluation, and the resulting reports are accessible to the public at give.org.
About Charity Navigator
Charity Navigator, www.charitynavigator.org, is the largest charity evaluator in America, and its website attracts more visitors than all other charity rating groups combined. The organization helps guide intelligent giving by evaluating the Financial Health and Accountability & Transparency of more than 6,300 charities. Charity Navigator accepts no advertising or donations from the organizations it evaluates, ensuring unbiased evaluations, nor does it charge the public for this trusted data. As a result, Charity Navigator, a non-profit 501(c)(3) organization itself, depends on support from individuals, corporations, and foundations that believe it provides a much-needed service to America's charitable givers.
GuideStar, www.guidestar.org, connects people and organizations with information on the programs and finances of more than 1.8 million IRS-recognized nonprofits. GuideStar serves a wide audience inside and outside the nonprofit sector, including individual donors, nonprofit leaders, grantmakers, government officials, academic researchers, and the media.