Wednesday, October 10, 2012

The Duct Tape on the Carpet

After a few weeks at a new job directing a nonprofit, I noticed a pattern. There seemed to be a pride taken by some staff in being "on the cheap." The fraying administrative office carpeting had duct tape covering the rips. When the 10 year old Hoover quit, it had been routinely sent out for repair.  The organization, though not awash in cash, did have an endowment well into the millions. I thought  the shabby carpet sent a wrong signal to visitors/donors and the the person who operated the vacuum cleaner might find her job easier with the latest model. That begged the question: Might there be a benefit derived from employees in nonprofits having a pleasant work environment?

The question goes to the heart of an issue in current discussion these days: the value in judging the effectiveness of nonprofits by their low administrative costs. Since the advent of rating organizations such as Charity Navigator, such judgements can be made based on indices, such as program/administrative cost ratios. But is this fair or accurate?

In an article in The Los Angeles Times last April, retired community foundation executive Jack Shakeley answered the question in the negative. Although he admits low administrative costs might indicate prudence, they might equally demonstrate inadequate staffing and sub par salaries, which can affect turnover and/or  performance. He believes that the rise of evaluation through analysis of overhead costs is based on the human propensity for "quick answers and gut reactions."  That, plus the difficulty in assessing the merits of nonprofits programmatically, has created what he calls the lazy pseudoscience of judgment by level of administrative costs. In fact, he claims some nonprofits have under-reported overhead costs to gain a competitive advantage.

The writer/consultant Don Pallotta has weighed in on the subject. He is the author of the book "Charity Case: How the Nonprofit Community Can Stand Up for Itself."  He was the guest October 2 in a Chronicle of Philanthropy Online Discussion entitled "How Charities Can Fight Overhead Myths. "  The solution he offers lies in systematic education of  the public in the mission and programs that drive the organization. He states "low overhead will never inspire anyone" and that "maintaining low overhead at the expense of mission is a betrayal of the donor."  The nonprofit must make clear its goals, the progress it is making in reaching them and how it measures that progress.

A regular target of the overhead detectives is the cost of fundraising. Pallotta challenges a popular perception - that donors don't want to fund fundraising. Does a donor want to be the only one? If the donor believes in the organization's programs wouldn't he want others to join in?   If the organization has been boasting about low overhead in its appeal to donors, then the outcome of the "ask" is up for question.

I have experience regarding this issue. When I started at Maymont Foundation in Richmond in the early '90s, there was no development department. I asked the board to fund a development director. A debate ensued within the board - one faction saying fundraising was the director's (my) job; the other saying yes, but there had to be staffing for that function as well. The funding to start what was to become a powerful development engine (6 years later completing a $18 million capital campaign) came about because the board was persuaded by the argument that it was an investment that would eventually pay off - and it did. The board leader in that fight used to say "You have to spend it to get it."

I am not preaching profligacy but some nonprofits have such a tradition of mendicancy that they risk developing a self-image of martyrdom. Such an attitude is not conducive to raising funds or to promoting positive community perception of mission and programs. Donors prefer to give to opportunities rather than to desperate organizational need. If the latter is the central message, success will be limited. The key concept to hold is the appeal to donors of investment in mission and the definition of the return on that investment.

As for the vacuum cleaner, the staff housekeeper was consulted. She was pleased to be asked and chose repair- she liked the Hoover. The carpet was replaced and the offices spruced up. Both external and internal image were enhanced. "Poor little me" and "judge us by our frugality"  became attitudes connected with the past.