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Important Message Regarding Overhead Myth from GuideStar CEO

Important Message Regarding Overhead Myth From GuideStar CEO

Foundation Group has long been a voice in the movement to shatter the so-called Overhead Myth.  The Overhead Myth, at its simplest, is the persistent belief that a nonprofit’s expenditures on anything other than direct programs is wasteful.  Nothing could be further from the truth.  In mid-2013, the CEOs of GuideStar, Charity Navigator, and BBB Wise Giving Alliance issued an open letter vowing support to shattering this myth.  We blogged  about that at the time and congratulated them on coming to the forefront of the movement.

Fast forward to now.  GuideStar reached out to us last week to let us know about their follow-up to that open letter and asked us to inform our audience.  We are thrilled to do so.  It is a critically important topic and is definitely worth your time to read:

A Message From GuideStar President/CEO Jacob Harold 

In 2013, I joined with partners at the BBB Wise Giving Alliance and Charity Navigator in writing an open letter to the donors of America explaining that “overhead ratios” are a poor way to understand nonprofit performance. We named this campaign “The Overhead Myth.”

I’m glad to report that the response to the campaign, including the original Overhead Myth letter to the donors of America, far exceeded our expectations. More than one hundred articles have been written about the campaign. It comes up every time I hold a meeting or give a talk. For many in the field, it’s been a deep affirmation of something they’ve known a long time. And, indeed, many leading organizations– the Donors Forum, Bridgespan, the National Council on Nonprofits, and others — have been working on the issue for a long time.

But we also know we have a long road ahead of us. The myth of overhead as inherently “wasteful” spending is deeply ingrained in the culture and systems of the nonprofit sector, and it will take years of concerted effort for us to move past such a narrow view of nonprofit performance to something that fully reflects the complexity of the world around us. That effort is essential, however, if we want to ensure that we have a nonprofit sector capable of tackling the great challenges of our time.

That’s why last week the CEOs of Charity Navigator and the BBB Wise Giving Alliance and I released a second Overhead Myth letter—this one addressed to the nonprofits of America. In that letter, we suggest a set of steps nonprofits themselves can take to help dispel the Overhead Myth. We all share responsibility for allowing things to have reached this pass.  And it will take all of us to fix it.

We direct this letter to nonprofits not because we feel they are the originators of the Overhead Myth but because they are in the best position to communicate with their donors and funders. We want to recruit nonprofits to help us retrain donors and funders to pay attention to what really matters: results.  In the end, that means nonprofits have to throw away the pie charts showing overhead versus program—and step up to the much more important challenge of communicating how they track progress against their mission.

In simple terms, we must—collectively—offer donors an alternative. In the letter, and on the accompanying website, we call on nonprofits to do three things as their part of this evolution:

  1. Demonstrate ethical practice and share data about their performance.
  2. Manage toward results and understand their true costs.
  3. Help educate funders (individuals, foundations, corporations, and government) on the real cost of results.

We have provided a list of tools and resources related to each of these goals. These tools give nonprofits tangible steps they can take to engage their stakeholders around this critical issue. As the sector develops new resources and tactics, we will add them to the website.

We believe it will take a shared effort to focus donors’ attention on what really matters: nonprofits’ efforts to make the world a better place. It doesn’t matter whether you work at a nonprofit or donate a few dollars to a favorite charity every year, please join us as we seek to move from the Overhead Myth to the Overhead Solution.

For more information, or if you have a resource related to this issue that can help advance the cause, please email overhead@guidestar.org.

— Jacob Harold is the president and CEO of GuideStar, a 501(c)(3) nonprofit that connects people and organizations with information on the programs, finances, and impact 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.

Justin Williamson

Justin Williamson puts his writing talents to work for Foundation Group by bringing news and useful content to our fantastic clients and followers.

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