An attack on common percents

October 18, 2009
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In Friday morning’s session of the Next Audiences Summit, sponsored by the Arts Council of Indianapolis and Next Generation Consulting, speaking Don Pallotta, author of “Uncharitable: How Restraints on Nonprofits Ruin Their Potential” made a compelling case that our priorities are warped when it comes to funding non-pofits.

The biggest problem, according to Pallotta: We put too much emphasis on the “overhead” question.

Overhead, he said, doesn’t take away from the cause—it can be an important part of what creates impact. Pressure to keep overhead down can force non-profits to go without the things it needs to make progress. Plus, he added, it doesn’t tell you anything about what your dollar is buying.

If, he hypothetically presented, 90% of every dollar goes to soup at soup kitchen A as opposed to 70% at soup kitchen B, that does not mean that the first is doing a better job than the second. “If you visit you might find that A is in dilapidated facilities with burned out staff serving rancid soup while B has state of the art facilities, friendly staff, hearty nutritious soup, and great case management. What percentage went to the cause would give you none of this information," he said.

He finds the problem epidemic, noting studies that show that, when asked what information donors want to know, 79% said they wanted to know what percentage goes to program. Only 6% said they want to know if it makes a difference. “We’ve trained people to think the two are the same. If overhead is low, it’s a good charity that’s making a difference. But the level of overhead doesn’t tell you that. We don’t do this anywhere else in the economy. If Jonas Salk spent $10 million to raise $20 million and found a cure for polio, we wouldn’t say ‘This guy has 50% overhead, that’s bad.’ His result is a cure.”

So why do we keep asking it?

Pallotta points to Attorneys General who warn the charitable not to donate to charities that use more than 35% of your money in administrative costs. He points to organizations like Charity Navigator that are constantly quoted in the media but by their own admission don’t evaluate program effectiveness.”

The talk was clear in identifying a problem, but not strong on solutions. Pallotta encouraged the non-profit honchos in the crowd to stop using the word “overhead.” He said we need to build a national database to get narrative information about charities. And he encouraged attendees to “return to our wildest dreams. I the end, we have to have the courage to be true to our most daring ideas…with a focus on vision, this ideology will crumble under the weight of their magnificence and our determination to make them real.”

Your thoughts?

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