Blog Archives

Ending the “overhead myth” is everywhere

overhead mythFor the last few years, I’ve come across snippets and whispers from non-profit thought-leaders about how we need to help donors change their views about evaluating a non-profit organization based on how little it spends on administrative and fundraising costs. It was mentioned in polite conversations. A few bloggers were chattering about. I even saw it on a website owned by a charity watchdog group.

Then a few years ago, Dan Pallotta published a book titled “Uncharitable,” and this discussion emerged from the shadows of the non-profit sector. For the last few years, everyone I know has been engaged in this discussion or pieces of it such as:

  • Executive compensation
  • Marketing & advertising
  • Risk aversion
  • Return on investment for donors
  • Spending on today versus tomorrow

The overhead myth has been building momentum for a few years now. I even jumped on this bandwagon a year ago with the following series of blog posts:


A few weeks ago I received an email from a dear friend of mine with a link to “Letter to the Donors of America” from the BBB Wise Giving Alliance, Guidestar and Charity Navigator. The letter was simple and straightforward. It asked donors to please stop looking at overhead when making charitable contributions. It was a case for support document. Pure and simple!

After this first email from a friend, I received another and then another. I started to see bloggers tackle the subject, and then non-profit agencies started talking about it on their websites. Before long, it was all over social media and everyone in my circles was talking about “the overhead myth“.

For the record, I’ve always thought that the idea of using overhead to evaluate a non-profit organization’s worthiness was silly for two reasons:

  1. Through the magic of accounting, every smart executive director keeps at least one eye on what donors consider the “percentage of overhead” and tweaks their allocation formulas to keep that percentage where it needs to be. So, this number really means nothing. It never has and never will.
  2. When I am purchasing goods and services, I never hold for-profit companies to this standard. When I hired a marketing firm to help me during the start-up phase for The Healthy Non-Profit LLC, I didn’t look at how much money they spent on administration, executive compensation or their advertising budget. Heck no! I looked at the quality of their work. As a donor, I like to invest in organizations whose programs are having impact regardless of how much they pay their executive director.

I’ve been asked by some readers of this blog to write something about the “overhead myth“. As flattering and tempting it is to weigh-in on a compelling subject like this, I’m going to use some self-restraint and decline. (Surprising? I know!)


Have you see how much has already been written out there? OMG!!! Everyone with a blog, website, Facebook page, and Twitter account has jumped on this bandwagon.

I’m will use the remainder of my space to post links to those other blogs, websites, etc. If you are very interested in this topic, please click your heart away.

Your thoughts?

Let’s start a discussion using the comment box attached to this DonorDreams blog post.

I personally don’t think anything is going to change as a result of this “overhead myth” campaign push.

I think donors are set in their ways. I believe Dan Pallotta was right about the Puritan influence on our culture. I don’t think “culture” and “values” and “habits” are easy to change. AND I think talk is cheap.

In the comment box below, please tell me why you think I am right or why I am wrong.

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847

Do we need a death penalty for non-profit organizations?

Have you ever watched something on television that made you so angry that you stewed about it for hours on end? For me, this happened last night while channel surfing, and I caught a news story on The Rachel Maddow Show on MSMBC titled “A Special Place In Hell“. This 17 minute story talked about people who use non-profit organizations as a front to scam donors out of their money

If you didn’t catch Rachel’s report and you have a few minutes to burn today, then click here to watch her report or click the graphic below.

rachel maddow

Every non-profit professional should be fuming this morning because all of our brands get damaged when atrocities like this are perpetrated against donors.  This story should also prompt a lot of questions. For example, I find myself scratching my head and asking:

  • Is there a watchdog keeping and eye out for things like this?
  • If you think the IRS, Guidestar and Charity Navigator are those watchdogs, then are your expectations of those organizations unrealistic?
  • Should there be a watchdog?
  • Does the IRS need to get more involved in compliance and monitoring issues? If so, who pays for THAT?
  • Should the non-profit sector get more serious about policing itself? If so, what does that look like?
  • Should Congress enact legislation that focuses on improving transparency and accountability for non-profit corporations (a la Sarbanes Oxley post-Enron)?
  • Should Congress pass a Donor’s Bill of Rights? (After all, there is similar legislation protecting people who fly on airplanes)
  • Should there be a death penalty for non-profit organizations that violate certain laws and perpetrate fraud against donors?

I could go on and on and on with the questions buzzing through my head this morning, but I think I will stop and invite you to share some of the questions you might have. Please use the comment box below to share your question. Or please feel free to use the comment box to share an opinion on one of the questions I’ve posed.

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847

Evaluating your non-profit board volunteer prospects’ social reach and network

social reach1I was recently engaged in an engaging discussion about board development with a great group of non-profit board volunteers. The range of topics in that conversation spanned issues such as prospect identification, evaluation methods, prioritizing prospect lists, cultivating prospects, recruitment process, orientation, recognition, and evaluation.  It was one of those conversations that a facilitator loves because everyone was engaged and actively participating. There was an energetic dynamic in the room, and then someone asked a really tough question:

“How do we evaluate the scope of someone’s social network?”

This question stems from the discussion on the importance of diversity in your boardroom. After talking about the obvious (e.g. age, gender, ethnicity), these discussions always turn to the more difficult subjects including how to assess a prospective board volunteer’s social network and social capital. Of course, this is important because you don’t want a boardroom full of people who all walk in the same social circles.

Moreover, this is important because:

  • Fundraising — The collective network in your boardroom is related to the reach of your fundraising program, its appeals and potential future donors.
  • Board Development — Birds of a feather flock together, and the collective network in your boardroom will give birth to future boards. Board replicate themselves all the time!
  • Group-think — People who are close and come from the same walks of life can sometimes think alike, which can greatly influence board governance and important decisions.

So, what is the answer to the aforementioned question pose by this obviously super smart board volunteer?

Well, it is complicated and simple all at the same time. Ugh!

social reach3For decades (and probably centuries), board development committees have answered this question the old fashion way. They sat down around a table and talked it over. Those committees who were successful had a diversity of people sitting around the table and were able to assess a prospect’s social network in an anecdotal manner. They talked about what they see and hear about the prospect. Here are just some of the things they most likely talked through:

  • Does the prospect sit on other non-profit boards?
  • What church does this prospect belong to? Are they active? Who else belongs to that church?
  • What other groups does this person belong to? (e.g. Rotary, Kiwanis, country club, chamber of commerce, local booster clubs, etc) Who else belongs to those groups?
  • What else do we see this person’s name attached to? (e.g annual reports, donor recognition walls, local newspaper articles, etc)
  • How does this prospect’s network, reach, and social capital compare to what is currently sitting around our boardroom table?

This is what “old school” board development assessment work looks like. It is highly effective. It has a track record of working. It is highly dependent on a diversity of people with a diversity of perspectives engaging in such a conversation.

Of course, our 21st Century mindset and perspectives leads us to question old approaches and investigate new tools and approaches, and there is nothing wrong with that.

So, I recently opened up my board development toolbox and re-examined some very traditional tools such as:

  • board matrix
  • sample prospective board member information sheet
  • board candidate rating form

In doing that simple review, it occurred to me that there isn’t much substance to those tools from the perspective of assessing someone’s social network, social reach and social capital. The matrix does ask the board development committee to assess  “community connections,” and the information sheet also asks questions about your prospect’s affiliations and other non-profit board service. While these tools nibble around the edges, it wouldn’t be difficult to tweak these tools to more directly address the question posed by our board volunteer at the beginning of this blog post.

social reach2However, there are some “21st Century” tools that your board development committee might want to start using when talking through the issue of a prospect’s network. Consider the following:

  • Do a Google search on your prospective new board members during the evaluation phase of your process. Talk about the results of that search.
  • Look at their online social networks (e.g. Facebook, LinkedIn, Twitter). If no one around the table is connected to the prospect in that way, then: 1) that might tell you something in and of itself and 2) you might expand your reach and find someone on the board or among your network who is linked in such a way.
  • Use Guidestar to determine if they are associated with other non-profits in your community.

Of course, there is nothing wrong with the “old school approach”. In fact, one simple way that you can tweak this traditional approach is by including your prospective future board volunteers in the process. Asking them to help you answer a few questions about their network and their reach. If done appropriately, it wouldn’t have to feel awkward.

How does your non-profit organization tackle the question posed at the beginning of this blog post as part of its board development process? Please use the comment box to share your best practices. We can all learn from each other and save time by not re-inventing the wheel.  😉

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847

And the Oscar goes to . . . Take Three

If I had a nickel for every time I’ve had to endure listening to someone rant about how dysfunctional non-profit organizations are compared to their for-profit counterparts, then I’d be a very rich man. Sure there are countless non-profits out there who struggle to survive. They stretch their resources so thin that it is a miracle whenever they achieve their program outcomes or community impact. However, this isn’t ways the case. In fact, there are very large non-profit organizations that no one really recognizes as “non-profit,” and they even do some very big and amazing things.

Nearly 40 million people witnessed one such example last Sunday night when the Academy of Motion Picture Arts & Sciences produced a little known show that is informally known worldwide as “The Oscars”. That’s right . . . <gasp> that major production was put on by a “non-profit organization”.

So, as it typically does, my curiosity got the best of me and I found myself on looking up the Academy’s 990 tax return for the fiscal year ending June 30, 2010. I thought I’d share a few interesting observations with you from my nosing around:

  • The organization’s total revenue according to its last tax return was $86,847,054 with expenses of $67,324,191.
  • Interestingly, they don’t have any traditional resource development program in place. Of course, it is the $81,344,127 they generate from their world-famous television show that brings in the bulk of their revenue. I was disappointed that I didn’t find a clever little special event fundraiser idea or a new twist on an annual campaign, but I guess I’m not surprised.
  • I was guessing that their board of directors would’ve been full of famous movie stars with deep pockets. While I wasn’t surprised to find Tom Hanks listed as First Vice President or Annette Bening and Henry Winkler listed as Governors, the list didn’t sparkle and struck me more as a group of earnest professionals from every walk of Hollywood.

For me, the act of looking up the Academy’s 990s helped me draw two conclusions:

  1. I bet there are very functional (and sometimes large) non-profit organizations that we interact with on a daily basis. I wonder how many benchmarking opportunities exist out there?
  2. I keep forgetting how wonderful really is. I know that the 990 tax returns provide too little information, but even a little bit of transparency can feel refreshing.

What other large non-profit organizations have you seen that deserve spotlighting? Have you ever contacted another non-profit (or even a for-profit) and engaged in a benchmarking project designed to help your agency improve and reach for the stars? If so, let us know how that turned out for you. Finally, how do you find yourself using Guidestar (e.g. finding similar agencies for benchmarking purposes, compensation survey review, etc)?

Please scroll down and share some of your questions, thoughts or observations in the comment box below. We can all learn from each other.

Here’s to your health!

Erik Anderson
Founder & President, The Healthy Non-Profit LLC!/eanderson847

%d bloggers like this: