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Why Can'’t We Get Over Overhead?

William A. Schambra

That slapping noise you hear every holiday season is the sound of philanthropic experts briskly applying palms to foreheads as they watch the perky nightly-news broadcaster reminding viewers to be generous, but to give only to groups that spend far more on programs than on overhead.

The program/overhead distinction, though denigrated for years by the most articulate and determined nonprofit professionals, simply refuses to die. Somehow, the general public doesn’t want to let go of it.

Why not? Will the simple-minded rubes whose donations constitute the overwhelming majority of charitable giving in America ever realize that it’s a meaningless if not downright pernicious distinction? Will they finally turn instead for giving guidance to the shiny new outcomes metrics upon which our experts have been beavering away?

My hunch is: not likely.

We know from Hope Consulting’s 2010 report Money for Good—one of the most exhaustive recent studies of giving by individuals—that donors give based on a variety of “heart-based” reasons that little or nothing to do with “head-based” measurable program outcomes.

They give to groups from which they have themselves received a direct benefit or that they encounter in their daily lives. They give based on the advice of friends and neighbors, to groups that produce practical results they can see and touch, and are in line with their religious and moral convictions. Only 35 percent of donors ever seek out any sort of data about their intended beneficiaries, and three-quarters of those spend less than two hours at it, very seldom resorting to third-party ratings or evaluations.

The vast majority of donors, the report concludes, are not rigidly-calculating utilitarians determined to eke out every last ounce of impact per dollar. Rather, they cursorily scan only the most readily accessible and digestible information about a group, and then only after they’ve already decided to support it, simply to reassure themselves they aren’t falling for a conspicuous fraud.

And “for better or worse,” one of the report’s bullet points lugubriously intones, “overhead ratio is the #1 piece of information donors are looking for.”

Our sector’s metrics mafia—the largest national foundations, plus their sprawling coterie of scholars, consultants, evaluators, and non-profit minions—are heavily invested in the notion that this gooey emotionalism, along with the inexplicably popular overhead ratio, will soon be driven out of individual giving by the arsenal of measurements they are now field-testing in their own institutional giving. Leaving aside the widespread failure of foundations themselves to live up to their own empirical rhetoric, however, this view overlooks the larger symbolic purpose the overhead ratio serves for everyday Americans. In its most literal sense, the program/overhead distinction claims to enable a donor to steer more dollars directly into program and to bypass the professional intermediation implicit in the overhead figure.

At a deeper level, though, this is a rare opportunity for everyday citizens to reject the message drummed into them in most aspects of their lives today: that they are not competent to manage their own affairs without expert guidance. For every problem, they’re told, there is a credentialed professional armed with scientifically generated spreadsheets who knows far better than they how to deal with it. Americans may have once prided themselves on self-government. But today, it seems, public problems are far too complex and abstract for everyday citizens to understand, much less to solve. For that, administrative experts are needed, who make decisions based on objective measures of impact, rather than subjective standards of moral or cultural significance.

In our economic lives, Americans are rated, ranked, and compensated according to ever more rigorous and arcane standards of performance, from the first days of education to the mature years of employment. A finely calculated and unyieldingly demanding bottom line determines not only whether someone keeps or loses a job, but whether an entire community keeps or loses a vital industry.

In the midst of all this hyper-rationalistic calculation, calibration, and coldness, one lone public act retains an element of uncalculating, uncalibrated, possibly even irrational human emotion: making a charitable gift. Although experts are working overtime to reverse this, they have not yet succeeded in making it disreputable to give based on obscure, antiquated motives like moral obligation, spiritual inspiration, or humane fellow-feeling. And I suspect that giving will continue to be governed “by the heart” in the future, even if reliable metrics ever do become widely available, precisely because so much of the rest of our lives are governed “by the head.” Charity offers citizens, in the words of the late Christopher Lasch, a haven in a heartless world.

The one number toward which givers seem to gravitate, the overhead ratio, captures this sentiment perfectly. It permits us to choose to be more directly, emotionally connected to the person, place, or cause we’re supporting (as much money as possible should go to program). For once in an expert-managed world, we can minimize the degree to which professionals and administrators intercede between us and that which we want to do (as little money as possible should go to overhead.)

That’s why we’re most likely to hear the claim, however tenuous it may be, that “all your donations go directly to recipients” in moments of high drama, strong feeling, and powerful moral struggle. In the immediate aftermath of tragedy, charitable givers are more likely than ever to desire and demand a direct and unmediated link to sufferers. In that moment, the overhead ratio tells them all they want to know about the disposition of their gift. It ignores niggling statistical calculations about impact and speaks instead to their strong yearning for immediate, compassionate human connection. Donors are never amused to discover that their some of their giving in a crisis has been diverted to long-term administrative infrastructure, as the American Red Cross’s former CEO Bernadine Healey can attest.

This immutable psychological aspect of crisis giving is much lamented by nonprofit experts, who earnestly wish people would be more reasonable and realistic about dispositions of gifts. But it is a fact of human nature at the wellspring of human generosity, one that we tamper with only at our peril. If this is true, then it’s even less likely that expert-designed and propagated metrics are going to be welcomed by individual donors. The overhead ratio may be so resilient precisely because it enables us to express skepticism about the role experts should play. It gives us the chance to say to professionals, explicitly and loudly, “Back off! I can handle this.” It will not be displaced by standards that merely echo to donors the message they hear over and over again in their daily lives: “Trust us professionals. Use these new metrics we’ve designed to make you almost as smart in your giving as we are.”

There are many problems, no doubt, with the popular embrace of overhead ratio. In our eagerness to “send a message” to the experts, we do a disservice to the overworked and underpaid nonprofit managers whose work is counted as administrative expense. Some charitable undertakings do in fact require a lot more overhead to be successful. And the ratio is easily manipulated by clever and dishonest accounting (as if measures of impact are any less so).

But if what I suggest here is true, the overhead ratio expresses an important truth about popular sentiment toward charity. And since charity rises or falls by popular sentiment, it’s important that we be careful how we treat the ratio.

Right now, commentators freely and volubly express disdain for it. It seems to them to be just another contemptible manifestation of the naïve, antiquated, romantic view that nonprofits should be staffed by inspired, self-sacrificing amateurs and volunteers, rather than by well-credentialed and handsomely compensated professionals. The experts constantly remind us that today’s typical nonprofits are large, complex, bureaucratic structures, almost indistinguishable in means and ends from the major political and economic institutions in our lives—and therefore, not coincidentally, subject to the same rigorous outcomes metrics.

But this is a dangerous argument. Our economic institutions earn resources by delivering goods and services. Our political institutions extract resources by taxation. Our charitable institutions must rely for at least some of their resources on voluntary gifts given by individuals. The level of that giving depends decisively on the way nonprofits comport with public sentiments about them, no matter how naïve or romantic those sentiments may be.

When experts seek to debunk the myths of charity, the result may not be a more enlightened, realistic, and robust donor base. It may rather be a skeptical, disillusioned, and disappearing donor base. However inadequate and inaccurate the overhead ratio, its durability may attest to the fact that it is another of the myths that sustains charitable givinga myth that we work to dispel only at great cost.

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