No Donor Pays for Overhead

There is something about overhead that is so toxic to major gift officers (MGO) that they literally run away from it every time it gets close to them.

And the topic doesn't only repulse MGOs. Managers and leaders feel pretty squeamish about it too. If you bring up the subject, you can see their bodies tighten, as they get ready to defend this nasty but necessary thing.

I was in a meeting recently with some managers when the “O” word came up. You would think we had just moved into the ring of a major boxing match. Goodness. Some managers were defensive. Others quietly retreated into their spreadsheets. Still, others moved into some language about “we’re doing the best we can to keep costs down.”

So, I stepped into this swamp with the following question: “What do you think donors think about overhead?” And we were off on a fun journey that mixed one cup of philosophy with one cup of reality and 10 pounds of anxiety.

The core assumption, in this meeting and in nonprofits in general, is that major donors do not like and will not pay for overhead. I think this is wrong for several reasons:

Overhead is a good thing. What? A good thing? Yep, and we need to start talking it up. No more of this sniveling, shifty wandering into a dark corner about this subject. We need to embrace it for the good that it is.

Overhead is necessary. Here is what is so funny about this topic. If you didn’t have overhead, you wouldn’t have anything. It is still mind-blowing to me to sit in a meeting with seemingly intelligent people and have them imply that overhead is bad. It must be pushed down to levels that make it impossible to run the organization and must be hidden in financial reports so ill-informed donors can’t find or discern where it is or how much it is. This is truly comical.

I remember a meeting I attended where the top finance guy and I got into quite a heated debate on the need for overhead. You should have heard the positions he was taking. It was like we were on a different planet.

I said, “But, Bill [not his real name], you just cannot run this organization on the 10 percent you are saying you run it on. Your costs are really in the 20 to 24 percent range. Why don’t you just come out with it?"

“Because the donors won’t pay for it, Richard," he replied. "That’s why!”

And we went round and round. Here’s a guy, not unlike hundreds I have met, who (a) really believes overhead is nasty, (b) can’t find a way to tell the truth about it, and (c) is trapped in the circular argument he has created.

I even made the following argument: “OK, Bill, let’s eliminate this overhead item and that overhead item, etc. Now, can you run the program?”

He had to admit he couldn’t. Which made my point. Overhead is a necessary and needed part of pulling off the mission of the organization. Why is it we can’t get this in our heads?

The nonprofit world and the watchdogs have perpetuated a misconception about overhead. There are many people out there, nonprofit leaders and self-appointed watchdogs, who find virtue in propagating the idea that overhead less than 20 percent is right up there with sainthood. Unbelievable. And many of these people, when you look under the blankets in their organizations, the real number for them is far higher than what they are publishing—they simply have adopted sophisticated legal ways of packaging it all.

I wouldn’t say it’s ethical—but it is legal. This just causes more pressure on the sector and keeps donors in the dark on the subject. There are glimmers of light out there on this subject with some leaders who are showing courage by speaking out and taking action. But it is slow in coming.