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Clearing Up the Myth about GuideStar and the Overhead Ratio

There's a scene in the movie French Kiss in which Meg Ryan tells the clerk at the Hotel George V in Paris that his rudeness is making her "completely insane." And then she starts pounding madly on the service bell until he snatches it away from her.

Many years ago, when I put a sweater on my three-month-old toy poodle for the first time, he started writhing on the floor and making noises like he was strangling. Which, thank heavens, he wasn't.

Why am I bringing up these two disparate things? Because each describes exactly how I want to react when I hear someone say—or read somewhere—that GuideStar once promoted the overhead ratio as a way to evaluate charities.

Because folks, it's just. not. true.

I've been with GuideStar for almost 15 years, and during that entire time, we have never advocated using overhead or program ratios to evaluate nonprofits. In fact, we've fought tooth and nail to debunk that very idea. During the 9 years I handled media relations, I was on the front lines of that battle. I inherited that mantle from the media relations people before me, and proudly handed it on to those who followed.

Just to be sure, I checked with our vice president for research, Chuck McLean, who has been with GuideStar since day one (nearly 20 years). He confirmed that we've never promoted ratios as a way to assess charities’ performance or worthiness to receive donations. Yes, a charity’s financial health and financial accountability are extremely important. But that’s not what the overhead ratio measures. Unless the numbers are really, really extreme, figuring out how much of a charity’s total expenses go to programs and how much to overhead is useless. These ratios shed no light on what really matters: how effective that charity is.

For nearly two decades, GuideStar has advocated that the only appropriate ways to use ratios are (1) to measure an individual nonprofit's financial performance over time and (2) to compare peer organizations—nonprofits of similar sizes with similar missions, programs, and locations (i.e., urban or rural). You can learn more by reading our article "Why Ratios Aren't the Last Word," which is as true today as when we published it in 2004.

So when we joined with the BBB Wise Giving Alliance and Charity Navigator last summer to launch the Overhead Myth campaign, we weren't signaling a change in philosophy or atoning for previous sins. Instead, we were collaborating with two other leading organizations to bring attention to this important message. And it’s worked.

In the long run, does what it matter that people think GuideStar used to advocate using ratios to assess charities? Probably not. But it’s just … wrong.

So, if you happen to be at a conference or meeting where someone says something like "Well, GuideStar used to advocate focusing on overhead," and a short, round woman cries out a heartfelt "Noooooo!"—or falls to floor, rolling around and gasping for air—chances are that said woman will be moi. I apologize in advance for the drama, but frankly:

That statement makes. me. completely. insane.

When not overreacting to inaccurate statements about GuideStar, Suzanne Coffman is GuideStar's editorial director and editor of the GuideStar Newsletter. And don’t get her started on why GuideStar’s not a watchdog and how GuideStar doesn’t rate nonprofits.

Topics: Nonprofit Leadership and Practice