In mid-June, our CEO, Jacob Harold partnered with Charity Navigator and the BBB Wise Giving Alliance to pen an open letter to the donors of America denouncing the "overhead ratio" as a valid indicator of nonprofit performance. The letter and accompanying campaign marked the first time in history that the leaders of the country's three leading sources of information on nonprofits had spoken clearly with one voice: overhead is necessary to nonprofit success.
I am a professional that works exclusively with nonprofits, and I absolutely agree that the emphasis on overhead leads to a lack of investment in the business of being a nonprofit that seriously jeopardizes long-term performance and fulfillment of the charity's mission.
—Christa Divis, CPA, MBA
It's about time. The story you shared is being played out again and again by hundreds of nonprofits setting themselves up for failure. Like any industry aiming for long-term sustainable success, International Development needs systems, tools, HR, and general infrastructure, all of which require appropriate investments.
Thanks for your leadership in making it clear that overhead ratios are not a way to assess the effectiveness of nonprofits. The field has unfortunately allowed overhead to become a proxy for understanding how well a nonprofit is managed. As we move away from using overhead numbers, let's focus even more rigorously to understand what factors truly matter for nonprofit effectiveness—and how funders can help!
Of course, some people have also raised concerns—especially around fundraising expenses. The detractors have a point: an established charity that devotes most of its expenses to fundraising should be carefully scrutinized. We addressed this question in more detail on our blog.
Ultimately, the overhead ratio doesn't get at what really matters when you're evaluating a charity: how well it accomplishes it mission. Impact is what really matters. We at GuideStar are working hard to bring you more and better information about nonprofit impact and success. Between the GuideStar Exchange, Great Nonprofits stakeholder reviews, and Philanthropedia expert recommendations, we are giving you the tools to make better philanthropic choices.
It's not too late to take part in the campaign. Please visit www.overheadmyth.com to sign the pledge and spread the word.
© 2013, GuideStar USA, Inc.
Kjerstin Erickson is a special projects fellow at GuideStar who is about to leave us for the adventures of graduate school. We send her off with our thanks and best wishes for continued success.