DATELINE: February 18, 2008, Chicago
Yesterday we stopped in at Best Buy to see whether the new flat panel televisions had arrived. We are looking to upgrade, but we don't like the shiny piano black designs that are currently incorporated by every manufacturer into their flat panels. As we gazed...
The Desktop Guide is Quickly Becoming the Must Have Guide for Nonprofit Executives
Some of our readers have followed the link to the Amazon.com Web site, but apparently have not bought the Guide. If they were turned off by the price, they should reconsider. One prominent attorney in the exempt organization field grabbed a review copy of the Guide and couldn't put it down. She has instructed a number of her clients to buy it, pointing out to them that for less than 1/2 hour of her billable time, they receive a lesson (and resource) that tells it like she would like it told. If you are starting a new charity, the Guide could save you thousands of dollars in legal fees by teaching you how to better utilize your legal counsel and framing the issues so you don't spin your wheels at $400 an hour. |
lovingly at the televisions and their beautiful pictures, we realized something: We don't care how much of the price is attributable to marketing, materials, the HR department, or shipping costs. We simply ask: For the price, are we getting the design and picture quality that we want?
That leads us back to the obsessive fixation of charity watchdogs, the media, and some donors on overhead and fundraising costs incurred by charities. We were reminded by the Chronicle of Philanthropy about that obsession last week when it reported that 62% of "of the public thinks that charities spend too much money on overhead costs such as fund raising and administration." Elizabeth Schwinn, Many Americans Say Charity Overhead Csots are Too High, Study Finds (February 14, 2008). This number comes from a new study by Ellison Research. According to the Chronicle's Schwinn, the study surveyed 1,007 adults in 50 states. Nearly a one-quarter of respondents believe that charities spend at least 60% of the amounts they raise on overhead and fundraising.
We don't dispute the study's findings, nor dismiss the importance of perceptions. Although given the high level of financial illiteracy in the United States, we find it hard to believe that the vast majority of those responding have any concrete evidence to support their beliefs.
What annoys us about this survey and all the other ones that have gone before is the focus on costs. We would think people would be focused on whether the charities they donate to accomplish something. Now the watchdogs will tell you that measuring outcomes is far more difficult than measuring expenses. We certainly agree with them, but it doesn't follow that measuring expenses is the right thing to do.
The focus on expenses is misguided. We aren't even sure how you divide expenses between overhead/administration and mission. For example, let's think of a nonprofit pre-school. They do background checks on every potential hire. Question 1: Are the expenses of those checks overhead or mission related expenses? Question 2: For those of you who are obsessed with the expense-efficiency metrics, would you suggest that the charity improve its metrics by cutting out the background checks? If you answered "Yes," would you please advise us whether the $10 million payment to settle the lawsuit stemming from the molestation of a child by a teacher is an overhead or mission-related expense?
We can go on and on. Financial controls and accountants are overhead. Should we get rid of them and just allow employees to submit fraudulent invoices and reimbursement requests? The executive director must evaluate the professionals who work in the program. Should we skip the evaluations, possibly permitting incompetent teachers to work in the program? When there is no written evidence in the files supporting pay increases, how should we treat the settlement payment to a teacher who claims she was discriminated against because she is a Muslim? In short, charities are nonprofits, but they also are businesses. They must comply with regulations, hire employees, account, order goods, and do all the other things that businesses do. That costs money. Not every dollar can go to buy medicine or food.
And this focus on fundraising costs, which are nothing more than marketing expenses, puzzles us, too. Nobody asks how much advertising expense is built-into the cost of the flat panel television we saw at Best Buy yesterday. We certainly didn't. So why are people so concerned with how much it costs to raise money for a charity? Is it appropriate to assume that all organizations should have the same fundraising costs per dollar? We don't think so. Colleges and universities have a built-in market for their solicitations. Groups seeking to help the police and veterans don't. We would expect that fundraising expenses for police and veterans groups would be higher than for colleges and universities. But for some reason, everybody thinks fundraising costs should satisfy some uniform standard.
By the way, if you are so concerned about fundraising expenses, why do you demand a fancy gala or ball before you open your wallet? Why must museums provide members free admission or a 15% discount at the museum shop? Why do you respond to mailings from charities? At the end of the day, you are your own cost cutter. Tell your favorite charity to skip the literature and the annual report listing you in a donor category. Send the $1,000, but skip the gala. Pay for admission to the museum despite the fact that you are member. It is you, not the charities, who is responsible for fundraising costs.
Let's return to our friend Bernie Dehler of FreeGoodNews. He complained about the high salaries paid to certain ministers. Many of these individuals are charismatic individuals, who are running organizations that receive tens of millions of dollars a year in donations. We do not want to suggest that it is appropriate for these individuals to take 90% off the top, but raising $20 million or $50 million is quite a feat. We have no trouble if someone who is able to generate that type of revenue receives $400,000 or $500,000 a year. The question for Dehler and the others who object to those salary levels: If these people are providing spiritual sustenance to so many, why are you so concerned about how much they make? Shouldn't you be much more focused on the results that they achieve through their ministries? If nobody who hears their speeches gets divorced or requires anti-depression meds, haven't they done their job?
That question really summarizes the entire problem with asking what portion of the cost of the flat panel television covers marketing expenses, what portion covers material costs, what portion covers R & D, and what portion covers HR. At the end of the day, you decide to pay Amazon.com or Best Buy the specified price. At that point, what you should care about is whether 1080P resolution and Blu Ray make watching NFL football, No Country for Old Men, or The Barefoot Contessa a visually exciting experience. Returning to charities, did the $100 gift change lives? Just because watchdogs can't measure outcomes doesn't mean we should worry about the relatively meaningless things that they can measure.
By the way, we didn't buy the television. We are still waiting for better bevel colors. Whatever you do, however, please don't tell our spouse that we were even looking. Supposedly, we were just out grocery shopping.
Internal Revenue Service - Circular 230 Disclosure: As provided for in Treasury regulations, any advice (but none is intended) relating to federal taxes that is contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.
THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NONPROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL. If you liked this post, please visit http://www.charitygovernance.com for a description of our training and consulting services. You will also want to acquire a copy of Jack Siegel's book, A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good."
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