September 14, 2012

Charities Must Battle Public Misconceptions About Overhead Costs

Nonprofit organizations build movements that mobilize people to fight the worst forms of human suffering. But when it comes to dealing with the systemic issues that undermine its true potential, the nonprofit sector has no movement to mobilize itself.

And while nonprofits speak for those who cannot speak for themselves, they have no national voice to defend against investigative reporters, lawmakers, and others who attack them—often maliciously and incorrectly—for spending too much on executives’ salaries and on the overhead and infrastructure expenses it would take to grow.

This silence comes with a cost. It makes it impossible for charities to get anywhere close to the scale required to solve the gigantic social problems that confront humanity.

When nonprofit leaders are asked what frustrates them most, they often say it’s the fact that donors demand such low overhead costs that they can’t hire the talent or invest in the resources they need to maintain the status quo, let alone actually solve the vexing social problems that confront them.

But what all of us involved in charitable works fail to acknowledge is that donors believe low overhead costs are good because we have never challenged this misperception.

We wear the minuscule investment in our own growth like a badge of honor in the form of reassuring pie charts. The tinier the sliver of investment in our own strength—better known as overhead—the better. And if we’re not misguiding the public, we’re standing by while others do, from sensational media to politicians looking to score political points on our backs.

If we roll over and accept the public’s misguided approach to giving—and any approach that stifles the growth we need to solve problems is deeply misguided—then, yes, all hope in our ability to change the world is lost. We should all go home.

But we can change this. And people want to change it. Over the last three years, I have given 125 talks in 29 states and seven countries on these issues, and what I found was that nonprofit leaders are hungry—more than anything else—for a movement of their own to transform the way the public thinks about charity, about giving, and about how change gets made.

How could we conceivably alter the way the public thinks about these things? With a national leadership organization specifically focused on it. Such an organization would have to fulfill at least four basic grass-roots organizing functions critical to building any movement. None of them exist right now. It must:

Build an anti-defamation mechanism. American Jews fight biased attacks with their own Anti-Defamation League. It has a budget of $70-million. African-Americans have the NAACP, with a $28-million budget. The Gay & Lesbian Alliance Against Defamation has a $6.5-million annual budget.

These organizations have changed the course of history for the people they protect.

But in the face of routine and malicious attacks by sensational journalists with no understanding of what makes a successful nonprofit thrive, charities have no legitimate, respected, sanctioned national voice to offer an alternative point of view or to challenge Charity Navigator, CharityWatch, and the other watchdogs that the media consistently call upon to support their erroneous points of view. With a real anti-defamation mechanism, national news anchors and others would understand that they would not be able to get ratings by taking potshots with impunity at major charities doing important work.

Start a legal-defense fund. Government regulators force nonprofits to report their program-to-overhead ratios on public-disclosure forms instead of allowing them to explain in plain English or in terms of impact or aspiration how they are spending and raising money. That reinforces the public’s misunderstanding of how nonprofits work and strengthens its inaccurate belief that asking a nonprofit about its overhead is the most important question to ask before giving. It’s time to challenge this regulatory behavior. It is a violation of our First Amendment rights, because freedom of speech is as much about having the right not to say things you don’t want to say as it is about being able to say the things you do want to say.

A tiny and heroic effort to oppose wrongheaded regulations does exist. It’s called American Charities for Reasonable Fundraising Regulation. But it has no full-time staff and essentially no budget. It has been effective in fending off some regulations largely because two lawyers donate their time.

It pales in comparison with what other groups have. Lambda Legal defends the legal rights of gays and lesbians. It has a $15-million annual budget. The NAACP has a separately incorporated Legal Defense and Education Fund with a $12-million annual budget. Mexican-Americans have Maldef, with a $3.6-million annual budget.

Nonprofits need an effort on that scale and with those resources, to work with state attorneys general and legislators to explain the unintended consequences of new regulations or laws and reach out to newly appointed government officials to educate them about what they can do to help nonprofits, and so they know where to turn when the inevitable scandal causes an irrational and harmful approach to regulating charities.

A legal-defense fund can also organize nonprofits nationwide to fight local proposals. If a local city manager gets 900 e-mails the day after a piece of bad policy is proposed, the outcry will call attention to the error as well as the significant opposition the proposal will face.

Create a sweeping national civil-rights act for charity and social enterprise and persuade Congress to pass it. People trying to eradicate human suffering need a statutory code that supports them in that effort. Instead, nonprofits are governed by a fragmented legal code— written for another century by people who are long dead, to deal with issues that are no longer relevant. And that fundamentally undermines nonprofits’ ability to create real change. We need incentives to promote better ways of financing nonprofits and encouraging mergers and other organizational restructuring. And we need an overhaul of IRS forms and regulations, among other things.

Advertise to the public. It is astounding that nonprofits have never banded together to run a high-profile advertisement—not a single one—to try and cure the public of its misperceptions and hallucinations about charity. It’s time we began running full-page ads in The New York Times and commercials during the Super Bowl to inform the public that low overhead is not the path to the transformation of human suffering—that demanding talent on the cheap is not the way we will eradicate poverty or breast cancer or any of the other great problems that confront us.

In the late 1980s, pork producers decided they needed to band together to correct the public’s misperceptions about pork as a fatty, heart-attack-waiting-to-happen food. The result was its famous “Pork, the other white meat” campaign, which has every one of us now feeling like we model healthy eating when we have a serving of pork. If we can modify the way people think about pork, then we can alter the way people think about charity.

An advisory board of nonprofit leaders and I have formed a group that will turn these dreams into reality. It’s called the Charity Defense Council. It intends to fight for the people who fight for the people. But it can only succeed if nonprofits rise up and take a stand for themselves and for the dreams that got them into this work in the first place.

The Charity Defense Council was created out of the recognition that the stakes are simply too high for any one nonprofit to stick its neck out on its own on these issues. But by banding together and using the strength of our numbers, we can make our mark on the history of charity itself. We can transform the way the donating public conceives of nonprofits and of our potential to do what it is they really want nonprofits to do: to change the world.

Dan Pallotta is author of Charity Case: How the Nonprofit Community Can Stand Up for Itself and Really Change the World, which was published this month by Jossey-Bass. His previous book, Uncharitable, was published by Tufts University Press.