If fighting the world's problems were a wrestling match, nonprofit charities enter the ring with one, if not two, hands tied behind their backs. That is the basic message in "Everything You Know About Charity is Wrong," written by author Richard Levick in Forbes. Levick believes it is time for charities to be given a fair chance to accomplish their missions.
The problem is that charities are restrained because so-called "watchdog groups" and some donors insist that charities must have extremely low overheads. As a result, charities are discouraged from making the kind of investments that a for-profit organization would make to grow. Levick cites the Bill & Melinda Gates Foundation as one example of a donor organization that keeps grantees on a tight overhead leash. Levick quotes the Gates Foundation's Indirect Cost Policy for Project Grants and Contracts, which informs would-be recipients that they will likely need to "tap into unrestricted funds, or conduct other fundraising to cover operations." To its credit, the Gates Foundation at least acknowledges that a charity is likely to have operational costs beyond what it is willing to pay (only between 10-15%).
Levick argues that if an organization is to succeed, it will have overhead, no matter whether it is a non-profit or for profit. He echoes the argument being strongly advanced by entrepreneur Dan Pallotta, whose book, Charity Case, discusses how practically everything we are taught about charity is backwards. Pallotta argues that society demands that every dollar donated go directly into services. He is championing the cause to fix the culture that hamstrings charities.
"The most fire-breathing radicals in any other cause you can imagine, from gay rights to the environment, suddenly start quaking if confronted by the Better Business Bureau."
—Dan Pallotta
Pallotta is well on his way to accomplishing the task. He has the backing of individuals such as Robert F. Kennedy, Jr. and his Ted Talk on the topic has attracted over a million viewers so far.
Others have been echoing this critique, including Philip Haid, who writes in the Huffington Post that "Charity ratings help to kill innovation." These ratings are singularly guided by overhead expense ratios and, as Haid argues, should take impact into account.
Indeed, evaluating a charity is no easy task and cannot be reduced to a single metric. There are many factors to take into consideration and impact is certainly high on the list. Stay tuned for more blogs on this topic.