Efficiency in Charitable Giving – It’s Not Just Numbers
The New York Jewish Week, a publication that does not generally appeal to readers who are not, well, Jewish, nevertheless has an interesting article in its current edition called the Ten Commandants of Smart Philanthropy. Although written with a smattering of Judaic references, this article should appeal to a wider range of readers because it contains a secular wisdom that is easily applied to one’s portfolio of charitable commitments. Some of the “commandments” are somewhat self-evident while others require serious thought. Following more or less all of them should increase the efficiency of your charitable portfolio, enabling you to more securely move from success to significance. I encourage everyone to read it.
Today, I want to focus on one particular commandment discussed in the article, number 5, which states: “Fund (good) overhead and capacity building.” This seems to fly in the face of the generally accepted cold, hard accounting maxim that organizations should keep overhead to an absolute minimum. The Better Business Bureau (BBB), in its Standards for Charity Accountability, actually quantifies acceptable overhead standards (standards # 8 and 9) which state that a charitable organization shall:
- (8) Spend at least 65% of its total expenses on program activities.
- (9) Spend no more than 35% of related contributions on fund raising.
So, in the jargon of the Jewish Week article, what is funding “good” overhead and capacity building?
The author of the article, Andres Spokoiny of the Jewish Funders Network makes the point:
“…..While there have been some abuses and some organizations are unnecessarily bloated, overhead — or operational costs — is what allows an organization to work with proper tools; to have good and trained professionals; to have contingency plans for emergencies, etc. “Good” overhead is not useless administrative circuits. Rather, it’s what allows an organization to function.”
Fair enough. But I would add to that. Let’s say that you are involved in grassroots philanthropy in your community. Should you immediately write off a promising startup charity that may, in its first few years, incur overhead costs that far outstrip it actual program expenditures? By knowing the people involved and understanding their mission, goals, approaches to building the charity, etc. you may be able to determine that the investment is well worth the risk. On the flip side, should you cut off support for an old line, established, and fabulously wealthy charity just because its CEO is paid a seven figure salary? Perhaps you bristle at giving money to such organizations but take the example of the well-known and well respected American Cancer Society. It meets all 20 of the BBB’s Standards, including spending at least 65% of total expense on program (actually 80%) and no more than 35% of related contributions on fundraising (in fact, a meager 11%). Yet in the same year the CEO John Seffrin was paid in excess of $2.4 million. Does such seemingly generous compensation bother you? What about when you consider the organization’s income in that year: $396 million?
When it accredited the charity, the BBB obviously came to the conclusion that this was money well spent, at least in a financial sense. Now, it is up to the donors to decide how effective the charity is in meeting its stated purpose “to eliminate cancer as a major health problem by preventing cancer, saving lives from cancer, and diminishing suffering from cancer through research, education, advocacy, and service.”
I wouldn’t be true to my CPA license if I did not believe that metrics are helpful in evaluating charitable organizations. But one has to put all numbers in context. The BBB, along with other rating and information aggregating services helps you gather the relevant data and analyze it alongside your own values and philanthropic vision. The decision to support a charitable organization should be made the same way you decide to invest in a for-profit venture – by determining if the mission of the organization is realistic, attainable, and in synch with your own world vision and by satisfying yourself that the organization is internally efficient and focused on its goal. By themselves, measures of efficiency and raw expense numbers can be misleading. It is always best to look at the whole picture before making a commitment.