The Overhead Myth: A Long-Term Challenge & Opportunity for Nonprofits

Last month, we attended the BDO, UBS and Wells Fargo jointly-sponsored event, “Summit to End the Overhead Myth,” in New York City.  Led by steering committee members Steve Barker (World Resources Insitute), Tom Dente (InsideNGO), Sarah Gillman (Natural Resources Defense Council), Steve Howell (Nature Conservancy), Bob Mims (Ducks Unlimited), Arun Sardana (UBS), Tom McCauley (Wells Fargo) and our own Adam Cole, the event aimed to assess the way forward for organizations to measure impact by results, not administrative overhead. Key participants also included Ken Berger of Charity Navigator and Jacob Harold of Guidestar, two of the charity rating organizations leading the charge to overhaul their rating systems.

The event’s premise was not so much to solve the problem immediately; rather, it sought common ground across stakeholders—donors, NGOs, rating organizations and nonprofit staff alike—on the scope of the challenges associated with moving charity effectiveness assessments away from the imperfect overhead metric. The general consensus was that the status quo of competing to have the lowest overhead ratio had become a death spiral for organizations, that it was a not a sustainable system and that all interested parties needed to participate in making the change.

Speaking panels and roundtable discussions addressed the major principles underlying a way forward, including what the Overhead Myth actually means for organizations, how organizations can invest in outcomes and what kind of data already exists for developing a new reporting system. Additional discussion topics revolved around how to educate donors about realistic overhead needs, how to persuade Boards of Directors about the importance of understanding robust administration—not as an excess cost, but as a necessary component for achieving results—and how to develop enhanced outcome metrics.

But the conversation is far from over. The steering committee is now compiling discussion points for future dissemination, and additional events to be held in Washington, D.C. and on the West Coast are currently in the planning stages.

The timeliness of this event and the enthusiastic engagement of attendees suggest that this issue is not going away any time soon. The nonprofit sector is firmly invested in changing the way it portrays its impact to donors and other stakeholders, and it’s ready to tackle the challenge of persuading the public to think differently about what constitutes organizational success.

Matt Cromwell and Sofia Blair are Partners focused on nonprofit services at BDO USA. They can be reached at mcromwell@bdo.com and sblair@bdo.com, respectively.

For more information on the Overhead Myth and other developments to date, check out some of our previous blog posts on the subject: