publication date: May 22, 2012
author/source: Janet Gadeski
Low administrative costs could
indicate prudence and
sound judgment at a charity, but they could just as easily indicate inadequate
staffing, insufficient salaries or fudging, says California Community Foundation
president emeritus Jack Shakely
, writing in the L.A. Times
And at last November's National
sponsored by Imagine Canada
delegates agreed it was time to tell a loud, proud story of charities' impact,
and stop apologizing for spending money on people, systems and facilities that
Why we stay
"Why then," Shakely wonders, "do we continue to buy such a
boneheaded yardstick to measure nonprofit organizations?"
He finds an answer in the work of Nobel Prize-winning
economist Daniel Kahneman
. Kahneman says
each of us has two thinking systems. An intuitive system leads us to quick
answers, hunches and gut reactions when we need them, and a rational, intellectual
system relies on facts and statistics.
The rational system has one huge flaw: it's lazy. It defers
to the intuitive system whenever possible. It doesn't question the supposed
scientific justification that sometimes comes with an intuitive answer. And
it's so averse to hard work that even without being aware of it, we sometimes
substitute a different, easier answer when the better solution looks too
difficult or complex to figure out.
That means that when it comes to charities, most people very
quickly decide it's too hard to evaluate the impact of an organization's
work. If they're considering small
donations, most people want to make their choice with a relatively low level of
work. As they wonder where to donate to further a cause, or which charities'
mail appeals to toss away, they want simple answers.
And that's how what Shakely calls "the pseudoscience of
administrative costs as a measure of excellence" takes hold.
ourselves in the foot
Shakely describes a US charity that purchased drugs at a
much lower price in Canada, then booked the difference between that and the
higher US price as an in-kind contribution. They did it, he says, to inflate
their program-to-admin ratios.
proclaims that every dollar of public donations goes straight to a
well-building project-but behind the scenes, sponsors and sophisticated donors
fund its operating costs. (Founder Scott
was unavailable for comment due to international travel
Charities that tout their low administrative costs feed a
race to the bottom in which everyone loses. When we're afraid to spend money or
to be seen spending money on highly effective staff, when communication depends
on outdated technology, when programs take place in ugly spaces, clients and service users suffer just
as much as staff. And mission suffers most of all.
Fortunately, not everyone thinks that way. When Brad Offman
, VP strategic
philanthropy at Mackenzie Investments
challenged some in-house portfolio managers to evaluate sample charities, they
spent nary a minute on the shallow, popularized approach to overhead costs in
isolation, but quite a lot of time on qualitative questions like uniqueness and
I'm delighted to see a growing chorus challenging the
perception that vital work can take place without talented people, up-to-date
equipment and inviting facilities. We
know that every dollar we spend in the right ways, including operations,
furthers our mission. All we need is the courage and persistence to keep saying