From Overhead to Infrastructure to…Structure

structureOne of the great pleasures of being in the philanthropy space for a long time is watching ideas you helped postulate become mainstream. One of those is the welcome adoption of the concept of “infrastructure” as the way in which we refer to non-direct service support, previously known as “overhead.”

By now, most funders are well aware of the debate about “overhead.” There were numerous parties who can share the blame for that preoccupation: some funders’ insistence on only funding direct costs and refusing to fund any support costs; some rating agencies imposing strict percentage rules for judging organizational efficiency; some nonprofits, either because of naiveté or desperation, willing to accept funds with conditions that ended up costing them far more than the grant brought in, and in all cases, a reluctance to admit to the need to sustain a healthy and quality organization without which no program could long succeed.

Almost a decade ago, a number of us felt that the very vocabulary most used for non-direct support was not very helpful. “Overhead” implies that it is other than the project itself… as if the accountant who pays bills is irrelevant; or the air-conditioning doesn’t really matter; or the supervisor who does the hiring is only going through certain human resource [now called “talent acquisition”] procedures. I don’t know which of us first started using the term, but around the same time a lot of us started urging that we get away from “overhead” in favor of “infrastructure.”

“Infrastructure” implies the indispensability of that which holds things together. No nonprofit, no matter how big or small, exists without it. And as too many have learned the hard way, the absence of it is a pretty reliable predictor of unsustainability. Support of infrastructure is not simply a generous add-on by an unusually well intentioned funder, but rather an essential investment in the intended project itself. Even if a funder is only interested in a small part of a multi-service organization’s work, that small part can only happen if the institution itself is well equipped to deliver that service.

Our voices were enhanced when others began to vocally challenge “The Overhead Myth” and when the major nonprofit rating organizations themselves issued a very public mea culpa. They admitted that their [absolutely valid and praiseworthy] goal to develop better transparency and accountability in the public good sector led to arbitrary percentages and perceived “objective” measures that funders should use in their decision-making. In wanting to help funders identify red flags for extreme disparities in salaries or exaggerated external fundraising expenses, they had led too many funders to assume that crossing an “overhead” threshold should be an automatic eliminator. Their mea culpa statement urging funders to dig for deeper clarity, to understand what numbers may mean, and to recognize that we all must use judgment in how we look at any numbers began to swing the prevailing opinion among funders to more nuanced decision-making.

Also helpful to this change is the very healthy development over the last 20 years of the recognition that too many nonprofits are fragile and have too little capacity or resilience. Our funding field accepted that we ourselves bore significant responsibility for that. If we don’t invest in capacity of staff or resources, or if we always insist that it is someone else’s responsibility to fund infrastructure, we reinforce that very fragility we complain about.

As we funders looked deeper into the very ways in which the sector is organized, we realized that once one gets beyond universities, big museums and hospitals, a very, very high percentage of social service and nonprofit organizations are undercapitalized, have incomplete board composition, have too little investment in staff training or retention, and little built in resilience when faced with any major challenge. Our part of the sector began to acknowledge that we were not only under-funding, but also not even using many other resources and tools that we can bring to the table – influence, leadership, advocacy, convening, to name just a few.

The convergence of these factors has made the adoption of the “infrastructure” metaphor both obvious and persuasive. There is far less resistance today to fund appropriate non-direct support costs than was the case even 5-10 years ago.

Now, though, it is time for us to go to the next level, from “infrastructure” to “structure.”

For a moment, let’s stick with our metaphor. One can construct a well-built and well-designed building – but place it in the middle of a flood plain. Or an earthquake zone. Or in a place with inadequate power sources. You understand.

Ideally, of course, there would be zoning rules that preempted that construction. But there are many-fold examples of there being none, or not enforced, or shortcuts being tolerated. Whatever one’s politics on all of this, we all pay the price when the structural underpinnings to construction are shortsighted or inadequate. And repairs and patches rarely can substitute for adequate prior planning and discipline from the beginning.

In many ways, our social good system functions on just such a flood plain. Even the best sit on the moving sands of public policy, and political whim. Whether we are addressing issues such as homelessness, or food insecurity, or literacy, or poverty, or employment, or public health, to name just a few, when the public policies are insensitive, or outdated, or purely politically self-motivated, no nonprofit can adequately fulfill its mission.

Many funders already have figured this out. And it is not just the Gates family, or the Chan Zuckerbergs, or the Omidyars or the Living Cities partners who are addressing systemic alignment and reconfiguration as the precondition to eradicating certain diseases or human trafficking or economic dislocation or educational inequity. There are many others, some quite rich, most not so at all, who recognize that food insecurity is not solved by even the most successful soup kitchen unless there is public support for SNAP and school lunches. There may be political debate about specifics of Medicare and the Affordable Care Act, but there can be no credible debate about the millions whose access to health care exists only because of these programs.

This argument for addressing structural inequity does not at all diminish the need for strategic decision-making on the local level. Someone has to implement the infrastructure of the social good, human service, educational and health care sectors.

But it does remind all of us who are funders that we are always functioning as part of larger systems, and the questions we ask, every question we ask, implies some judgment about or commitment to some way of understanding our roles within those systems. By addressing the very structural basis on which our sector stands will surely enhance the impact of our funding wherever and whatever we may choose to fund. If we truly want long-term impactful change, it is time for us to go beyond “infrastructure” and proactively address “structure.”

Richard Marker advises funders and foundations on their philanthropy strategy through Wise Philanthropy, and teaches philanthropists and foundation professionals at both Penn’s Center for High Impact Philanthropy and NYU Academy for Funder Education.