Few TED talks have created as long a trail as Dan Pallotta’s recent one. But the issues he recently raised about the role of the NFP sector and funding overhead are not new at all. Those of us who teach and advise funders address this question all the time. And thankfully, despite the suggestion to the contrary, many funders are not blind to the need for investing in quality management of crucial institutions.
Why, then, has his talk inspired such a ripple of response? Here are a few reasons why this has come to the surface in such a forceful way at this time:
1. Confusion about the meaning and role of the sector.
The nonprofit sector is often equated with charity. To be sure, many nonprofit institutions are rooted in charity based sponsors. Charity is indeed based on selflessness and altruism, and is an admirable attribute. However, for most of the last century, and certainly in our current world, the nfp sector is a huge industry based on providing key services to a complex society. We are dependent on for our health care, higher education, museums, etc. In most communities, the not-for-profit institutions are among the largest landowners, employers, and contributors to the economy. Churches, synagogues, mosques, and temples may be included but hardly define the totality of what the sector means. The assumption that charity should be the defining cultural value is neither useful nor accurate.
2. Do-it-yourself philanthropy is both good and bad.
Much of the discussion about philanthropy decisions has moved from the confines of grantmaking boardrooms to the kitchen tables of average donors. The availability of information and accessible tools to assess that information has transformed how philanthropy works.
These changes are good as these tools empower shallow-pocketed funders to act like their deeper-pocketed colleagues. And the numerous tools provided by associations and rating institutions are not bad ways to give useful objective indicators that can alert an unsuspecting funder to financial funny business or distorted marketing.
But those red-flag indicators can too easily be used as default absolute indicators of fund-worthiness. A classic example, and the one which has inspired so much air space, is the “overhead” question. Those of us in the field know that there are many reasons why the quality of a nonprofit requires adequate support for the management of an organization and how easily those numbers can be misleading – depending on the type of organization or how “mature” it is. Excessive fundraising expenses, yielding far too little to a recipient organization, [an authentic cause of concern] is hardly the same as investment in long-term high quality leadership. There are tools which help make these distinctions but all too often potential funders stop at some arbitrary absolute overhead percentage or rating score.
3. There is a confluence of factors placing the sector more central to both public policy and private funding discussions.
As the public sector [i.e. government] pulls back from its 70-year role as the safety-net resource of last resort, many assume that the nfp sector can pick up the slack. Of course, any thoughtful person knows that it is simply not possible to do, but there are those who are asking it to do exactly that. And therefore it is easy for some to characterize any dollars which don’t go directly to the poor, homeless, ill, and abandoned as simply bloated bureaucracy.
At the same time, many funders demand to know what their philanthropic dollars are actually buying. Thus the discussion over metrics, or impact, or systemic change means that there is great [and legitimate] scrutiny over the sector. But all too often those questions are not informed by full understanding of what the right questions might be or how to read the “big-data” now so available.
Bottom line: While those in our small and often silo-ed funding world have been discussing these matters for quite a while, there is a need for broader long overdue public conversation. If such discussions do lead to more deep-seated sophistication of the role of the nfp sector, how it can be as impactful as possible, an understanding of what is beyond its capacities, and how this sector fits with both the pubic and the for-profit sectors in solving long-term systemic issues, it will certainly justify all of the cyberspace it has absorbed.
Those of us on the funding side have a mandate to make sure that it does.
Richard Marker teaches and advises funders from around the world through both the NYU Academy for Grantmaking and Funder Education and the Wise Philanthropy Institute, both of which he founded. His blog can be found at Wise Philanthropy.