Too Many Non-Profits?

Not long ago the head of a small family foundation said to me, “Why are there so many organizations involved in arts and culture? You should join forces with other nonprofits, instead of each of you coming to us for grants.”

That basic question is asked often, and not just about culture and the arts. A variant is, “Do there really need to be so many Jewish nonprofits in Southern California?” Nowadays, in the current economic climate, the same question has been reframed as a proposal to reduce the numbers through mergers. It’s just another way of saying that the community would be better off with fewer separate organizations.

Where does this come from? Partly, there’s a common prejudice against overhead expenses, a belief that funds directed to projects are inherently being put to better use than money that pays for management. So, the reasoning goes, combining organizations will result in less management, leaving more money for programming. The problem is that each of those notions is a bias, not a thoughtful or strategic approach to budgeting.

Supporting unglamorous services like bookkeeping may not give a donor a warm feeling, but the alternative is not to account for how money is spent. Fund-raising activities give nonprofits the means to carry out their missions, but there’s often an unspoken feeling that asking for money is self-interested rather than a means to carry out a mission. And paying a CEO, a red-flag issue in the for-profit world as well as among nonprofits, seems vaguely unsavory to some, as if performing a public service should be its own reward. Yet all these functions are essential, and their cost is roughly proportional to program expenses whatever the number of organizations involved.

There’s also the peculiar idea that two can live as cheaply as one. In households that’s true only if each person eats half as much as before. And in nonprofits that works if members or constituents receive only half the services they used to; otherwise the cost savings are minor and largely symbolic. It’s appealing to think that bringing two synagogues or charities under the same roof will stretch their dollars, but symbolic savings aren’t very helpful in balancing a budget.

There are two other dubious premises behind the bias towards fewer organizations. One comes from the mindset of central planning, where people in power allocate resources on behalf of an entire community. In that view there is a “right” number of institutions, the people in charge set that number, and having too many institutions is inherently wasteful. But ours are decentralized communities where the number of institutions is set by the demand for their services. There are too many nonprofits only to the extent that their services go unused, like having too many school lunches. Cutting down on the number of institutions may subjectively feel prudent, but that doesn’t mean it’s better for the public.

Finally, confusion can come from the feeling that there are simply too many options. One might as well say that there are too many kinds of shampoo in the drugstore aisle, or too many Starbucks downtown. Too many for whom? In the case of grant proposals, it’s too many for the donors. Some, like the philanthropist who objected to “each of you coming to us for grants,” want to simplify their work by having fewer applicants to deal with. But the cost of that personal convenience is to reduce the range, depth, variety, and imagination in the public services available to the community.

For our nonprofit sector to perform at its peak, we have to make smart decisions grounded in fact. Slogans about cutting costs and biases about budget items are no substitute for a strategic planning. Our communities will benefit most if we focus on how best to serve them, not on whether we need more or fewer institutions to do it.

Bob Goldfarb, a longtime executive and consultant and a Harvard MBA, is president of the Center for Jewish Culture and Creativity. Bob is a regular contributor to eJewishPhilanthropy.