The Ethics of Overhead

We’ve talked about the concept of overhead in education and non-profit organizations in this space before; the fact remains that no matter how hard you try, it isn’t generally possible to run an organization of any real size entirely on volunteer effort and donated supplies. It is possible for a non-profit to earn more money than it spends in a given year (through the use of investments, fund-raising business ventures, donated income properties, or what have you) but eventually the agency is going to grow large enough that operating out of donated space will no longer be possible, and you’re going to have to pay to keep the lights on and the postage meter running. Of course, all of this is easier if your operations are limited to raising money for other organizations of which you approve (such as an anti-cancer charity raising money to fund cancer research); agencies that actually fund programs of their own will usually end up paying the people who provide those services, develop the materials, transport the goods, or whatever. But regardless of your operating model, eventually you’re going to have to come to grips with the concept of overhead, and the controversy over how much is too much…

Some people insist that this whole issue is a slippery slope, and that any amount of money spent on anything other than direct service to whoever your agency provides services to is wrong, but I’d have to argue that it’s actually more of a continuum. On one end of the spectrum you have things that are obviously wrong, like the case we had in LA County a few years back where a non-profit agency bought company cars for all of its management personnel – that year’s top-of-the-line BMW sedans, as it turned out – because their duties included driving to and from City Council meetings. On the other end of the spectrum you have cases of non-profit agencies that will not consider spending money on development or grant writing services, and go out of business because their landlord doesn’t share their belief that non-profit agencies should not have to pay rent. Contrary to popular belief, most people can’t get tax credits for working pro bono the way lawyers do (and even in the case of the lawyers, there are very strict regulations about how they go about this type of service), and thus they can’t devote all of their time to volunteer service; one has to eat, after all…

So how much is too much – or, if you prefer, at what point does overhead become inappropriate? I would argue that an agency that raises $10 and spends $9 of it on whatever services they provide is still doing more good than an agency that raises $5 and spends 100% of it on programs and services; I would also point out that (as noted in my post earlier this month) all of this information is available to the public, and you can always just refuse to support any agency that you feel is spending too much on cell phones, party hats or stationary, if that’s your issue. But when I used to teach grant writing I would always tell my students that you can request funds for any expense – if you can explain why spending that money will contribute to the goal you are trying to reach…

So should your agency operate with the strictest possible budget? Should you limit your charitable giving to agencies that conform to this sort of cost-containment policy? Or should you focus on trying to provide the best possible services and programs, knowing that somebody, somewhere, will inevitably be waiting for you to spend money on something of which they do not approve, just so they can write blog posts and comments calling you a pack of greedy bastards and trying to get you shut down? At what point does frugality in the name of public relations (and donor relations, where applicable) become detrimental to the optimal fulfillment of your agency’s mission, and who gets to decide?
It’s worth thinking about…