Bezos’​ Granting and More Overhead and Efficiency BS

You may have read recently how Jeff Bezos and his Day One Families Fund are doing their grantmaking. If you haven’t, you can read a (mostly) good article on it here.

I say mostly good because there are a few latent issues in how people, and journalists, talk about charity and nonprofits that drive me nuts in it. And are incredibly damaging. So more on that below but first, a little on Bezos’ approach.

Grants Exist to Help Nonprofits. But They Have a Cost.

No one chooses to give money to nonprofits and wants to hurt them in doing so. Yet the at times crazy reporting requirements and unrealistic targets do just that. They can unintentionally lock up precious resources for these organizations or pressure those resources to be used in unintended and possibly negative ways.

When I was a grad student interning for a large international development organization, I remember working on a 150+ page report for the Gates Foundation. But 50 of those pages were basically stats and info on sub-Saharan African countries, some not even countries we were working in. I was happy to do it as an intern but I kept thinking, “Does the Gates Foundation really need me to tell them what Zambia’s main export is”? It’s copper, by the way, and accounts for 60% of the country’s total exports. Also why their national soccer team is nicknamed ‘Chipolopolo’ or the ‘Copper Bullets’.

Later, I worked for the Canadian arm of that international development organization and we had a huge grant — huge for us at least — from a well known and incredibly well ran funder but the requirements associated with it — the targets we had to hit and how the funds could be used for the “overhead” associated with it (I believe it was 3%) — almost sunk us. It was brutal.

I mean, thanks for the cash, of course, but it took huge amounts staff time, internal discussions, travel, reporting, etc. so it hurt other programs we had to support and the organization overall. That obviously wasn’t the intent of the grant but it was a by-product and that happens all the time.

So Bezos choosing to be more unrestricted, hands-off, and have less stringent oversight for how the funds get used is, for me, a positive step and example for others to follow. Both for their personal giving as well as how foundations can or should grant.

The BS of Overhead and How Charity Is (Often) Covered by Journalists

I wish that was the only key takeaway from the article but it wasn’t. So while I appreciate the writer covering the subject, I had some issues with how he covered this story. They may seem like ‘small’ things but I think these ‘small’ things add up when multiple people and journalists reiterate and cover charity news this way. And it contributes to a big issue facing philanthropy: lack of growth, risk-taking, and innovation.

For example, take this statement:

He paints a pretty damaging image when trying to make his point here — ‘fat-and-happy’, ‘milking extravagant salaries’, ‘extraneous overhead’ — without using any sort of facts or research on what charity leaders actually make, the constraints they work under, or how ‘others’ generosity’ is actually needed to pay salaries! And that type of writing, again, underlines how paying humans for the work they do in the nonprofit world is considered not part of the work of, you know, helping people and solving the world’s problems.

This is what uneducated donors think, impact = spent on programs. So while it’s not the writer’s fault that the common thinking is flawed, as someone covering the philanthropic world professionally I at least hoped for some balance or a nod to the fact that this type of thinking is at least to be challenged. I’d like it to be outright challenged and make the argument that low overhead doesn’t mean jack-all when looking at true impact or outcomes and, in fact, can mean the organization is worse in the long-term.

Now, just to be clear, I’m in the camp that no salary is too extravagant for a charity leader — pay them $100M if they deserve it — as long as the true impact/outcomes are there. And we can only determine what is ‘extraneous’ to spend based on that impact/outcomes. Without that, we really can’t say what is good or bad or efficient or inefficient.

And that may not even be the worst part of that statement. It may be this:

The linking, subtly and probably unintentionally, of spending to fraud.

Many journalists seem to do this. They start with ‘overhead’ and then pretty quickly go on to what is truly wrong, fraud and scams. But the spending on overhead and actual frauds and scams are different things. But the reader doesn’t know that and they may begin to link and connect the two.

And this is what is really damaging. Donors can maybe come around to ‘high overhead’ but if there’s a sniff of a scam they’re out. So even though 99.5% of nonprofits are legit, this fear-mongering using an outlier case hurts all charities. It also can lead to donors wanting to use more financials or watchdog groups to make sure they aren’t giving to scams. And this is where we get into more BS.

The BS of Overhead and Financial Only Focused Watchdog Groups

Here’s another line in the article that I see a lot and irks me:

It suggests that businesses are inherently well run and nonprofits aren’t.

Why do we just assume that Amazon, one of the world’s biggest companies with thousands of employees, can spot minor theft in a warehouse but a social service organization that exists to serve people in dire need of food won’t notice if that food is stolen?

Again, I don’t think that’s what he’s intending from the quote but that sentiment is there and people, particularly those with business and financial backgrounds, make these statements all the time. And it certainly doesn’t help the brand of charity or build trust.

Now, Mr. Borochoff is advocating for more accountability, which is great and needed, and heads up CharityWatch. Here’s where things get less great. While I appreciate what they’re trying to do, the way they go about it and ‘rate’ nonprofits… sucks. Well, mostly sucks.

The good thing with CharityWatch is that they dig into the financials themselves to see what the true costs are. Nonprofits can bury things like fundraising expenses into programs under the guise of ‘education’ or attribute people’s salaries across functions fairly aggressively and skew their financials. This isn’t illegal or even shady, it’s the (crappy) system we’ve created but this is why a charity’s financials can’t really be trusted. So at least they are addressing that part which is good.

But they still only rely on financials. And they look at ‘efficiency’. Efficiency for programs and efficiency for fundraising. Both are BS.

First, the BS of program efficiency. Here’s how CharityWatch defines and evaluates by program %:

But efficiency is relevant once you have an outcome or output! To measure efficiency as money spent compared to money spent makes no sense. So trying to judge who is ‘efficient’ based on spending and finances is flawed right out the gate.

Think about this. What if I only told you how much two people spent on their gym memberships and overall fitness, could you then tell me, definitively, which of the two was more fit? No. You can tell me who spent more on their gym memberships and overall fitness. That’s it. Anything outside of that is a guess.

Yet that’s what we try to do when we use these ratios on money spent as a proxy for impact. It doesn’t work and then is very misleading when it’s touted as a measurement of ‘good’ nonprofits to support or not.

Second, the BS of fundraising ‘efficiency’. CharityWatch uses the Cost to raise $100 metric to look at fundraising ‘efficiency’:

So why is this BS? Because it rewards and incentivizes safe, conservative thinking and cost-cutting as opposed to more growth-oriented and profit-generating strategies. This is why donors shouldn’t really want charities to be efficient.

To improve your cost to raise efficiency, you can either raise more or spend less. Which do you think is easier? And which do you think is more expensive, having 1 donor who gives you a lot or 10,000 who give you a little? But if you were trying to solve a social issue, be sustainable, and grow, you’d much rather invest in growth, not slash costs, and have more donors supporting you. But that’s not what this system rewards. Just the opposite.

For example, which is better:

1. Spending $10,000 to raise $100,000 ($10 cost to raise and ‘highly efficient’)
2. Spending $500,000 to raise $1M ($50 cost to raise and not ‘highly efficient’)

CharityWatch, and many donors, will say A because it’s more ‘efficient’. But in scenario A, it’s only $90k that goes to the ‘programs’ — again, separating out programs from the overall impact of an organization is dangerous — whereas scenario B has $500k that goes to the ‘programs’.

Do you see how bonkers using this metric as a key measurement is? And how damaging it can be?

I ask fundraisers the above question often when I speak and I’d say it’s about ¾ to ¼ who choose A compared to B. They generally choose LESS money for their work.

So no wonder we have trouble growing — giving isn’t really growing, by the way, it’s flat relative to GDP and discretionary income spent on giving and it’s actually shrinking when we look at the percentage of US households giving today compared 5 years ago — because we encourage, reward, and fear monger donors and our own staff into the ‘efficiency’ trap.

Rant Over.

I realize the overhead and efficiency BS wasn’t the main point in the article which is actually my whole point. This happens all the time. Just casually. It’s accepted. It’s inherent. And it needs to stop.

Because it may seem like a small thing or an aside but I think the underlying sentiment and acceptance of these ideas is one of, if not the, biggest thing holding nonprofits and philanthropy at large back.

You can check out the Twitter version of this rant and some exchanges with folks here.

Originally published at https://www.linkedin.com.