Posted on Friday, 3rd June 2011 by chris wignall

It does no good to fill your aquarium with cute castles and sunken ships if you don’t feed your fish.

A number of recent interactions have reminded me that many of our charities are being slowly starved by donors who are well-intentioned but ill-informed.

As major donors we tend to give to specific projects, often supporting new initiatives rather than ongoing operations. This creates pressure for charities to have to constantly be developing attractive new efforts and frequently leads to insufficient time or resources for supporting the infrastructure behind the programs. The predictable results are unstable charities scrambling to cut administrative costs while shopping sexy proposals to funders who grow suspicious as grants underperform due to insufficient organizational capacity. And the cycle repeats.

In the Fall 2009 issue of The Stanford Social Innovation Review, Ann Goggins Gregory and Don Howard described this pattern in their article “The Nonprofit Starvation Cycle“. In their opinion the ultimate responsibility for this problem is in the unrealistic expectations of donors. I tend to agree.

Far too many donors are fixated on administration costs, following perhaps on the emphasis placed here by watchdog groups like Charity Navigator (who, to their credit, have begun to balance their rankings with some attention paid to outcomes). This gives a badly skewed perspective, and one which is frankly unfair. There are certainly examples of luxurious charity jobs, but they are remarkably few. The large majority of nonprofit workers sacrifice finances, time, and prestige in trade for working at something they believe in. Most charities accomplish a remarkable amount with limited resources.

I could go on at length about the negative impact of exclusive focus on administrative costs, but suffice it to say that it is a statistic that has no common standard or criteria, and one that simply does not provide donors with the most important information they should consider when considering a grant.

I have heard a number of stories of donors and foundations negotiating lower administration rates in funding proposals or refusing them altogether. This reflects a poor understanding of the legitimate costs of doing business for charities. While it is totally appropriate to ask what is included in these fees, resisting them demonstrates shortsightedness and a basic lack of trust in the organization.

Here is my suggestion:

-Nonprofit leaders: Communicate very clearly the real costs associated with your work. Rent, postage, phone bills, fair salaries, professional development, and celebrations are all legitimate expenses and should be presented with confidence. Educate your donors, refuse grants that will ultimately make you unsustainable, and focus on outcomes rather than efforts.

-Donors: Don’t apply criteria to charities that you wouldn’t apply to for-profit businesses. Expect that it costs money to support programs, raise funds, report back to you, and develop teams of motivated and effective people. Read Dan Pallotta’s book Uncharitable (not because it is entirely correct, I don’t think it is, but because he challenges the assumptions that lead to poor funding in this way). Ask charities if they have the funds they need to properly support their efforts and consider longer term support that deliberately includes money for infrastructure and capacity. Call a favourite charity this week and offer a significant donation in support of general operations as a vote of confidence in their leadership and management.

Money where my mouth is: I will make personal donations to the general operating budgets of the first two Canadian charities that commenters to this post pledge to give an unrestricted donation (providing the donors are not employed by the charity). It may not be a whole lot, but it’s a start.

Posted in Catalyst, Leadership, Philanthropy | Comments (6)