Why “Good” Overhead Is Better than “Bad” for Nonprofits

June 3, 2011; Source: Businessweek.com | There ought to be a prize in philanthropy for the person who finally answers definitively the question, "how much overhead is OK for a nonprofit?" Bloomberg Businessweek columnist Rick Wartzman, who also is the executive director of the Drucker Institute at Claremont Graduate University, zeroes in on that question as the one that perplexes donors most when deciding whether a nonprofit is worthy of their support.

His comments are sparked by a review of the book, Give Smart, by Tom Tierney and Joel Fleishman. As Wartzman notes, Tierney, chairman of the nonprofit consultancy, the Bridgespan Group, and Fleishman, a professor of law and public policy at Duke University, differentiate between "good" and "bad" overhead. Or as he quotes from their book, "While it's wrong to waste philanthropic dollars on goods and services that aren't needed, it's equally wrong to limit the impact of philanthropic dollars by depriving nonprofits of the funds they need to sustain, improve, and expand their performance ('good' overhead)."

To Wartzman — as well as Tierney and Fleishman — more donors need to be made aware that nonprofits "require talented employees, procedures, and technology," costly expenditures and activity "that could be classified as 'overhead'" if they are going to succeed at their missions. While some foundations, including "The American Express Foundation, the Edna McConnell Clark Foundation, the Weingart Foundation, and others are now looking to strengthen nonprofit management skills and systems," Wartzman adds "much more needs to be done."

Quoting again from Tierney and Fleishman, Wartzman cites the pair's message to donors: "Like you, your grantees need the right capacity to deliver the results you and they expect to see . . . the right people, right processes, and right costs." —Bruce Trachtenberg