Billboard Campaign Calls for Focus on Impact, Not Overhead Ratio

The Charity Defense Council, a tax-exempt 501(c)(3) organization dedicated to changing the way people think about overhead at nonprofit organizations, has taken its campaign to the streets, the Boston Globe reports.

Along major roadways in the Boston area, including the Southeast Expressway, Interstate 95, Interstate 495, and Route 1, the organization has unveiled billboards that read, "Don't ask if a charity has low overhead. Ask if it has big impact." A heightened focus on impact and effectiveness in the nonprofit sector has helped fuel a debate over whether the traditional view of overhead — the percentage of income a nonprofit spends on fundraising costs and administration — continues to be a useful metric when it comes to evaluating an organization's effectiveness.

"We're trying to educate people on the notion that maybe the question they've been asking all along is the wrong question," said Charity Defense Council founder, president, and CEO Dan Pallotta, who ran one of the largest for-profit fundraising firms in the world until it folded in 2002 amid criticism of its high fees and generous compensation for executives. "There's a visceral negative reaction to people in charity taking risks in fundraising. But if you can't raise money you can't grow, and if you can't grow you can't solve social problems." Pallotta told the Globe that the campaign, the billboards for which were designed by his for-profit company Advertising for Humanity, was launched at no cost to the Charity Defense Council, thanks in part to donated billboard space from Clear Channel Communications.

Others in the nonprofit sector, including GuideStar, Charity Navigator, and the Better Business Bureau Wise Giving Alliance, also have been arguing against the use of overhead ratios as the key metric of organizational effectiveness. Indeed, the three organizations, working together, launched The Overhead Myth campaign in 2013 to bring attention to the "false conception that financial ratios are the sole indicator of nonprofit performance."

Many critics remain unconvinced, however. "Rotten charities that waste money point to Dan Pallotta and say, Oh, Pallotta says, 'Don't look at overhead. It's not important. It doesn't matter,'" said Charity Watch president Daniel Borochoff. "But it does matter, because it's really hard for a charity to accomplish much if so little of its proceeds are going in the direction of programs and services....My biggest concern," Borochoff added, "is [that] there's going to be huge waste in the nonprofit field if people buy into his argument and spend unlimited amounts on funding promotion."

Sacha Pfeiffer. "Group Says Nonprofits Should Act More Like Businesses." Boston Globe 01/15/2015.