Declare Overhead Dead

Tuesday, March 18, 2014
President and CEO, Rockefeller Philanthropy Advisors
Thanks to the efforts of groups that include the BBB Wise Giving Alliance, the Nonprofit Finance Fund and Guidestar, we’ve made real progress in the nonprofit sector recently dealing with the dreaded “overhead” overhang. While government grants and contracts will continue to underfund organizations, there’s some hope that private donors are beginning to understand that “overhead” is not a four-letter word. We may have the opportunity to accelerate that understanding.
Let’s declare overhead dead. Let’s start to talk about operating expenses instead. That’s not a loaded phrase; the word “overhead” has a negative backstory to it. Operating expenses are legitimate, and familiar to businesspeople. Of course, too much operating expense is bad, but zero isn’t reasonable. No investor would put money into a company that claimed its operating expenses were practically zero; it defies common sense. In fact, I think one of the many sad lessons of the Three Cups of Tea scandal is that the nonprofit it supported, the Central Asia Institute, arguably had too little in operating expenses. Just look at one of the 990s.
Will using the phrase “operating expenses” instead of “overhead” provide a sudden infusion of general operating support? Hardly. Many donors still think that nonprofits should be essentially voluntary organizations, using donated space and staplers. Others are convinced their dollars are super-special, and can only be used in certain ways. But using accepted terms like operating expense will help us in the long march of the last decades to have nonprofits viewed as professional, competent and trustworthy.
This post is a further articulation of a point made by Melissa Berman in her presentation at the BBB Charity Effectiveness Symposium on February 25, 2014. You can also view her PowerPoint presentation from that event.