This Insights piece is a portion of the message that Darren Walker sent to supporters detailing the Ford Foundation Forward blueprint, the foundation's plan for changes in its culture, programs and assets. It is edited and published here with the permission of the Ford Foundation for New York PhilanthroPost readers. To read the full piece, check out Ford's Equals Change Blog.
How We're Addressing the Overhead Fiction
by Darren Walker, President, Ford Foundation
At the center of the history of the Ford Foundation has been our investing in what I think of as the three I’s—groundbreaking ideas, leading individuals, and institutions and networks. This is why we’re excited to reaffirm that, over the next five years, we will dedicate $1 billion for building institutions and networks through our BUILD program. This program will be fully integrated into the grant making of our seven thematic areas, operating both within the areas and across them.
At the same time, even outside the BUILD portfolio of grantees, we are rededicating ourselves to strengthening the partners and grantees that are recipients of our project support.
All of us in the nonprofit ecosystem are party to a charade with terrible consequences—what we might call the “overhead fiction.” Simply put, because of this fiction, foundations, governments, and donors force nonprofits to submit proposals that do not include the actual costs of the projects we’re funding.
I recently learned of one local government request for proposals that gave extra points to applicants that submitted proposals with lower overhead, resulting in the winning groups receiving overhead payments of 5 percent—an absurd and self-defeating outcome.
The overhead fiction also results from well-intended metrics developed by nonprofit watchdog groups that have equated lower overhead with organizational effectiveness when, in fact, the opposite may be true.
At Ford, we have been willing participants in this charade. Our policy of 10 percent overhead on project grants in no way allows for covering the actual costs to administer a project. And to be honest, we’ve known it.
This number does not reflect what it takes to actually manage a project; nor does it help those we support to effectively run robust organizations capable of executing projects. Thus, beginning January 1, we will double our overhead rate on project grants to 20 percent. We hope to encourage more honest dialogue about the actual operating costs of nonprofit organizations working in the US and internationally.
As always, we welcome your questions and feedback. Please add your comments at the Equals Change Blog.