This article is adapted from a presentation made to Grantmakers for Effective Organizations (GEO). Our deepest thanks to Unmi Song for speaking these truths:
Good afternoon; I am Unmi Song, President of the Lloyd A. Fry Foundation. The overhead issue is one of the most important -- and most neglected -- topics that funders should be thinking about and discussing.
There is a lot of buzz around "impact" and "outcomes" and "evidence-based practices." But there is not enough buzz around what it takes for nonprofits to achieve these things.
What I've learned recently is that the assumptions we funders have about overhead are wrong! If we think . . .
Is staffing a committee more like herding cats or like herding turtles? Actually it's more like Dancing with the Stars. An important skill for nonprofit managers is knowing how to support a committee of volunteers, such as an Advisory Committee, a Board Finance Committee, or a coalition:
Staff at many levels support your organization’s volunteer committees. For instance, an administrative assistant may support a committee that is planning the spring fundraiser. Or the CFO may support the board Finance Committee. And, of course, the executive director supports the board.
When supporting a committee, the most seductive trap for a staffperson is . . .
Kirk Kramer of The Bridgespan Group suggests some new approaches to leadership development in his recent papers. For Blue Avocado readers, he cuts right to the chase:
Blue Avocado: Kirk, what's the single most interesting point you have to make about nonprofit leadership development?
Kirk: As an executive director, hold your senior leaders responsible for developing future leaders. Add "developing leaders" to their goals for the year and hold them accountable to it, just like you would any other goal.
Maybe in some mythic past it was possible to think first about strategic impact goals, and then about how to raise the money. But today we know better: you can't talk about what you're going to do without talking about how to get the money. And, you can't talk about how to get money without talking about what you're going to do.This piece is adapted from a chapter inNonprofit Sustainability: Making Strategic Decisions for Financial Viability, by Jeanne Bell, Jan Masaoka, and Steve Zimmerman.
What is sustainability?
Most of us in the nonprofit sector are familiar with setting programmatic goals. For instance, we might set a goal of reducing high school dropout rates by 10% in our community, or a goal of increasing the quality of the observations of one hundred amateur astronomy clubs. Nevertheless, we often aren't sure what our financial goals are, or even what they should be. If the financial goal in a for-profit company is to maximize profit, should our goal be to have $0 profit? Or should it be to grow an endowment of $10 million, or to have a surplus of 5%, or a deficit of no more than $50,000?
In classical economics, the answer to this question is . . .
What if you got a chance to chat over coffee with a deeply experienced, witty, and smart gay leader about the movement for marriage equality? He might say something you haven't seen elsewhere about the campaign. Listen in on a conversation with Matt Foreman(left, with Francisco De Leon to right):
Matt, isn't the Freedom to Marry movement a huge, unexpected, and unqualified success?
Well, yes. But frankly, I’m also a little conflicted about the issue. Fifteen years ago, when activists started pushing marriage equality in New York and I was lobbying for pro-gay legislation, I said "Folks, stay the hell out of Albany -- we can't even get a hate crimes bill passed because it would include the dreaded words 'sexual orientation' and you want us to put marriage on the table? No way, no how!"
I was convinced that marriage would have stalled and derailed . . .
Jack Shakely, former president of the California Community Foundation, takes a different tack (with a little wisecracking) on what to do about the Citizens United decision allowing for-profit corporations to spend unlimited funds on electoral campaigns:
A few weeks ago I received a breathless email (if such things exist) crowing that California had become the sixth state to pass a law demanding a constitutional amendment to overturn the 2010 Citizen's United Supreme Court decision on political campaign spending by corporations. Great! I thought: now all we need is two-thirds approval in both the House and Senate, then ratification by thirty-two more states, assuming the six stay on board. Good luck with that.
Then I thought about Citizens United in a new way.
In 1931, a New York community foundation created the first donor-advised funds (DAFs). But although the term was widely used for 75 years, the phrase "donor advised fund" was not codified until 2006 when Congress passed pension and charity reform legislation.
Most donor-advised funds are held at two types of institutions:
Community foundations, where donor-advised funds are typically the large majority of assets held and grants made
Large financial institutions that handle stock-trading, mutual funds and other for-profit investments; they have now expanded into DAFs, a nonprofit analogue that’s a logical extension to their existing business and skill sets.
The IRS describes the features of a donor-advised fund:
Donors contribute to an administering 501(c)(3) to establish -- fund -- a DAF. The charity keeps accounting track of each DAF separately.
Contributions to the DAF cannot be taken back by the donor. Contributions qualify for an income tax deduction at the time of the donation, governed by the usual deduction rules and rates.
The donor has the right to recommend grants from the DAF to qualified charitable recipients. The sponsoring organization may not be legally required accept the recommendation (although implementing the donor's recommendation is the basis of the business model).
In contrast to a private foundation, a DAF typically affords the advantages of two kinds of anonymity for a donor. First, the donor's identity need not be disclosed to the nonprofit which receives a donation from the donor's DAF. Second, the administering organization (a community foundation or Fidelity, say) does not have to report on its 990 grants from DAFs on a fund-by-fund basis.
The DAF administering ("sponsoring") organization typically provides the legal, administrative, investment management, and accounting work for DAFs. Compared to creating a private foundation, DAFs are often lower cost to administer for a donor.
For example, let's say that donor Phil A. Thropy has a high income year, and makes a $1 million donation to a donor-advised fund at Fidelity. That year he can deduct $1 million from his taxable income. The following year, Phil directs $50,000 from his DAF to his alma mater Harvard and $20,000 towards the YMCA. Over the next years (without limit), Phil makes grants from his DAF and can add funds to it as well. He pays Fidelity annually a fee of 0.6% (60 basis points) to administer the fund. (Fidelity charges low amounts for higher deposits.)
When Phil dies, the ability to direct the DAF passes to his heirs or designee. Community foundations often ask DAF donors for a provision that states after the second or third designee, any remaining funds would revert to the community foundation's general fund. In other words, Phil's daughter could continue making grants out of the DAF after his death, but if Phil had agreed to such a provision, upon his daughter's death any remaining funds would become unrestricted assets of the foundation.
How much money is in DAFs?
How many DAFs are there with how much money? The most recent data released by the IRS is for tax year 2006:
More recently, The National Philanthropic Trust (NPT) published its 2011 Donor-Advised Fund Report. Intended to be "highly indicative" rather than "accurate," NPT collected data voluntarily offered by 478 administering institutions. NPT found that these 478 administered 162,000 DAFS with assets of $30 billion and charitable giving of $6.2 billion.
To return to the article that accompanies this sidebar, "Donor-Advised Funds: Non-Transparent Tax Shelters for Good," click here.
Everybody has an opinion about whether nonprofit executives are paid too little or too much, but almost nobody has any real data outside their own experiences. At last! Economist Linda Lampkin (left) analyzed 100,000 nonprofit CEO salaries and has a definitive (if a little statistics-wonky) answer:
Sometimes it seems that the whole credibility of the charitable sector hinges on the issue of compensation. So what exactly is too much pay? And who is getting it? A colleague and I decided to analyze Form 990 compensation data to bring some real numbers to the discussion (database info at the end of this article).
The IRS says nonprofits must pay "reasonable compensation" but there are few specific guidelines other than that total compensation must be compared with "what ordinarily would be paid for like services by like enterprises under like circumstances." "Like enterprises" means organizations that provide similar types of services and have similarly sized budgets. Using the ERI Economic Research Institute database of compensation data from Form 990s in 2009 (the most recent full set available), we calculated the mean and median salaries for almost 100,000 CEOs of charities, by revenue size:
Analysis of 100,000 nonprofit CEO salaries
 Mean is the mathematical average, calculated by adding up the data points and then dividing by the number of data points. Median is the midpoint of the data, so the number of data points having values greater than or equal to the median is the same as the number less than or equal to it. Standard deviation, a measure of the variability of the data, is the average amount by which individual data points in a data set differ from the arithmetic mean of all the data in the set.
Every once in a while a field creeps closer to actually being helpful to nonprofits. Thanks to evaluators Clare Nolan and Fontane Lo for explaining a type of program evaluation -- and how to make it work for you.
Have you ever had an evaluation conducted for a program, and then waited months—or even years—for the findings to come out? When you finally got the evaluation report, were you annoyed because you had already changed the program significantly?
You’re not alone! Traditional evaluations emphasize proving whether or not a program has worked. This requires a rigorous study design (with things like interventions and control groups), and findings are typically issued after all data are collected and thoroughly analyzed. That approach can mean a long time frame that makes the results useful for proving something to a funder, but less useful to a nonprofit earnestly trying to improve its services.
Real-time evaluation (RTE)
Fortunately, the field of evaluation has evolved and other forms of evaluation have emerged that emphasize . . .