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Nov 15, 2012

Nonprofit frugality can go too far

A recent article in the Nonprofit Quarterly began with this appeal:
“Is there something in society’s subconscious that expects nonprofits to operate in ‘poverty-like ways’?” That question was a showstopper in the Cohort 20 classroom of the summer 2010 master’s program in philanthropy and development at Saint Mary’s University of Minnesota. We were talking about the starvation mentality in so many nonprofits—you know, things like really old, rather dysfunctional computers and such poor wages that employees cannot afford a reasonable mortgage and may have to visit the soup kitchen for a meal.

 “We talked about the chronic underfunding of necessary infrastructure and overhead. We ranted against GuideStar, Charity Navigator, and their ilk, which rate nonprofits based on spurious ratios. We recognized that inadequate infrastructure causes employees to work excessively long hours with poor tools and insufficient professional development. And . . . we realized how hard it is to explain this to boards that make decisions.

“There, in that university classroom, members of Cohort 20 explored why this happens. Who decided that 90 percent of the charitable gift must go to direct service . . . thus starving the organization and its employees of necessary resources?”

I couldn’t agree more.  I call it “pride in being tattered.”  I see it in local government often as well.  I believe that a nonprofit has its 501(c)(3) because there is a need in the community that cannot be done at the level and quality the community needs without losing money.  Otherwise the for-profit sector would have stepped in.  Too many boards not only underfund, they also require that “key mission” activity to break even, which can only be done by reducing quality, excluding some service recipients (a pride in having a waiting list should be a shame that some must wait), or pricing so that some are voluntarily excluded.

We need to acknowledge that a nonprofit is a business that must be run efficiently and well.  That requires adequate infrastructure.  But we also need to place some blame on the grant-makers and government agencies who refuse to fund some or all of overhead costs, which are the fuel for efficiency and quality.

This was part of the theme of my recent keynote at the joint conference of the Minnesota Council on Foundations and Council of Nonprofits.  Chapter 6 on Challenges in Philanthropy in my book More Than Just Money talks at length about the implicit contradictions in the relationship between donors and nonprofits.  Want a quick refresher on what makes a good nonprofit tick?  Listen to my TEDx talk.