Transparency is key to breaking the non-profit starvation cycle

We did not anticipate what an amazing reaction that the article on recent breakthrough's in our sector's long campaign on cost recovery would get. Just over a week later on Sunday 16 June, it has been liked over 11,500 times and shared nearly 800 times. There are comments from over 300 people and many of the 800 sharing posts also had comments and reactions that we cannot count. This article tries to analyze what happened and share reflections, as well as prompt anyone reading this to share theirs. We really want to encourage more debate on these important issues, so please stay connected with Humentum.

Banishing the Overhead Myth, forever!

The photo of the Charity Defense Council Billboard was a big driver for this strong reaction. Many people who work in the sector responded very emotionally with lots of "Love this!" as well as some sharing stories of pain about how the starvation cycle had harmed their not-for-profit and them personally. It felt like a collective cry of pain but also hope and optimism that we could finally banish The Overhead Myth, forever.

The majority of comments were positive and over 20 such commenters made further arguments about the need to focus on impact first. Several went onto argue that high impact does usually cost money because it is staff intensive and it takes long-time scales to build the relationships needed with communities to achieve lasting change. However, there were also many helpful critical and questioning comments as well. We really respect those that took the time to engage in this way and believe there is much to learn from these if we are to really win this argument and change our collective mindset so that we focus on impact first, and analyzing costs second.

Can't we have Both Low Overhead and Big Impact?

The biggest group of about 40 critical commenters were those that reacted to the billboard by responding that you can have both - that charities can have both low overhead AND big impact. That can be true, and, as several argued, keeping cost low through use of volunteers can really help that. Indeed many of Humentum's members and their finance staff that participate in our networks are rightly focused on controlling costs. The common sense that we need to be prudent about costs is therefore one of the big challenges in banishing the Overhead Myth. If we all agree that we should keep costs as low as possible, it is then easy for that to become the general expectation. Bridgespan's great diagram on the Starvation Cycle at the top of this article brings out what a powerful driver this expectation is.

Cost Transparency

So really the only way we can deal with the common sense argument that non-profits must keep costs as low as possible is through more transparency. Over 25 commenters argued that transparency is key and that this will allow us to justify the balance between impact and cost.

Transparency is absolutely at the heart of Humentum's campaign. The new approach that we co-created with the UK's Department for International Development ("DFID") and that we were celebrating in the article last week is called Cost Transparency. You can hear Gerard Howe, Head of the Inclusive Societies Department talking about how important this new approach is for DFID as he spoke in the UK Parliament to the International Development Select Committee on 12 June 2019, (just click the photo). We really want to thank Gerard and DFID for recognising the role that Humentum and Bond played in convincing DFID to change its approach.

Practical Solutions

The Money Where it Counts Initiative that Humentum is working on with the Norwegian Refugee Council and a group of international NGOs is all about finding practical solutions to driving transparency. When we harmonise cost classification and financial reporting regimes between donors, we will be able to create cost data sets that will allow for better comparison of different cost structures by donors. This will be vital to gaining acceptance for paying justified overhead costs, and for recalibrating expectations around the true cost of operating not-for-profit organisations.

High Executive Pay and Fair Pay for Workers

Over 20 commenters focused on the issue of high executive pay. This continues to be a highly emotive issue for many. Toby Porter made some good arguments that we ignore this issue at our peril, especially if our organisations are engaged in work on social justice. We have to have a good response for supporters like the one Toby quoted "It says here in this letter you sent that ￡4 from me could help save a life. So how about your CEO takes ￡40,000 less salary next year and saves 10,000 lives?” Views on executive pay differ significantly in different countries, and it is therefore important to be positive and transparent on pay philosophy and how that relates to mission and values.

Fair pay for other not-for profit staff also came up in about 10 comments and how the starvation cycle has made it hard for some to earn a living wage. Humentum supports Project Fair that is aimed at addressing pay equity in the international development and humanitarian sector. We have witnessed first hand how pay differentials between national and international staff in similar roles can create toxic cultures that lead to fraud or abuses of power. Humentum's partnership with Birches HR is looking for practical solutions to salary benchmarking and other approaches to improve fairness in pay policy in our sector.

Unethical practice, fraud and sexual misconduct

Over 5 commenters cited cases of poor practice as arguments for why we should be sceptical about supporting not-for-profits. We can't offer any views on the cases they mentioned, but would argue that we have to put more energy and, yes, money into detecting and deterring fraud and other aspects of misconduct in our sector.

Last week also saw the publication of two reports in the wake of the misconduct that occured at Oxfam. Dhananjayan Sriskandarajah, the new CEO of Oxfam GB said this in article published on 14 June 2019 "It is now beyond dispute that there has been long-term underinvestment in safeguarding in emergency situations. The safety of those we serve must be central to all our work. Funds for safeguarding are just as essential as funding for emergency food, shelters, medical supplies or hygiene kits."

Oliver May, a seasoned law enforcement professional and ex-Head of Counter-fraud at Oxfam GB, has argued that the "push for low overheads in charities raises the risk of fraud." So preventing poor practice is one more compelling argument for why we need better cost recovery - not an argument against. It's also why Humentum have developed fraud training specifically for our sector.

Keep the debate going and stay connected with our campaign

It is great that the last article generated so much interest across Linked-in. We need to keep discussing these issues and not be afraid of differences in viewpoints if we are to find better ways to address them. The other comments we really noticed were those praising the collaboration that made the breakthroughs we announced last week possible. If there is one value that is absolutely core to the not-for-profit sector it is collaboration.

Since our initial co-sponsoring of the first Summit to End the Overhead Myth in 2014, Humentum has continued to convene thought leaders, NGOs, and foundations to deepen the conversation on moving beyond using nonprofit organization’s overhead ratio as a sole measure of mission success. By working together, donors and NGOs all around the world can build a more trusted impactful sector that is worth every penny it receives in support.

If you want to stay updated on Humentum's work on this campaign please join our mailing list.

And if you are a Humentum member and want to learn more, then come to #OpexDC2019 as DFID will be talking about their new approach and I will also be running a session focused on the latest developments in cost transparency and recovery. Register for the Humentum conference here.

Thanks to all who built this campaign, especially Dan Palotta

We really want to thank everyone that has engaged with our campaign and urge you to continue to the conversation whether you agree with what we are saying or whether you don't. We also want to thank all the different organizations that have developed this campaign over the years and who continue to collaborate with Humentum. Finally we should mention, as 7 of the commenters did, the absolutely pivotal role that Dan Pallotta has played in this campaign. The last article, which was a speech made to a room full of finance staff in our sector, said "We are not back-office people. We are here to make sure our organizations have the capabilities to make a lasting impact." Maybe Dan would have suggested adding - "And we are overhead!"