A charity's infrastructure can be as important as its mission: Overhead is OK

Jul 17, 2017

I recently attended a conference focused on enhancing the infrastructure of philanthropy. The attendees came from various backgrounds, from academics doing first-of-its-kind research on generational giving to companies focused on increasing workplace giving to large foundations and donor-advised funds.
 
Like Vanguard Charitable, most of the attendees are not focused on raising money for specific causes but instead work to make giving easier and accessible for all, ensure giving has the maximum impact, and ultimately grow the percentage of total giving in the United States. Our mission, "Increase charitable giving and its impact over time," felt very alive with this group. As we sat together sharing what we have learned, what works for us, what others might consider doing, and how we can work together to accomplish these goals, the theme of investing in charities' infrastructure came up with a few different interpretations.

 

Overhead shouldn't be a stigma

 

One interpretation was giving to nonprofits' areas of greatest need, even if that includes electricity bills or staff members' salaries. Over the years, there has been a stigma attached to the word "overhead" in the nonprofit community. Understandably, donors are hesitant to have their money applied to excessive CEO salaries or fundraising costs, so some have pulled back on giving unrestricted dollars to general operating expenses.
 
However, in well-run nonprofits, funds earmarked for "the greatest need" can exponentially expand those organizations' missions. These types of gifts may save the staffer's job who walks the streets during a code blue (extremely cold weather) emergency to ensure the homeless find housing. They may allow an organization with a mission to innovate in early education secure office space so that its workers can benefit from collaborating.
 
The representatives from these philanthropic organizations believe that donors now tend to be much more thoughtful and strategic with their giving. In that approach, help nonprofits face these needs head-on. Over the past several years, Vanguard Charitable has noted that more than 60% of grants per year are allocated to the charities' areas of greatest need. This suggests that donors, rather than making prescriptive grants, are taking the time to understand charities: how they are run, how they plan to meet their goals, and how their board and leadership teams function to ensure donors' trust.

 

Investing in nonprofits' infrastructure: 

 

  1. Give to nonprofits' areas of greatest need.
  2. Fund research, data sharing, and other information that will help the philanthropic industry be smarter and charities make wise decisions.

 

Metrics to show how successful nonprofits are in their work

 

Our second interpretation of investing in charities' infrastructure was funding research, data sharing, and other information that will help the philanthropic industry be smarter and know if we are meeting our individual and collective goals. Unlike the for-profit sector, where industry data is readily available to give companies information on how they are performing, the nonprofit industry does not have the same comparative data level to help cause-based organizations understand how their work progresses.
 
For example, the Footwear Distributors and Retailers of America is a trade organization that provides current weekly sales numbers to help the footwear industry benchmark its successes and allow companies to make operational and sales decisions. A nonprofit focused on reducing hunger has no such resource and instead needs to spend its own time collecting and analyzing data—taking resources away from its primary mission. The philanthropic industry can make informed decisions if donors help to fund research organizations that provide these trending data and insights.

 

Our challenge to you

 

Three out of five of our donors have told us they are strategic givers with a donor-advised fund. Being a strategic giver means they follow a long-term plan that includes a budget, investment strategy, and appropriate time horizon. This plan will allow them to meet both current and long-term giving objectives and make the greatest charitable impact.
 
Since Vanguard Charitable has the privilege of working with a donor base that exemplifies these qualities, here is our challenge to you: Consider recommending grants to invest in philanthropic infrastructure using either of the two above definitions as a guide. As you go through this process, share your experiences in how you worked with the organization through that grant and the impact that occurred. The outcomes may be more significant than you think.

 

A charity's infrastructure can be as important as its mission: Overhead is OK
A charity's infrastructure can be as important as its mission: Overhead is OK
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