Nonprofit University Blog

     Last week, Harvard Law School announced that it would start paying the tuition of third year law students who promised to work in government or for nonprofits for five years post graduation. Apparently Harvard heard that the nonprofit sector isn’t attracting folks like it once did, and surmised that graduating with only $82,000 in debt (as opposed to more than $123,000, which would be the current cost of paying for all three years of law school) might make it easier for those inclined to public service.

But let’s not lump the government in with nonprofits. Anyone familiar with the salary scales of both government and most nonprofits must know that the pay scales are not comparable. It will be far easier to pay off $82,000 in debt and still have a life (being able to afford things like food, clothing and shelter, transportation and a even some spending money for fun and relaxation) working for in government than working for a nonprofit. Especially if these law school graduates end up in the “typical” (by which I mean the majority) nonprofit that has a budget of less than $1million and 2 to 5 employees.

According to The Nonprofit Times 2007 salary survey, the average salary for an executive director of an organization with a budget between $500,000 and $999,999 was $77,737, while the average salary of the executive director of an organization of $500,000 was only $58,474. But how frequently will new law school graduates be hired as executive directors? Perhaps if the person has prior work experience or the board is blinded by a Harvard law degree, but barring that, not very often. And as you can imagine, salaries for other positions are substantially lower. Thus, in essence, we have consigned the law school graduate inclined to work for good to indentured servitude.

Surely there must be a way to allow those people who are interested in both individual and social betterment to gain post-secondary education and graduate and apply that knowledge to the nonprofit sector, without enlisting in life-long debt. Harvard has taken a good first step. Others must step forward with bolder proposals that will ensure a talented and equipped pool of workers eager to apply their knowledge and passion to enriching the communities in which we live and work.

I’m taking advantage of the fact that today is Good Friday to talk about good—not in a religious context, but in the context of its meaning as virtuous, right, commendable.

Goodness seems to come in all shapes and sizes in our society. It comes in writing the large check and in dropping a few coins in the donation box at the check-out counter. It comes in volunteering once a year on a special day and in a once a week commitment of several hours for a tutoring session, or dropping in on an elderly or disabled neighbor. And it comes in choosing to work for a wage in the sector that is thought to do good. Each of these is an example of doing good, for an individual, our community, our society. All of this is wonderful, and none of it is enough.

As a society, are we doing enough to encourage all people to give of their time and their dollars to do good?

 We live in a world where double standards are the accepted norm. As a society, we are slowly working on redressing certain double standards, as in race and gender. It’s time to call attention to an enduring double standard for for-profits and nonprofits.

We hear again and again that nonprofits are businesses and they should be run as such. I couldn’t agree more, but with a few caveats, such as tempering our bottom line with our mission and having to raise some of our income via fundraising. Both of those, however, are totally doable within the business model. So, if we all agree that both for-profits and nonprofits are businesses, why is there the double standard when it comes to expectations of how each will run?

I’m a standard bearer on the importance of being excellent stewards of other people’s money. When you raise dollars in exchange for a promise of doing good, it is fair to expect that the recipients will not be frivolous with that money. But, is this any different from giving a for-profit business money in exchange for a tangible product, such as a box of cereal, a pair of sneakers, or a medication? Shouldn’t we, in both cases, have the expectation that the organization receiving that money will not be wasteful with that money?

Why is it okay for a for-profit company to use the profit made from the sale of shoes in the first quarter to buy handmade mahogany furniture for the CEO’s executive secretary, but the executive director of a nonprofit should be grateful for the donated desk from a family downsizing its home? Why is it okay for some for-profit companies to get the latest and best in technology each year, while nonprofits, who are still not even networked or have web access, struggle to find donors willing to help them gain the infrastructure support they need to deliver their programs? When we buy that pair of shoes, the price tag doesn’t come labeled: $50 for shoes, $10 for the electric bill, $30 for new desk, but, in essence, that is what that $90 dollar price tag is all about.

But nonprofits trying to sell their pair of “shoes” must detail that price tag: $50 for food to feed the hungry, $10 for the electric bill, $10 for new furniture, and hope that donors will be willing to pay the full freight. But, as one of my graduate students said, “I don’t want to pay the electric bill. I only want to feed the hungry.” Does he understand that the lights must be on in order for that soup kitchen to serve meals to needy people? Absolutely. But he doesn’t want his dollar paying that bill; he only wants his dollar to buy the food being served.

It’s not uncommon to read an article that identifies the compensation packages of the region’s highest paid for-profit executives. When some of us see those numbers, we give a nod to the benefits and rewards of capitalism. Others of us read those articles, see those numbers, and are appalled that one person makes so much money. But how many of us think, “I’m not going to buy any more of that company’s products because I don’t want to pay for that CEO’s penthouse?”

And then there’s the annual story about the salaries of the heads of large nonprofits. When the last such story came out in 2007, one of the people at the top of the list was the president of WHYY, one of the region’s public radio stations. Shortly after the article, WHYY was doing its annual fundraising drive. An area nonprofit had signed up to cover the phones during a period of the fund drive, but when the board got wind of the salary of the head of WHYY, they pulled out, saying that their organization would not help to pay for what they saw as an outrageous salary. And this one nonprofit board was not alone.

Competitive salaries and compensation packages are a way of life in the for-profit sector. Why? Every company wants to woo the best and the brightest. Shouldn’t that include nonprofits? Our employees, too, want smart, bright colleagues, as well as nice offices with the latest technology, health and retirement benefits, a living wage, professional development opportunities, and so on. We all want the same things because we understand that running a business requires, among other things, investing in our most important commodity—our people. But why, then, is one sector—the nonprofit sector—criticized for and hampered in trying to achieve that goal?

Let’s be real here. For-profits fund their businesses in a very similar manner as nonprofits. The latter, however, is required to be absolutely transparent about it while the former, well, not so much.

Nonprofits, as noted above, must give you the option of picking and choosing which part of our business you wish to fund. For-profits don’t: we can’t elect to pay for the meal, but not the chef’s salary. We can’t elect to pay for the shirt, but not the labor that went into making the shirt. Because to do either would be absurd, correct? Everyone knows that if the laborer doesn’t get paid the shirt doesn’t get made, so of course we understand that a share of the price of the shirt includes a fee for the laborer. Then how come everyone doesn’t know that if the electric bill isn’t paid the hungry don’t get fed, and that, therefore, a share of the price of feeding the hungry must go to pay the electric bill.

If I could bust all of the myths and misperceptions that Americans hold about nonprofits, I’m not quite sure where I would begin. The one about nonprofit employees not needing to make a decent salary? The one about us being expected to work in the seediest of office environments? The one about nonprofits not having to make money? Now that’s a really good one.

But the one that has me all roiled up is the one that nonprofits waste money. Waste suggests frivolous expenditures. Offices, for example, that are so far removed from “not seedy” that they rival the poshness of the most opulent corporate offices. It suggests flying first class when you could easily fly coach. It suggests five color printing when two colors would have done the job. That’s waste. Have I seen this in the sector? Absolutely. But truth be told, and you who toil in the nonprofit sector know this to be true, it is absolutely the rare exception, not the rule.

And just to clarify: waste is not fraud. What may be judged as wasteful can theoretically be done on behalf of the betterment of the organization: a better image, a reward for the staff, etc. It may be unethical, but it is not illegal. Fraud, on the other hand, is both unethical and illegal, and is done for the betterment of the individual(s) committing the fraud: art for the walls of the second home, a speed boat, limo rides and luxurious trips, a laptop for your child, a padded personal bank account for whatever the current whim dictates, etc. But, again, truth be told, fraudulent behavior is the rare exception, not the rule.

So, where is this misplaced perception of waste coming from? If we look at the report released last month by Ellison Research in Phoenix, the majority of Americans believe nonprofits waste money simply by running their organizations. Ellison’s survey of 1,000 adult Americans found that 62% of these adults believe that nonprofits spend “more than what is reasonable on overhead expenses such as fundraising and administration.” Excuse me, but expenditures for fundraising and administration are called running our businesses.

Now, please don’t get me wrong: I am the first to say that as nonprofits asking others to give us money in exchange for a promise that we will “do good, ” we have a serious obligation to use that money extremely wisely. But it is wise to run our organizations well, to hire the best and the brightest staff, to provide them with the supports they need to do their work, to spend money to make money, etc. I thought these were the mantras of all good businesses. Not to waste or defraud, but to use money wisely in pursuit of the organization’s mission.

According to the Americans surveyed in the Ellison study, the “reasonable” (and the study clearly states people were asked reasonable, not ideal) amount of money nonprofits should spend on overhead should be $.224 out of every dollar, compared to the $.363 on the dollar that people reported they thought nonprofits spend. (Thus the perception of waste.) How many of these people have ever run a nonprofit and know what it takes to do so?

Do they know that it takes more money, for example, to start a development function than to sustain one? Do they know that the amount of money you spend on overhead is likely to increase when you are involved in a capital campaign, or experiencing a growth spurt in your organization? Do they understand that more and more nonprofits are developing competitive compensation packages for employees? Do they understand that larger organizations may be able to bury their overhead costs in program costs more readily than smaller ones? And do they understand that because of this ridiculous emphasis on the idea that there is such a thing as a “right” or “correct” percentage of a dollar that should go for administration and fundraising, many nonprofits have become very creative at allocating those costs into program costs, just to keep that overhead ratio looking “reasonable”? Do they understand that by focusing on an arbitrary distribution ratio they are, in essence, “encouraging” nonprofits to engage in subterfuge? to be less than transparent? perhaps less than fully trustworthy? But the perception will be better!

Do they realize that by deciding that a random ratio—a ratio that is built not on particular information but on an uninformed call of what is reasonable—makes an organization less than trustworthy, they have created a self-fulfilling prophecy? That totally trustworthy organization, accurately reporting its overhead expenses, becomes untrustworthy as it works to report its financials to fit the magic formula.

And now the perception has, ironically, become the reality. Please, let’s bust that myth.