The Chronicle of Philanthropy
June 12, 2003
LETTERS TO THE EDITOR
To the Editor:
Let me get this straight: One of America's great public servants of the last 30 years teams up with the most prestigious consulting company in the world to publish a report, in America's most-respected business journal, no less, that provides free advice to the nonprofit sector on how we could annually save an amount that is four times larger than all the money contributed to charities by our nation's foundations, and according to Mark Rosenman and Lester Salamon, we're not even supposed to listen to them because their findings are "absurd" and they're clearly trying to "Enron" the nonprofit sector? Is the nonprofit sector really so healthy, and our leaders really that brilliant, that we can afford to dismiss out of hand this free advice, and furthermore, should we then attempt to discredit the authors as hacks and crooks?
In their Harvard Business Review report, Bill Bradley and his McKinsey counterparts argue that America's charities could save an extra $100-billion in resources by changing the way they operate. The majority of these savings would be realized if charities simply operated more efficiently -- that is, if they developed ways to spend less on fund raising and administration and to streamline the delivery of their programs. Adding this sum to American charities' coffers would expand their capacity more dramatically than even our most ambitious philanthropists have ever imagined, but yet, even as giving to charities falls off the cliff in these tenuous economic times, the authors' ideas aren't even worth considering?
The report proposes a very simple, easy-to-understand strategy for finding this extra $100-billion. Mr. Bradley and his colleagues claim that we need our less efficient charities to perform more like their more efficient peers. If the bottom half performed nearly as efficiently as the top half, we'd realize the bulk of the $100-billion in savings. They base this claim on the fact that the bottom half has a lot of room to improve.
At Charity Navigator, we indeed found much of the Bradley group's analysis to be simplistic and many of their conclusions to be overly sensationalistic. But that doesn't mean that we found them to be wrong.
In fact, our financial analysis of 2,500 charities substantiates the report's central claims. In comparing more efficient and less efficient charities (and using a ratings methodology that indeed allows us to compare apples to apples, and not to oranges, by measuring organizations against their truest peers, and not the sector as a whole), we identify substantial gaps in how efficiently similar charities function. For example, among United Ways of similar size and scope in similar cities, we found gaps in fund-raising efficiencies of 36 percent. Among local community foundations, with similar missions and alike grant-making capabilities, we found fund-raising-efficiency differences of 87 percent. We've identified symphonies that spend 39 percent more on administration than their nearly identical peers, and we know of two large educational scholarship programs that have the same size staff, the same size budget, and the same goals, and yet one spent 65 percent more on administrative costs than the other. These disparities are very similar to those described by Mr. Bradley and his colleagues. And yet the contributors to this paper would have us believe that anyone who thinks the nonprofit sector has inefficiencies is "illogical."
We agree that the nonprofit sector isn't broken, but let's not pretend that it's perfect either. When a man like Bill Bradley, with no apparent ax to grind and a career of promoting innovative social programs that seek to end poverty, couples with the company recently selected as the most desirable place to work in America for outstanding M.B.A. grads, and publishes a relatively thoughtful treatise on how America's charities can save a sum roughly the equivalent of the state of California's budget, why don't we hear them out, look in the mirror, and see if their ideas have merit?
The improvements Mr. Bradley, et al., suggest could help charities dramatically. This makes the overly defensive response of nonprofit leaders all the more indefensible. These leaders must begin to embrace findings like Mr. Bradley's, to welcome outside, data-driven analysis, and to respond with strategic action, not with the tired arguments that outsiders don't understand the sector and that financial ratios are irrelevant to charities. At the end of the day, the nonprofit bottom line is helping people, and another $100-billion would go a long way.
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