Posts Tagged ‘Stanford Social Innovation Review’

Are your grantees spending too little on overhead? Or are they under-reporting how much they actually spend on such expenses? Chances are, both, according to the Bridgespan Group. In an article in the Fall Stanford Social Innovation Review, the nonprofit consulting firm’s Ann Goggins Gregory and Don Howard write that nonprofits under-spend and under-report operating expenses because they feel anti-overhead pressure, especially from funders. Although nonprofits need to be more assertive in reporting how much it costs to run their organizations, Gregory and Howard say that funders should take the initiative to stem what they call a “vicious cycle” that is “slowly starving” nonprofits. Based on Bridgespan’s research, foundations generally only allow overhead or indirect expenses to total 10 percent to 15 percent of each grant, when the true cost percentage is likely to be twice that. And this compares to an average for-profit rate around 25 percent of total expenses. In fact, the authors cite a survey reporting that most funders realize their overhead allocations don’t adequately cover grantees’ needs, but they proceed as usual anyway. The authors call for a coordinated, sector-wide effort to put pressure on foundations to curb their unrealistic expectations about overhead.

Beyond confirming a wealth of prior research that finds an unhealthy obsession with low overhead costs in the sector, this article underscores the general need for foundations to be more actively engaged in candid and realistic discussions with their grantees. There is a crucial need for more general operating grants, especially given the difficulty many nonprofits are having staying afloat during the recession.  However, this need for general operating support will not fade as the economy recovers.

–Jane Wales

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The summer 2009 edition of the Stanford Social Innovation Review is up now online. This season’s publication includes a review by Jane Wales, our CEO & President, of the much publicized book by Dambisa Moyo, Dead Aid: Why Aid is not Working and How there is a Better Way for Africa. Read an excerpt from the article below:

“As the global financial crisis unfolds, those least responsible– our world’s poor – will be most affected.  Many have called upon President Obama to uphold his campaign commitment to double foreign assistance.  But Dambisa Moyo’s book, Dead Aid, challenges us to think again.  Although we can all agree that ending poverty is an urgent necessity, there appears to be increasing disagreement about the best way to achieve that goal.

Born and raised in Lusaka, Zambia, Moyo has spent the past eight years at Goldman Sachs as head of economic research and strategy for sub-Saharan Africa, and before that as a consultant at the World Bank.  With a Ph.D. in economics from Oxford University and a master’s from Harvard University’s John F. Kennedy School of Government, she is more than qualified to tackle this subject.

In Dead Aid, Moyo comes out guns blazing against the aid industry – calling it not just ineffective, but also “malignant”.  Despite more than $1 trillion in development aid given to Africa in the past 50 years, she argues that aid has failed to deliver sustainable economic growth and poverty reduction – and has actually made the continent worse-off.  To remedy this, Moyo presents a road map for Africa to wean itself off of aid over the next five years and offers a menu of alternative means of financing development…”

Read the full article here on SSIR’s website.  There is also a colorful debate going on at The Huffington Post between economists Jeffrey Sachs and William Easterly related to their thoughts on Moyo’s book, and on aid more generally.

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