David Ainsworth: Why charities need higher overheads (and need to say so)

02 Nov 2017 Voices

Charities which spend money on back office costs have once again come in for criticism. David Ainsworth argues that charities need to spend more, not less, away from the front line.

Last week, I read some parts of the recent book by Camila Batmanghelidjh, founder of Kids Company. She levelled criticisms at many targets, and one of them was charities which spend too much on overheads.

The idea that low overheads equals high efficiency is hardly a new idea. Charities know that their supporters want donations to go directly “to the cause” and have historically been reluctant to spend cash on the back office, and keen to display this hair-shirt, low-cost approach.

It’s time to put an end to this low-overhead culture. Charities, not donors, are the experts on what’s best for beneficiaries. The sector does not need cash arriving at the front line with no clear idea on how best to spend it.

Caroline Fiennes, the researcher into efficient giving, says that charities with higher overheads are consistently shown to deliver better results. And this makes sense.

Essentially, service delivery = people x process x technology. You can have the best staff you like, but if they do not have clear direction, don’t have clear frameworks, and don’t have the right tools, they are going to struggle to achieve meaningful results.

People are expensive

People will almost always be the most expensive and important part of the process. But it’s vital to make them as effective as possible. The charity worker should meet the beneficiaries armed with everything they need. And that means good offices, good transport, good HR, good IT, good training, and good financial planning. And sufficient reserves, as well, while we’re at it.

It means someone needs to have thought really thoroughly about the best place to deploy that person, and the best channel for them to use to communicate. And about exactly what result they are trying to achieve, and for who, and why. It means exhaustively examining the question “Is there a better way?”

Which British institution has the highest “overhead” in charitable terms? Probably the armed forces. If you put cash into the army most of it doesn’t get to the front line. It gets spent on training, equipment and transport. And management overhead.

All that cash wasted on generals and colonels and majors. And on tanks and planes and guns.

Imagine if we applied the same rule to soldiers that some people seem to want to apply to charity workers. We would end up with a model more like the Russian army in the Second World War, which got many soldiers to the front line very quickly indeed. The trouble was that most of them didn’t know how to fight, and only half of them had a gun.

Overhead, in short, equals efficiency.

We tend to blame donors for the low overhead state that charities have found themselves in. Actually, though, the little research into donor viewpoints - by consultancy nfpSynergy - shows that donors are quite comfortable with the level of overheads charities do spend, which is around 20 per cent. In fact, they’d be comfortable with more - around 30 per cent. The trouble is that donors think charities spend 50 per cent. You can see why they’re upset.

It’s not just individual donors, of course. Institutional funders have also taken a strong stance on this. And in many cases charity workers themselves – and trustees, who are often coming to the sector for the first time – are opposed to any spending on support costs.

 So we need to start making the case that core costs are a good idea.

The phrase "on the cause" is probably particularly unhelpful here. In a well-run charity, the phrase is meaningless. Whether it reaches beneficiaries, or gets spent on staff who raise funds, or support beneficiary-facing roles, it still goes on the cause.

Fundraising communications 

I think the biggest single factor here is probably fundraising communications. Rather than articulating to donors what is actually needed, fundraisers have - rightly for them - tended to concentrate on what they know will reliably extract cash. So charities’ narrative has tended to cast beneficiaries as helpless victims, and has promised that donors’ cash will all go to the front line. These tactics work in the short term but in the long run arguably do more harm than good.

Charities need to articulate a holistic approach to comms, which doesn’t just focus on obtaining cash, but on overall, long-term reputational benefits. If no one is articulating what charity is actually like and how it actually works then other stakeholders will have little idea.

But of course, people do want to know that cash is well spent. And so they should. At the moment, we aren’t telling them, so they are defaulting to a simple model, and measuring inputs – the amount spent.

I think it would be a good idea to have some external method of grading charities’ efficiency and delivery. Rather than focusing on inputs, we need to measure outcomes. I’ve previously advocated for more focus on public benefit, rather than cash, when auditing a charity, as well as some form of impartial external scrutiny.

In the end, charities need to change their activities and do what’s best for beneficiaries – not what looks best to a casual observer – and clearly make the case for why they do so.


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