[T]he overhead question has a number of flaws. A few of the easy ones to talk about and describe are, first, it operates on a mistaken theory of waste. So, a [soup kitchen] tells you $.90 of your donation goes to the cause and you think: Well, that’s great, now I know that they don’t waste any money. But you don’t know that at all. How do you know they are not wasting the $.90 that’s being spent on the cause? That’s where all the money goes; that’s where the largest opportunity for waste is. Related to that, it tells you nothing about the quality of services. So, that soup kitchen can tell you $.90 of every donation goes to the cause and you’ll never learn that the soup is rancid. . . .
Next, the percentage of your donation that goes to the cause depends entirely on how the charity defines the cause. So, the more broadly they define the cause, the higher the percentage they can tell you is going to the cause. It actually operates on a false theory of transparency as well, because unless you know the underlying accounting and definitions of the cause, there is no transparency in that simple articulation of an overhead percentage. Worse, this demand the charities keep overhead below prevents them from spending money on the overhead things they have to spend on in order to grow. And that’s how we institutionalize the miniaturization of these organizations.
Pallotta offers many provocative thoughts on how success is measured in the nonprofit sector.