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Future Of Philanthropy

No One Wants To Donate To Pay For Overhead—So We Need To Call It Something Sexier

We asked some branding experts to tackle a new name for "indirect costs" to help stop the chronic underfunding of nonprofits by wealthy donors who put restrictions on their gifts.

[All Images: Max Krasnov via Shutterstock]

If you were a wealthy person and you gave, say, a million dollars to a charity working on building wells in Africa, you might expect (if you didn't think about it too hard) that your money would go entirely toward those wells. That the group has to develop its own ideas and infrastructure to make sure it all goes off without a hitch is nice, but you're not donating to pay the salary of a nonprofit worker: You want your money to do good. Many donors, following this logic, don’t want to spend money on back-end costs like buildings, equipment, leadership training, and salaries, when they could put cash directly toward a field project to make a tangible impact on the cause. And thus—even though it’s sort of like backing Google to roll out a search engine but not backing the servers and engineers to support it—they put restrictions on their donations: Those must not go toward what are called "indirect costs."

This idea is known as "the overhead myth," an industry catchphrase for what nonprofit watchdogs like Guidestar, the Better Business Bureau Wise Giving Alliance, and Charity Navigator, refer to in an open letter campaign as "the false conception that financial ratios are the sole indicator of nonprofit performance."

And it's a large problem: 75% of all U.S. foundation grant making is restricted, according to a 2011 National Committee for Responsive Philanthropy report. As Co.Exist has previously reported, the top U.S. foundations only allocate about 15% of their funding to indirect costs, according to a recent Bridgespan report. The result fuels another catchphrase—"the starvation cycle"—for where groups become so chronically underfunded that they have to spend their own resources chasing more money for more support, which hurts their ability to accomplish anything at all.

As Dan Pallotta, the author of Uncharitable—How Restraints on Nonprofits Undermine Their Potential, put it in his TED Talk about the subject: "This is what happens when we confuse morality with frugality . . . Our generation does not want its epitaph to read: ‘We kept charity overhead low.’ We want it to read that we changed the world." (Pallotta’s own group, PallottaWorks, was once raising hundreds of millions with AIDS rides and multi-day breast cancer awareness walks, which require big staffing and advertising, only to take a funding hit when grant makers realized that his overhead had expanded, despite the fact that the revenue being generated was exponentially greater than additional costs.)

And there's a recent, literal case in point: Last week, a court-appointed bankruptcy trustee filed a $3 million lawsuit against the former founders and board members of now defunct design nonprofit Architecture for Humanity. The defendants include a VP from Facebook, former president of the American Institute of Architects, director at Salesforce, and others with close ties to Silicon Valley companies, accelerators, and venture capital funds, who allegedly ignored this now-heavily tarnished rule. Many company donations, the suit alleges, were earmarked for project costs. As overhead rose and things got more desperate, those got tapped to cover broader expenses. The plaintiff is calling that looting. The suit shows pretty clearly how groups—even if their rapid growth is woefully mismanaged—can be trapped by antiquated views on things like "overhead" and "indirect costs."



In the Bridgespan report, Roger Martin, former dean of Rotman School of Management agreed that words like "overhead" and "indirect" are semantically stifling. "Who would want to support overhead or indirect costs?" he asks. Report lead author Jeri Eckhart-Queenan agrees. "Overhead is a terrible word that has terrible connotations," she says. (As in, it’s boring.) "We know there are test scores that show 'indirect cost' is a little better but not much. There is something about it that implies it’s not as positive as the underlying costs in investments actually are." The replacements aren’t much better either. Eckhart-Queenan says some industry folks use vocab like "infrastructure cost" but that makes this style of spending seem tangible.

For now, she’s using "shared cost" because indirect costs are distributed in ways that support the entire organization. But that too has some rhetorical drawbacks. "That’s an apt description of the fundamental driver here, but it doesn’t quite convey value in and of itself," she says. "I’m absolutely convinced this category of costs is essential to impact. If you have a solution, we’d love to hear it."

So we asked two brand naming experts to take on that challenge. Margaret Wolfson, the founder of River + Wolf in New York, has worked with Fortune 500 companies and recently coined the name Arro for a New York taxi app. Anthony Shore heads Operative Words, where he’s named such devices as Autodesk Homestyler and Jaunt VR. Both agree that the current options are, as Wolfson says, "too abstract to be inspirational and don’t give people the sense that they are donating to an actual cause." The right word should feel positive—or at least neutral—and better spell out where that donor money goes. If it’s a novel word, though, you also need to make sure no one already owns it. (None of the proper terms here have been checked for trademarks.)

At first, Wolfson liked the brand name "SoftCost," which sounds a bit more approachable. But she quickly discounted that. There is nothing literally or figuratively soft about these costs, plus the language "cost" felt negative. Even as a noun, "fund" has a nicer ring to it. That led to ideas like encompass, vessel, or circle funds. "Core is also interesting as it suggests something important, crucial—[it] also plays to the Latin word for ‘heart,’" she says. That’s close to "core support," which, along with "critical infrastructure" has become a proxy for many industry folks searching for their own alternatives, says Vu Le, the executive director at Rainier Valley Corps, who also runs the popular industry commentary site NonprofitWithBalls. But why stop there? Le’s ultra-hyphenated suggestion: "Things-we-need-in-order-to-do-our-job-of-helping-people-dammit."

Shore took an extremely comprehensive approach, coming up with 45 different ideas and variations that used different tactics to solve the problem. "This is a bit like making sausage," he admitted. "There are terms here that may not be realistic, but developing and considering those is an essential part of name development." The results ranged from pretty straightforward (operations or general operational costs) to slightly generic (general or organizational costs) to those with more modifiers like operational impact or essential indirect costs. He also contemplated ideas like vision-driven, mission-critical, or even existential costs. "Weird but accurate," he notes about the last one.

Things like existential—or even the inventive "bedrock costs"—got tabled as being too philosophical, highly problematic in a case where the jargon is already unclear. Another Shore creation, "caust," which he describes as "a portmanteau of cause plus cost" was abandoned as both too clever and too unintentionally similar to caustic. "That’s an association you could take with a grain of salt; it could be idiosyncratic. And maybe it’s just me, but more to the point it isn’t exactly intuitive. It would require education in order to be adopted," Shore says. Short term—no pun intended—it might be tough to boost overhead with a substitution that requires its own overhead for an awareness campaign. For that matter, Shore considered anything with "impact" as buzzword abuse, perhaps even redundant. Like Wolfson, he didn’t love "costs," which kicked off a brainstorm about subbing in expenses, outlays, or maybe investments. And yet these could feel a bit murky, untrue, or financially freighted.

Shore ultimately liked his "operations" riffs—operations, operational, direct operations, or general operational costs—the best. But Eckhart-Queenan at Bridgespan isn’t entirely convinced. Apparently not all operational costs are indirect, and not all indirect costs are operational. Wolfson’s other idea is to award branded titles for budget line items, so folks who cover electrical costs could consider themselves "Illuminators" while those picking up the hardware and software tab would be "Digital Drivers."

The point is, words definitely do matter. The final expression might end up being a bit unsexy, but only metaphorically. As Shore puts it: "What could be more sexy than dramatically influencing how much money pours into the critical, staying-afloat initiatives within an organization?"

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