How Much is Too Much?

How Much is Too Much?

A Look at Wounded Warriors Project & Operating Costs

Should not-for-profit organizations operate more like for-profit businesses?

In this age of “value creation,” improving the operational efficiency of charitable organizations has become a top-of-mind issue as businesses seek more measureable outcomes for social initiatives. On the other side, leaders from the non-profit sector often cite that “not-for-profit” is a tax status designation, not a business model.

During my time working at Boys & Girls Clubs America in the strategic marketing department, we embraced a business-like mindset. This approach was encouraged by management and helped to reinforce the results-driven culture adopted by our for-profit partners.

So why is the effectiveness of charitable organizations’ assessed using a blunt, too-basic metric comprised of simply comparing total administrative costs against total revenue? Shouldn’t charities have the license to deploy resources required to achieve their mission in the manner staff and board deem appropriate? Isn’t that fiscal responsibility?

It all depends on who’s asking the question. The problem starts with an oversimplification of evaluating effectiveness.  Perhaps more important are the differences between donor and investor expectations that are often overlooked. To illustrate, you need only look to the current controversy surrounding the Wounded Warriors Project (WWP).

WWP has been accused of lavish and wasteful spending by former and current employees. The country’s largest and fastest growing veteran’s charity was recently the subject of two damning national stories featured on the CBS Evening News and in the New York Times. These are very serious accusations being levied against the charity. If unchecked, they could severely damage the reputation of Wounded Warriors Project.

By all accounts, this is a success story. Under the leadership of Steven Nardizzi, Wounded Warrior Project’s CEO since 2009, the charity has grown its revenues to more than $300 million. Mr. Nardizzi, who steadfastly defends WWP’s business-like approach, points to the private sector as for models to emulate. He is unapologetic for his data-driven approach in how he manages the charity, about the $43 million in fundraising costs to grow revenues to $300 million, and the spending needed to promote team unity. 

Watchdog groups like Charity Navigator have rated WWP poorly since 2011 for some of the reasons cited above. According to the NYT article, the monitoring agency assigned WWP with an almost failing grade of “D” five years ago.

However, BBB/Wise Giving Alliance states the Wounded Warriors Project meets its 20 standards for Charity Accountability. (Full disclosure: I’ve served on the board of BBB/WGA since 2014).

I mentioned earlier there is a difference between donor and investor expectations. WWP appeals to altruism to drive revenue into its coffers, which has helped the group raise hundreds of millions of dollars through compelling advertising and direct mail campaigns. You could argue that a charitable organization that is not tapping into the passions of potential donors is committing a form of fiscal malpractice.

Leveraging altruism is rooted in traditional philanthropy, and it comes with a set of intertwined donor expectations that the funds contributed to any charity will be used in the most responsible manner that reflects that individual’s own personal belief system. 

As an example, a University of Central Florida student is planning to cycle from Orlando, FL to Los Angeles, CA to raise awareness and funds for WWP. A portion of the $250 raised by this young person pays for WWP compensation, staff travel, conferences attended, meeting entertainment, and, of course, programs addressing veterans’ needs. According to Charity Navigator’s estimates, $100 of that $250 goes toward paying for WWP administrative overhead and other general operating expenses.  (WWP disputes Charity Navigator’s calculation of administrative overhead and operating expenses.)

If the student “invested” in WWP similarly to how shareholders invest in a for-profit enterprise, then a different set of expectations logically kick in. Expenditures are evaluated against financial performance and how the organization uses its limited resources compared to other market players. In the final analysis, the question is, is the firm generating an appropriate rate of return?

Using altruism to urge supporters to give while invoking the freedom to operate like a business comingles conflicting expectations. Donors may, or may not, understand the business-oriented model adopted by a particular charity. At the same time, even non-profits have expenses to be covered as they deliver their services.

Perhaps the answer is more pro-active transparency. If WWP wants to retain public trust, it needs to be more transparent in its operations.

Corporate funders of Wounded Warriors Project can play an important role as arbitrators of change at the veterans’ charity. The organization’s leaders need help in understanding that aligning its operations to the altruistic expectations of its supporters is part of the charity’s competitive advantage.

Mark Shamley
President & CEO