Monday, May 27, 2013

The Folly of Suppressing Overhead

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"This notion of suppressing overhead to give taxpayers more bang for their buck is the opposite of how it works. Suppressing overhead suffocates organizations and leads to higher turnover, poorer leadership, and worse service."

I read this in a recent Dan Pallotta post on the HBR blog. I like reading Pallotta because I regularly come across insights like this. He writes about the non-profit sector, and usually social service organizations, but so many of his perspectives are directly applicable to the association world.

This is a great example. The post is one of several Pallotta has written about how social service organizations can be deprived of the executive leadership necessary to achieve their difficult humanitarian goals by the pervasive mentality that they must be spending high percentages of their expenses on programs in order to be successful. Indeed, as this post shows, "wasting" too much money on executive salaries can be cause for investigations and indictments.

I have seen a corollary in the way some association board members view the organizations over which they act as fiduciaries. Money is to be spent on member services, not "wasted" on staff salaries or "exorbitant" fees charged by association management companies. Indeed, speaking as an association board member myself, I have sometimes fallen victim to this destructive perspective.

Of course, no organization should be throwing good money after bad. But any organization that needs talented staff to design and deliver service programs needed by its constituents, must allocate the appropriate resources to recruiting and retaining that talented staff. And that allocation process, however it is structured, must take mission difficulty and program growth into account when making its decisions.

Mission difficulty. All missions require a leader with a specific skill set. And some missions are more difficult to achieve than others. Is it surprising, then, that the skills sets associated with the more difficult missions are harder to find in the marketplace, and therefore come at a premium price? Every board should think carefully about this dynamic, and be sure to allocate the resources that are necessary to attract and retain a leader with the skills commensurate with the mission of the organization. Not doing so is practically dooming the organization to failure. And holding the ill-equipped leader responsible for the failure just compounds the problem.

Program growth. This one we've all seen. The board gets together for their annual retreat, dreams up a bunch of new programs, and places them all on the shoulders of the already overburdened staff. No old programs taken off their plates. And certainly no more money allocated for the hiring of new staff. Do we want the members to think we're "wasting" their dues money or "building an empire"? Staff positions must grow with programs--that's the only way the increased program load is going to get done--and it is likely the responsibility of the CEO, not the board, to make that call and prepare a budget that takes those staff needs into account.

Don't fall victim to the folly of suppressing overhead. It may look good on your balance sheet or help your Guidestar ratings, but it also means that you're not serious about accomplishing the mission you have supposedly pledged yourself to.

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This post was written by Eric Lanke, an association executive, blogger and author. For more information, visit, follow him on Twitter @ericlanke or contact him at


  1. Eric, in my article, "Trapped in the Past," which appears in the March 2013 issue of Associations Now, I argue that boards operate with a narrow interpretation of fiduciary responsibility. The extreme focus on oversight and compliance has overwhelmed what should be the primary responsibility of boards, even in tax-exempt organizations: creating the right conditions in which organizations and their stakeholders can work together to co-create radical new value that is both purposeful and profitable. It is yet another example of how the non-profit mindset creates unintended negative consequences that must be overcome to build our organizations to thrive.

    The full article is available at here.