Ousted leaders' decision to grow Wounded Warrior Project raised questions about spending
April 15, 2016
Pressure on the Wounded Warrior Project had been mounting for months when Chief Executive Officer Steve Nardizzi and Chief Operations Officer Al Giordano were summoned before the board in early March. In a brief conversation as they describe it, the board told them they were out.
“Of course we were surprised by the decision,” Nardizzi said. “We had helped found the organization. We grew it to the point it was at. We developed the programming we knew was essential ... we could see the impact every day.”
In the month since their March 10 ouster, the two men have not shied away from the spotlight. They have penned blogs and articles for opinion pages and done interviews, defending what they see as a misperception of how they managed about $300 million from donors last year and explaining how investing in fundraising and staff infrastructure -- not just services for veterans -- helped the nonprofit grow exponentially.
Nardizzi said the charity went from spending $12 million on programs and services in 2008 to $275 million in 2015. Last year, the nonprofit helped more than 100,000 veterans and their families. They believe in spending on staff and training and education, and using advertising to increase donor support to grow programs and services.
The goal, they said, was not only to reach more wounded warriors, but to address more complex problems, like supplying at-home, long-term services to severely disabled warriors to keep them out of nursing homes. Or offering mental health programs, physical fitness and nutrition programs and employment readiness programs to help warriors transition back to productive lifestyles.
“If you are trying for 50 percent, year-over-year growth in your programs; if you are trying to achieve that level of growth in the number of individuals served; and if you are trying to increase the complexity of services being provided, then you need those investments in infrastructure,” Nardizzi said. “Otherwise, you would stay a small charity, with much less complexity and you serve far fewer people.”
As the charity grew, there were questions about how much money was directly benefiting wounded veterans versus what was being spent on six-figure salaries, fundraising and infrastructure. Reports in the New York Times and on CBS News stemmed from interviews with former WWP employees who alleged that there was lavish spending on staff retreats and an intolerance for criticism. They cited findings of high overhead spending – more than 40 percent – by charity rating groups. WWP, citing an independent audit, called the reports inaccurate, explaining its expenditures.
But the perception of misspending persisted.
Nardizzi acknowledged that his actions fueled that – in particular the “optics around some of the activities at the events and venues,” including holding staff retreats at luxury hotels. Even though the nonprofit got discounted rates, he said he did not take into account the way it looked to the public.
“Those choices, I absolutely would make differently in retrospect,” Nardizzi said. “Because I think it allowed a picture to be painted not just of me but of the organization that isn’t true.”
Once the WWP’s spending methods were questioned, observers say the leadership and the board lost some of its grassroots donor base, those who gave with an emotional connection and whose trust was integral to maintaining their support
“That’s what really got me annoyed,” said Fred Kane, who last month shut down his nonprofit Tee for a Cause, which raised $325,000 for Wounded Warrior Project through golf tournaments. “There was no willingness to understand that there was another point of view with what they did.”
Changing the model
Nardizzi and Giordano took a chance in 2008 when they decided to grow the small but popular charity into a major nonprofit.
Nardizzi recalled a budget meeting where the managers were looking at what to do with a potential 12 percent growth in the coming year. Someone said it should go into economic empowerment – warriors coming home need jobs. Another said no, there are huge gaps in mental health that need to be filled. Someone questioned whether to invest more in the popular retreat program or try new programs.
They finally came around to the hard truth. They didn’t have enough money to do any of that, Nardizzi said. So they started to ask a different question: What did they want to accomplish?
The answer was audacious.
“We wanted to make this the most successful generation of wounded warriors in our nation’s history,” he said. “You can’t impact a generation with $12 million, when the pie is that small. That’s when we made the decision to grow.”
They put together a five-year plan with a huge goal -- 50 percent growth per year. It would mean using the experts they had and hiring or contracting new ones. It would mean adding programs. It would also mean raising the money to make it all happen. They set targets for how many warriors they planned to serve; benchmarks for the types of programs they wanted to run; and goals for how much money they would need.
That meant considering more aggressive fundraising options. They used mass mailings to lure new donors, and they started advertising on TV. It was costly, but they believed the investment was the only way to reach their goals.
“Steve and I had worked with thousands of warriors from other generations,” Giordano said. “We’d seen decades of struggles a lot of those warriors had because nobody got there in 1946, 1954 or 1972 with substantive programming. We knew the model had to change. We knew we had to come up with a new and creative way to make sure we could grow that infrastructure to provide impactful services to warriors.”
Money poured in, programs expanded and more complex issues were being addressed. But Nardizzi said that negative public perception hounded the organization’s growth. Over the years, he said he and Giordano repeatedly defended the business model.
“In the nonprofit sector, you can have all those factual results – sustained success over the long term, great impact. And still the perception can be, ‘We didn’t like the way you spent money,’” Nardizzi said.
Perceptions over cost can affect the trust of donors, who might not understand the line items on a tax form. They want accountability, which comes through efficient and transparent spending.
“We are still the charitable world and still need to honor the public’s expectation that we use every dollar as efficiently as possible,” said Doug White, head of the master’s program in fundraising at Columbia University and author of books on ethics and accountability in nonprofits and charities. “The relationship people have with charities is so complex, so heartstrings driven.”
Many people in the nonprofit world believe that spending on overhead is wrong. Charities are given grades for efficiency based on keeping those costs down, making use of most of its money for programs.
“Our view is obviously different,” Nardizzi said. “If you want to provide really professional human services, then you have to invest in those types of things, and certainly if you want to provide those types of services at any kind of scale like we wanted to, in terms of numbers reached, you have to make those types of investments in fundraising, in people and in the infrastructure to support those types of programs.”
On charity rating sites, performance is not judged on impact. Instead, each is rated using a traditional financial effectiveness ratio of programming to overhead. The higher the percentage of overhead, the less money that goes directly to those who need it.
But experts – including the CEO of nonprofit rating agency Charity Navigator – say that judging a nonprofit’s effectiveness by its ratio is a flawed calculation.
“My predecessor used the metaphor: ‘Saying nonprofits shouldn’t invest in overheads is like saying airlines shouldn’t invest in maintenance,’” said Jacob Harold, the CEO of GuideStar, the primary online resource for nonprofit financial information. “Most nonprofits don’t just take money and give it to recipients. They have overhead.
“These organizations aren’t some sort of mythical all volunteer-run community projects,” he said. “In the case of Wounded Warrior Project, it’s a third of a billion dollars a year organization. That is a very complex organization that has to invest in itself.”
Harold, along with the CEOs of Charity Navigator and the BBB Wise Giving Alliance, penned an open letter to donors a few years ago titled “The Overhead Myth,” urging donors to delve more deeply into a nonprofit’s performance rather than looking only at the financials.
“We ask you to pay attention to other factors of nonprofit performance: transparency, governance, leadership, and results,” the letter said.
The letter was based on a Stanford University paper that argued that donor focus on overhead forces nonprofits to not invest in themselves, which affects their ability to perform and grow. The organization effectively starves itself. The biggest problem is that there is no other single metric to gauge nonprofits across the board, Harold said.
White agrees that a nonprofit’s financials inform how money is being managed, he said, but it shouldn’t be the guiding factor.
“The more important issue is impact, which no one can measure because we haven’t gotten there yet,” White said. “That’s where we need to go. That’s the holy grail.”
‘Do not lose faith’
While Nardizzi and Giordano made Fortune.com’s list of the World’s Most Disappointing Leaders in 2016, the men still believe they got it right.
They cite the over 90 percent satisfaction rate for Wounded Warrior Project programs and services in last year’s annual WWP alumni survey, developed by Rand Corp. and administered by Westat.
“Those high satisfaction rates don’t translate if you are not connecting deeply with warriors,” Nardizzi said. “If you really want to gauge what the response was and how people reacted to the message, you have only to look at the increase in revenue and the increase in programmatic spending and the warriors being helped.”
But they did not successfully market that message, and they lost donor support.
“The perception ‘less is good’ is really cemented, without real understanding of what does that mean when it comes to impact,” Nardizzi said. “We were ahead of the curve in terms of that conversation happening more broadly in the nonprofit sector.”
Wounded Warrior Project wasn’t unique in its “big brand name” charity model, Harold said. The American Cancer Society and the World Wildlife Fund have similar metrics. The Wounded Warrior Project got the optics and the timing wrong, he said. It grew so quickly that nonprofit culture and donors had no time to embrace the new strategy.
“It appeared to me in this case there were some managerial mistakes,” he said. “But the reasons they were being criticized were really the wrong reasons and the logic behind some of the critiques were really flawed.”
Nardizzi and Giordano are no longer affiliated with WWP, but they say they want to help restore trust in the nonprofit.
“There’s nowhere else that you can -- as a donor -- give your money that you can have more of an impact in the lives of wounded warriors and their families than to give to Wounded Warrior Project,” Nardizzi said. “Do not lose faith in this organization.”