Uncharitable

I totally let the New York Times beat me to the punch! Over the summer, Dan Pallotta, the author of the new book Uncharitable: How Restraints on Nonprofits Undermine Their Potential , sent me a review copy of his book. He sent it to me after reading my Financial Times column arguing in favor of paying nonprofit employees a market rate salary. But I never got around to writing a review and so now the New York Times’ Nicholas Kristof has beat me to it:

A new book, “Uncharitable,” seethes with indignation at public expectations that charities be prudent, nonprofit and saintly. The author, Dan Pallotta, argues that those expectations make them less effective, and he has a point.

…Mr. Pallotta argues powerfully that the aid world is stunted because groups are discouraged from using such standard business tools as advertising, risk-taking, competitive salaries and profits to lure capital.

“We allow people to make huge profits doing any number of things that will hurt the poor, but we want to crucify anyone who wants to make money helping them,” Mr. Pallotta says. “Want to make a million selling violent video games to kids? Go for it. Want to make a million helping cure kids of cancer? You’re labeled a parasite.”

…In the war on poverty, there is room for all kinds of organizations. Mr. Pallotta may be right that by frowning on aid groups that pay high salaries, advertise extensively and even turn a profit, we end up hurting the world’s neediest.

What Pallotta gets right in his book is his broad theme that the social benefit sector is hamstrung by a cultural belief that people who do good should do so in a sacrificial way. This belief confuses the act of doing good with the actual good that is achieved. Our cultural belief system implies that a person who goes to work for little pay, in a nonprofit organization that is barely surviving is more admirable then someone who is highly paid, working in a robust organization regardless of what good each person actually achieves.

Imagine for a moment an imaginary nonprofit that is working on homelessness in a major city. It is staffed by intelligent, hard working people who care deeply about alleviating human suffering. They work in a dingy office in a warehouse district and depend on donations and volunteers to help them survive. But year after year, the homeless problem gets worse.

Now imagine a new organization comes to town. It is a for-profit homeless relief agency! The group has devised a program that dramatically reduces homelessness, not by driving people out of town, but by putting into place the elements that actually get people out of the cycle of homelessness and into a stable living environment. The organization’s offices are in the penthouse of a downtown skyscraper and the CEO makes millions.

If you are like most people (including me) the first organization warms your heart and the second one makes you feel a little sick. But at the end of the day it is the second organization that actually relieves homelessness! Shouldn’t that warm our heart more, regardless of how it actually gets done and how much money the people doing the work make?

If you’ve read this blog for awhile, you know that I don’t believe there are a lot of profit opportunities in social problems. I don’t write much about for-profit business that are doing good. My focus in on traditional grantmaking to nonprofits. My point here is NOT to suggest that nonprofits should turn a profit. But to highlight the way that as a culture we embrace a certain way of achieving good at the expense of actually doing good in the world. The core of my column on nonprofit salaries was not an argument that nonprofit employees “deserved” more or that they “should” be paid more, but that doing so, or at least having it be morally acceptable to do so, would result in higher impact.

That’s what we need to care about. Not how hard we try, not how nice we are, not how much we sacrifice, but how much good we actually achieve. Anything else is downright selfish.

Readers of Uncharitable will find many things they disagree with. Pallotta’s past was in running a for-profit company that raised money for AIDS research. He created the hugely popular AIDS Rides before public outcry over his company’s profit forced him to close down (see Pallotta’s comment regarding why his company closed). My friend Robert Egger is quoted in a recent Chronicle of Philanthropy review of Uncharitable saying that “[Pallotta] strip-mined the cause. He did a tremendous disservice.” Another friend of mine who does charity evaluation work emailed me after reading Uncharitable (at my suggestion): “Oy vey!!!!!! I have gotten to page 10 and can not believe how much I disagree with the guy!”

I urge you to read Uncharitable not as a list of suggestions that I think you should agree with, but as a challenge to the assumptions you make about charity and social good. The benefit you should take from the book are not prescriptive actions but a cracking of dogmatic beliefs you don’t fully realize you hold.

Pallotta opens the book with a quote from George Bernard Shaw: “All great truths begin as blasphemies,” and another from John Kenneth Galbraith, “All successful revolutions are the kicking in of a rotten door.”

So go out and read Uncharitable. You’ll have some of the rotten doors in the way you think kicked in, but you’ll also hear some blasphemies!

47 Comments

  1. Dan Pallotta says:

    Sean,

    Thanks for the review! I really appreciate you getting the word out.

    I’d like to address your raising the name of Robert Egger as a critic.

    I have tried throughout my work life and in the writing of this book to be civil and understanding, to give people the benefit of the doubt, and to get facts before I make conclusions. I have not always received the same treatment in return. I was in the Harvard Coop not six months ago now when I first picked up Mr. Egger’s book in which I was hurt and saddened to learn that he wrote that I had “strip-mined the cause.” He also stated that:

    - “Pallotta strip-mined the causes of AIDS and breast cancer for his own gain;”

    – My “priority [was] chasing money;”

    - “Pallotta TeamWorks collected more than $406 million for these events;”

    - “People were outraged to learn that Pallotta TeamWorks was charging $225,000 to $400,000 per event on top of its corporate’ (sic) sponsorships…”

    - “He was able to enlist 125,000 riders and walkers around the country to raise money for something they really believed in, only to have them find out that much of their hard-earned donations were going into his company;”

    Let me address these writings.

    Fees
    Pallotta TeamWorks did not collect $406 million for these events. 100% of the funds raised went to charity, into lock box accounts controlled by the charities. The charities then reimbursed us on a dollar-for-dollar basis, with no mark-up, for expenses we incurred on their behalf for logistics, staff and marketing. We took on many tens of millions of dollars of liability each year on behalf of these charities – a huge financial risk for a small operating entity like ours, taking in a few million dollars a year in fees. As for our fees, they amounted to $23,360,004 over the course of nine years, or 4.01% of what was raised.

    This data is available for all to see on our website. Lest someone say, “well, those are HIS numbers,” please note that the figures on the site are the same figures used as the basis for all of out filings with the various states’ attorneys general, which were signed under penalty of perjury in most cases, and which were co-signed by the charities themselves before they were submitted. The link is here: http://www.pallottateamworks.com/financial_detailed.php

    “Outraged to Learn”
    The only reason people would have been outraged to learn of our fees would be if they hadn’t looked on our website, or in the booklets we printed each year at considerable expense and distributed to them on the campsites, which plainly stated our fees for each event. WE WERE NOT REQUIRED TO DO THIS BY LAW. We did it because we wanted to be transparent to people about all summary financial aspects of the events. Mr. Egger tries to give the impression that the outrage arose when people uncovered something that had been hidden. Not at all so. I challenge him to go on the website of any other mega-events and see if the producer’s fee is disclosed as it always was on ours, and still is. My experience has been that they are not.

    “On Top of Corporate Sponsorships”
    We never received a penny of income from corporate sponsorships. Our fees were pre-set fixed dollar fees, paid by the charities, and disclosed to all participants;

    “Only to Have Them Find Out That Much of Their Hard-Earned Dollars Were Going Into His Company”
    Again, our fees were just 4.01% of what was raised and were disclosed in advance to all participants who cared to click two buttons on our website. This was hardly “much” of their hard-earned dollars. Credit card companies get 2% transaction fees for doing nothing. We were creating and producing these events from A to Z and not making very much more;

    “Strip-Mining” and “Personal Gain”
    Is raising $305 million net, after all expenses- more money more quickly for AIDS and breast cancer than any private event operation in history – “strip-mining the cause?” If the causes were strip-mined, why then, do our event concepts continue to raise close to $100 million a year for AIDS, breast cancer, and suicide prevention?

    As for my motivations, what does Mr. Egger know of them in the absence of spending any time talking to me? Does he know that I bicycled 4,200 miles across America as a college student to raise money for the poor in Africa? Does he know that I put my home up as collateral – three years in a row – to raise the financing for the AIDS Vaccine events? Does he know that I never made anywhere close to a million dollars a year producing these events, even as we were raising close to $200 million a year for these causes? Does he know that my salary, at its peak, amounted to 0.017% of the amount of money we raised?

    Mr. Egger’s Summary
    Mr. Egger concludes his journey through my reputation with this odd passage:

    “What’s worse about this, though, is that the AIDS- and breast cancer-related charities that grew to depend on this flow of money were not only left without that guaranteed revenue stream, but have had to pick up the pieces left behind by Pallotta. They have to contend with an angry and betrayed donor pool…and operations that grew accustomed to the cash flow from these events.”

    Is he saying that the charities grew to depend on my strip-mining causes, and that they sat idly by and allowed it to happen? Is he saying that I had some obligation to “guarantee” to them a revenue stream, which didn’t exist before I came along and which he claims was generated by “strip-mining?”

    In summary, let me say that I am tired of people taking liberties with my reputation and character. Changing peoples’ thinking on issues that are as ingrained as their thinking about charity is hard enough, without having to deal with a gauntlet of misinformation about oneself and one’s motivations along the way. If Mr. Egger were going to call my character into question as significantly as he chose to in his book, it would have been nice – not to mention civil and fair – of him at least to give me a call and say, “I’d like to learn more about you before I write these things.”

    Last Sean, one correction. You write that “Outcry over his company’s profit forced him to close down.” This is not accurate. Our company closed down after a charity with which we were negotiating opted not to do the Breast Cancer 3-Days with us. They opted not to do this because the Avon Products Foundation breached a contract they had with us and appropriated our Breast Cancer 3-Day concept. This was the finding of an independent arbitrator after a three-year arbitration with a 22,000-page record, which is described in the book

    Again, my thanks for writing this blog.

  2. @samuelisaac says:

    Just ordered this book on Amazon, and really looking forward to reading it: http://tinyurl.com/6wec6q

  3. Sean, thanks for this post and for your thoughts, and Dan, for your providing more details on Egger’s comments. I too found Kristof’s article interesting and just posted on it too:

    http://sashadichter.wordpress.com/2008/12/26/should-nonprofit-leaders-be-like-boiled-broccoli/

    At a minimum, Dan is doing the nonprofit world a service by ask what tradeoffs we’re willing to make in pursuit of a goal. There are certainly no easy answers here, but we need more ideas, innovation, energy, and talent in the social sector, and right now – when Wall Street and lots of Main Street are both turning upside down, which means that lots of talented folks are thinking about the next chapter in their lives – is the right time for this discussion.

    Thanks to you both.

  4. Tony Wang says:

    Hi Sean,

    Great topic! I think the field is definitely still trying to wrestle with what is appropriate compensation – and there doesn’t seem to be any easy answer within sight.

    I wanted to comment on one particular paragraph you wrote: “If you are like most people (including me) the first organization warms your heart and the second one makes you feel a little sick. But at the end of the day it is the second organization that actually relieves homelessness! Shouldn’t that warm our heart more, regardless of how it actually gets done and how much money the people doing the work make?”

    I think our initial intuitions, that the nonprofit is somehow more venerable than the for-profit institution, are actually correct in this case and shouldn’t change upon further reflection. Even though the impact might be greater in the latter, we admire the former more because of the very things you say we don’t need to care about – how hard we try, how nice we are, how much we sacrifice. We don’t admire people based on their impact, but the qualities of their character and the reasons behind their decision. If two people start microfinance institutions with the same exact impact, but one starts an institution to help people while the other starts an institution to make lots of money, shouldn’t our emotional response be different?

    One of the reasons I admire Dan’s story is because I admire Dan the person and not simply the impact Dan had. Dan could’ve been a greedy bastard who started everything he did for the sake of pursuing profit and achieved the same outcomes – but his story suggests that his focus was always on impact. I doubly admire him because he was willing to put himself out there and let “people take liberties with [his] reputation and character” – a risk that many social entrepreneurs take and one not so long ago illustrated in the discussion of FORGE on this blog.

    However, that being said, I think the compensation question could be somewhat of a blemish on an otherwise perfect story. As Sasha points out in his blog, Dan was compensated $394,000. While there are millions of people who make more than Dan and who have done less good in the world, by itself, the amount of compensation Dan receives is itself a reminder of the inequalities and injustice that exists in our society. If Dan uses that $394K to finance a luxurious lifestyle, we can argue that Dan deserves it because of how hard he has worked, and the risk he has taken, etc. But even then, it’s hard to justify any life of luxury, when you juxtapose it against the vast inequality others suffer from.

    I don’t mean to pick on Dan or make any claims on Dan’s ethical character – I don’t know the details of his life nor do I know how he spends his money. But I just want to illustrate with any highly paid executive, it’s difficult to admire someone completely who does good works but lives a personal life of relative luxury simply on the basis of impact alone. Perhaps voluntary salary caps (Martin Eakes, the CEO at the Center for Responsible Lending and a Yale educated attorney, caps his salary at something like $70K) or voluntary asset caps (after I have $1M in assets, the rest goes to charity) might be part of the solution. Maybe a radical form of personal transparency (a listing of all income and expenses for people to observe and comment on) could help. But I’m not ready to say that when it comes to executive compensation, impact is the only thing that matters.

  5. Dan Pallotta says:

    Tony,

    Let me suggest a few different ways of looking at it.

    Effect of Our Feelings
    We have to look at the effect of our distaste for someone earning more than, let’s say $300k in charity, which is, we eliminate everyone with an earning potential greater than $300k from the market. The people who ultimately pay the price for that are those in need who may have received much greater assistance from a much more capable leader. The median income of a Harvard Business School graduate ten years out of B-School, at an approximate age of 38, is $350,000. They are all immediately eliminated from the market. That is a great tragedy. In this sense, our ethics get in the way of our compassion – we would refuse the needy the person who could help them the most, simply because we don’t feel right about it.

    Our Irrationality Exposed
    We wouldn’t object to someone who made $100,000 producing a $10 million fundraiser. We wouldn’t object to ten people, each making $100,000 ($1 million total between them) each producing a $10 million fundraiser. But we would object to one person making $1 million, producing ten $10 million fundraisers. This is irrational. We’re paying the same amount of money for the same output either way. This irrationality gets more dangerous when we would refuse to pay one person $1 million a year for producing $200 million in value – double that of the ten people each earning $100k; dangerous because we start foregoing money that could have gone to the needy.

    Admiration
    Examine the double-standard we have been taught between the for-profit and the nonprofit sector. We admire Bill Gates, who has made billions for himself and is giving billions to charity, but we find it hard to admire someone who raises hundreds of millions of dollars for charity and makes a few hundred grand for himself. The person who spends 99% of their time focused on building their wealth, and 1% of their time on charity, we call a “philanthropist.” but the poor bastard who spends 0% of his time building wealth, and 100% of his time working on charity we call an opportunist for making a few hundred grand in salary. The illogic of it is breathtaking. The incentives to help the needy are all backwards.

    Just a few thoughts from my weary brain this Saturday evening…hope they’re coherent.

  6. Tony Wang says:

    Hi Dan,

    Thanks for taking the time to respond. I see myself agreeing with many of your points – if I were a Harvard Business School graduate and could make $350,000 – why should I have to take a pay cut if I suddenly want to do good in the world? I once met a Harvard Business School grad who now works for the Aspen Institute, who expressed his dissatisfaction with being under-compensated while his peers were making oodles of money in their careers. I remember another conversation with one of my classmates who worked at BCG, who told me that people in the nonprofit sector, because they are underpaid, often don’t get the respect they deserve from those in the for-profit sector (something I had yet to discover at the time, but realized later to be true). And in some ways, I too empathize – I consider myself vastly underpaid for the work that I produce, especially considering the cost of my education, the professional risks I have taken, and the comparative amount I get paid compared to those that I have worked for (for a true lesson in income inequality, foundations only have to look at the salaries they pay their employees and the salaries they’re willing to pay to nonprofits they make grants to).

    I do understand that the nonprofit compensation markets are irrational – if philanthropists really want to make a difference, they might want to start looking at paying competitive wages to their employees to reduce employee turnover and do a better job of career advancement. But I think that argument is independent of what is appropriate compensation for an individual in the first place. Just because Bill Gates has billions of dollars doesn’t mean it’s okay when we get paid hundreds of thousands of dollars when helping charities – at least not when there’s lots of people in the world in a worse off position than us. One of my friends who’s now in the Peace Corps criticized me once when I spoke of my desire to have wealth and be financially secure when others had nowhere near the same opportunities that I have had in life – and she was right. Even though I’m only a few degrees of separation away from millionaires and billionaires, that doesn’t justify me making hundreds of thousands of dollars for myself to spend for myself. Personally, and I say this now not having made lots of money yet – and if I ever do, you’re welcome to call me out on it – I wouldn’t feel comfortable spending all of that money on myself. Part of my discomfort is that it’s unsustainable – there’s no way that everyone in the world can make $400K and spend it on a life of luxury the way most people who make $400K a year do. So in decrying the injustice of others who are paid more than we are, we ironically seek to perpetuate this injustice by increasing our compensation to only be overpaid compared to those less fortunate.

    So to paraphrase my response in the context of your comments, I would agree with you that we shouldn’t let our normative claims on just compensation get in the way of proper incentive structures to attract talent and produce greater social impact, but that’s independent of whether it is morally ok for us as individuals to be compensated so much when others are not. For that reason, I don’t admire Bill Gates or Warren Buffet or Sergey Brin or Larry Page – because even though they’ve given so much to charity, they still live lives of luxury that are more than what they deserve (I also find it hard to respect Bill Gates since his business practices and legal tactics were very questionable when Microsoft was being investigated for anti-trust violations – perhaps a more equitable state of affairs would have been Bill Gates to not be as rich as he is today while others too could have earned their millions and created their own foundations). I admire more those individuals who, through no fault of their own, have low-income jobs yet still donate a greater proportion of their time and wealth to the needy than those with wealth.

    All of that being said, I still don’t like it when foundations and other charitable organizations take advantage of my willingness to work for low wages and decide to price me uncompetitively compared to the market, even though their willingness to pay and the merit of my work is much higher. But the solution isn’t necessarily higher pay so I can buy more things for me.. One solution I’d like to see adopted is an alternative compensation package, where people can forgo extra income and replace it with a donor advised fund. That way, instead of getting paid $400K, you could get paid $200K and $200K in a restricted donor advised fund. Just a thought.

  7. @chrissulli says:

    “All great truths begin as blasphemies.” “All successful revolutions are the kicking in of a rotten door.” http://tinyurl.com/6wec6q

  8. Dan Pallotta says:

    Tony,

    In the end, it all boils down to this – if we really want the world to change, we have to change the rules by which change gets created. Otherwise, we sentence the poor and suffering to things forever staying the same; to despair.

  9. Great discussion guys. I just have two points to add.

    1) Dan, I’ve edited the text of my post to highlight your comment regarding why you closed your company.

    2) Tony, I think you need to break the income inequality issue into two parts 1) How much should people be paid, 2) should people in the nonprofit space be systematically paid less than people who work at for-profits.

    The first question is wide open to debate, but I’ve expressed no opinion on it. The second question is my issue. Given the way pay is structured, I think that paying people who strive to achieve social impact less than people who are striving to achieve a profit is deeply damaging to the causes that nonprofits seek to effect. We can admire the person for making the sacrifice of lower pay, but we shouldn’t confuse this with actually doing good.

    My Financial Times column tomorrow goes into the difference between personal sacrifice and the achievement of social impact.

  10. Tony Wang says:

    Fair enough. And I would agree with you both that people in the for-benefit/nonprofit space should not be systematically paid less than people who work at for-profits – we need a system of meritocracy if we are going to encourage innovation and efficiency in the sector.

    But the idea that our respect should go to those individuals who have made the “most” impact regardless of other factors is I believe the misplaced and dangerous notion. The belief that receiving high compensation packages are somehow justified since the market is willing to pay us that much is antithetical to some of the most fundamental principles of the social enterprise movement (see fair trade and the movement’s criticism of excessive executive compensation in the for-profit market).

    So Sean, you’re absolutely right that the income inequality issue has two parts. As a sector, we should be doing more to reward innovation and efficiency. But as individuals, how much we believe we are entitled to compensate ourselves is a separate moral issue. And on that question, I’m not so sure I would try and justify earning salaries of $400K a year and upwards (though it really depends what you do with that money) given the current state of the world.

    p.s. Looking forward to reading the column.

  11. robert egger says:

    OK…I am notoriously direct, so I am going to address Dan’s comments about me as quick and to the point as possible.

    There is one main rule in business—if nobody is buying your product, do not blame the customer–look at your product.

    Dan can write books or talk all he wants about his intentions, my manners, the public’s limited views about philanthropy, flawed media reporting or whatever, but at the end of the day, for all the money he raised, folks fled from him and his business. For dozens of reasons, in dozens of cities, as reported in dozens of papers, groups that used his product cut him loose. I wish Dan would quit blaming everybody else and deal with it. That’s business.

    My reaction, though seemingly harsh, has nothing to do with Dan, the way he lives his life, his salary or his intent. Rather, it is based on the unintended consequences that his “vision” has had on our sector and those of us who are left to sweep up the mess.

    Here’s an example. In 2003, when I was writing my book on nonprofit reform, I took an unexpected leave from the DC Central Kitchen to be the Interim ED at the United Way here in DC, which had gone down in flames. To this day, the guy who tanked it will tell you that he did no real wrong, and that he deserved his 300K salary because he raised hundreds of millions for DC charities. However, in raising that money he had cut critical corners and when this was uncovered by our local (and then national) media, it ended up trashing not only our United Way, but also the trust of tens of thousands of people across the country who no longer give to anyone for fear of being duped. And we’ll never be able to calculate the loss of funding over time due to this, and other scandals (including the AIDS Rides) that have since rocked our collective boats.

    Let us stick with the “but I raised a lot of money” argument for a minute. Look at it this way–would it be OK for a food program to get credit for feeding thousands everyday, when if, in fact, the food it was serving was unhealthy and giving the recipients hypertension or diabetes? Of course not. That is what I loathe about Dan’s arguments—they are knee deep in the intellectual quicksand that equates size with impact. Even worse, he (and others) use the nobility of intent or the sheen of a cause to deflect legitimate criticisms of the tactics used in raising the dough or spending the proceeds.

    But what I really find hard to deal with is the “alms race” that Dan helped usher in, where the organization that has the cause du jour, or that has the prettiest ribbon, or that can pay the most for the cleverest marketer or host the biggest event gets to win the biggest prize—that year. Then the public moves on to the next celebrity endorsed, 10K, save the children cause.

    Do we really want to continue allocating limited funds based on the marketing prowess of one cause versus another? Do we really want another generation of nonprofit employees to go get MBA’s so they can repeat this folly, and to have to fight each other for survival? Do we?

    Not me, Brother.

    We’ve been down this road, and no matter what you are driving, or how much you get paid to drive—it leads to nowhere.

    Finally…to all of you who are so deeply involved in the salary debate—please…enough with this boring, “my salary isn’t big enough–we deserve more” routine. Our country is on fire because of that bullshit.

    Do any of you really think that there’s a big pot of money out there that will suddenly allow us to all get paid MBA salaries?!?!

    There isn’t. Get over it.

    Better yet, strap on a smile and help all those MBA’s on their way down realize that it isn’t all that bad down here, and that making a solid wage while doing meaningful work to make your community a better place for all is a damn good way to make a living, let alone live a life.

  12. Dan Pallotta says:

    Robert,

    Thank you for the discussion. However, you’re not really engaging my argument, and I believe it’s a critical one. Also, you have a lot of facts wrong. I mean this with all respect, seriously, but I would not take pride in being notoriously direct if you are not also careful to be correct.

    Your write, “Dan can write books or talk all he wants about his intentions, my manners, the public’s limited views about philanthropy, flawed media reporting or whatever..” without addressing the validity of any of those issues. Yes, I did write about each of those things. And yes, I do believe that my intentions, your manners, the public’s limited views about philanthropy, and flawed media reporting are important. I believe that you probably do too. What if flawed media reporting and the public’s limited views about philanthropy destroyed something that was doing a lot of good and continues to destroy things that are doing a lot of good? Are we to accuse those who are victimized by it of whining? Are we to dismiss them for “blaming?” Blame has a place in this world, particularly when we are trying to understand and deconstruct complex and flawed systems. The public had limited views about the shape of the earth, gravity and slavery too. Is erroneous public opinion something we all should just live with, regardless of the harm that it does? Shall we blame no one for it, and never come to shed any light on the problem?

    Next, you wrote that “folks fled from him and his business.” That’s not exactly true. Our participant numbers from 1994 to 2002 grew substantially. Our last year in business saw 50% growth in participation, People were flocking to, not fleeing, our company:

    1994 – 478
    1995 – 5,415
    1996 – 10,023
    1997 – 9,386
    1998 – 12,008
    1999 – 18,758
    2000 – 30,166
    2001 – 38,687
    2002 – 58,009

    As for gross revenue, donors did not “flee from us” they ran to us. It too grew substantially every year:

    1994 – $1,540,000
    1995 – $12,431,000
    1996 – $25,386,000
    1997 – $27,802,000
    1998 – $45,572,000
    1999 – $59,759,000
    2000 – $106,059,000
    2001 – $137,783,000
    2002 – $169,061,472

    As for net revenue after all event expenses, that too grew substantially each year:

    1994 – $1,013,000
    1995 – $7,632,000
    1996 – $13,073,000
    1997 – $15,541,000
    1998 – $20,165,000
    1999 – $33,736,000
    2000 – $63,542,000
    2001 – $69,023,000
    2002 – $81,985,303

    You wrote that, “For dozens of reasons, in dozens of cities, as reported in dozens of papers, groups that used his product cut him loose.”

    This is not true either and I do have to ask you, please, to stop taking these kinds of liberties with the facts and making erroneous accusations. Five clients, not dozens, opted to part ways with us – Aaron Diamond AIDS Institute, San Francisco AIDS Foundation, Los Angeles Gay & Lesbian Center, Food & Friends, and the Avon Products Foundation. And it is critical to ask why they did, not just make a sensation out of the fact of it. All were concerned about controversy we were generating, specifically around the admin to program ratio – a ratio you yourself were just quoted in The Wall Street Journal as saying is “an intellectual albatross around our neck.” I couldn’t agree more. And I don’t think you would say we should just live with that limited public view about philanthropy. Each of these charities wanted to distance themselves from us and the perception that our costs were too high. This is a place where the public’s limited views about philanthropy are dangerous. In the case of Aaron Diamond, they had nothing with which to replace the revenue. In each of the four other cases, the next year the charities saw substantial drops in gross and net revenues and substantial increases in percentage costs:

    Net Revenues Available for Grants/Direct Service:

    Our 2001 California AIDSRide – $6.05 million
    The Charities’ 2002 AIDS Lifecycle – $1.6 million

    Our 2002 Breast Cancer 3-Days – $70.9 million
    Avon’s 2003 Self-Produced Walks – $11.1 million

    Percentage Costs:

    Our 2001 California AIDSRide – 48%
    The Charities’ 2002 AIDS Lifecycle – 66%

    Our 2002 Breast Cancer 3-Days – 43%
    Avon’s 2003 Self-Produced Walks – 67%

    The fact that these four organizations fled our company is not be as much an indictment of our company as it is society’s flawed thinking about charity, and we should be careful about where we assign causation, lest the real culprit – the “efficiency ratio” itself, get away with murder and be left free to roam the world of social change, wreaking havoc on all manner of productive enterprise aimed at assisting those in need.

    You also wrote that, “But what I really find hard to deal with is the “alms race” that Dan helped usher in, where the organization that has the cause du jour, or that has the prettiest ribbon, or that can pay the most for the cleverest marketer or host the biggest event gets to win the biggest prize—that year.”

    Robert, you have said a mouthful here. It is a clever writing device to dismiss an effective marketer as “clever” but it does not make them any less effective, and I cannot believe you would deny any cause the use of effective marketers, simply because it might put them ahead of another cause, particularly if their effective marketing skills, which God knows the for-profit sector has in droves, is able to take market share away from consumer brands, i.e., that you would not advocate against using an effective marketer for breast cancer to take market share away from the sale of cosmetics, let’s say, and direct it instead toward breast cancer research.

    Also, I cannot believe that you would deny the world of charity big events to try and drive big dollars into big areas of need, while the rest of the economic world is able to hold its Superbowls, Academy Awards, Kentucky Derby’s, Madonna concerts and the like for big consumer desires.

    I share your concern about lesser known causes being unable to drum up the capital to stage mega fundraising events. This is why I put my own home up as collateral to get the capital from a bank to launch events for unpopular causes and small charities that could not come up with the capital to try them on their own. In 1999 my partner committed suicide. I began looking at the huge U.S. suicide mortality rates and felt that this was a cause that needed a voice. We went to the American Foundation for Suicide prevention, put up the capital to launch an event, shielded them from any financial liability, and netted them $1 million in the first year – a huge addition to their budget. That year, we also launched events for two other less popular causes – foster care agencies in Los Angeles and an urban poverty foundation. We took considerable financial risk to do this and found that these were causes the public would not support at the level they support causes like breast cancer, and we lost substantial company money in the effort – but not a penny lost for charity. So, you see, I wasn’t chasing the most popular cause or the prettiest ribbon. I was putting my money where my mouth was on causes that had no ribbons. I think you and I share a deep concern and interest for a critical issue – which is, how do we move the public to care about issues that don’t seem to affect them personally. I can do no more than put my home on the line to try and find out. I did that, and am still not sure I have an answer. We also took considerable risk on a separate set of AIDS events called the AIDS Vaccine Rides that focused specifically on Africa, but found the public to be more interested in AIDS in the U.S. than in Africa, so those events had low participation. We gave up our entire production fee – worked for free – on most of those in 2002 to try and keep them running. This is another problem with the admin-to-program ration. It labels the money that goes into marketing an unpopular cause as “overhead,” read (wasteful) when, if a cause is unpopular, the ONLY CONCEIVABLE THING ONE CAN DO to advance the cause is market it more.

    Robert, in the end, it seems that your argument rests on the notion that we should just keep things the way that they are and hope that the better angels of MBAs’ natures will sending them flocking to a sector that desperately needs tens of thousands of the world’s best managers. You and I both know that will never happen. So we have to ask ourselves, how can we make it happen? What systemic changes can we affect to fundamentally turn the tide in our favor. “Strapping on a smile” will not do it.

    You close by asking, Do any of you really think that there’s a big pot of money out there that will suddenly allow us to all get paid MBA salaries?!?!

    I do Robert, I do. If we open up the capital markets to charity, by forming a stock market for causes, so that the general public can make as much a financial return off of an investment in Save the Children as they can from an investment in Nintendo, we can begin diverting large pieces of the $30 trillion in household financial assets from the for-profit sector to the social change sectors. Charities can use that money to grow, and we can create snowball effects that not only allow them to hire the best talent coming out of the nation’s best business schools, but make serious progress on the causes they are created to address.

    In closing, let me say, we are on the same side in this effort – we both, I believe, want to see the world change for the better, and rapidly, and I am as passionate about that as you. But I believe we have to try radical new approaches, for if we do not, we will have a world of suffering fifty years from now that is radically the same as it is today.

    Kind regards,

    Dan Pallotta

  13. OK, I hesitate to jump into the Robert/Dan discussion as that’s something with a long history and a whole series of facts to which I am not privy. That said, here goes…

    Dan, I’m new to this conversation and have no first-hand familiarity with your work. But I am very interested in doing things in a new way (hence the NonProfit CEO Manifesto that I wrote and my post about your book Uncharitable)

    (For those of you who are interested:

    Manifesto: http://sashadichter.wordpress.com/2008/10/18/a-nonprofit-ceo-manifesto-blame-it-on-seth-godin/

    Post: http://sashadichter.wordpress.com/2008/12/26/should-nonprofit-leaders-be-like-boiled-broccoli/)

    Here are my observations for you, Dan:

    1. There has to be space for both positions: that marketing to raise attention and more money is a good thing, but that the way you did it isn’t the only or the best way.

    I’m struck by the gross and net figures you cite because the costs ARE unbelievably high. Gross revenues of $585 million resulting in net revenues of $305 million is not a good ratio, period. It’s costing you 47 cents to raise a dollar, and that’s not efficient.

    As a point of reference, at Acumen Fund (www.acumenfund.org) where I head up Business Development, we set out last year to raise $100 million over two years in growth capital. Even with the markets tanking we’ve raised more than $85 million so far, and our cost of raising money is 2 cents on the dollar – almost 1/25th of the costs you cite.

    Personally I love the notion that the right metric for fundraising in the nonprofit sector should be an efficiency metric, namely, “how much does it cost this organization to raise a dollar?”, rather than “how much as a percentage of total costs does this nonprofit spend on raising money.” This may seem like a subtle distinction, but the latter metric – which, unfortunately, Charity Navigator and other similar sites have grabbed on to – implies that the right way to raise money is to focus current year (annual) gifts only.

    I would love to re-open the debate on what metrics matter to assess nonprofit organizational efficiency. (And note that efficiency and effectiveness absolutely are not the same thing – spending the dollars you raise effectively can give you 10x the leverage of simply raising more money).

    Instead, asking “how much does it cost to raise a dollar” focuses accountability on the right metric and gives space for raising growth capital for multi-year commitments, which is a strategy that is woefully underutilized in the nonprofit sector.

    2. Dan, I wonder if you went out and asked the participants in the various AIDS rides what their understanding was about where their donations went, what they’d say. Do you think the average person who raised $100 in a ride knew that $47 that they raised went to cover the costs of raising the money? Or, put another way, do you personally feel like that is the optimal ratio?

    Again, I know nothing about the specifics here but I think there has to be space to acknowledge both that it’s a good thing that more money was raised AND that if the average person who did an AIDS ride (or whatever event) would be shocked to find out about these ratios, then there has to be some validity to the criticisms you’re hearing.

  14. Well put Sasha. It seems to me that degree matters a lot in this conversation and that it is important to think about who benefits from different outcomes.

    Let’s posit that a nonprofit spends $10 to raise $100 for a net of $90 and a 10% expense ratio. Along comes a for-profit fundraiser who says they can raise $200 for $30, a $170 net and a 15% expense ratio.

    From the nonprofit’s standpoint, they should go with the for-profit firm. $170 is more revenue than $90. There’s no debate.

    But what about from the donor’s perspective? The expense of fundraising in a way is the cost of convincing the donor to part with their money. Shouldn’t donors want the cost to be zero? Except we know that if the ask is not made, donors will make significantly less donations.

    Now the flip side, a for-profit firm says they can raise $10,000 at a cost of $9,000 for a net of $1,000 and a 90% expense ratio. It seems to me that from a revenue standpoint, OF COURSE the nonprofit should go with this route and pocket the $1,000 in revenue. But donors will rightly hate the idea of only 10% of their donation going to the nonprofit.

    Frankly I don’t know what is appropriate. I do know that there is tension in the best path in regards to how it affects donors vs. nonprofits. Yet smart donors should be thinking less about what percent goes to the nonprofit and more about the impact on the cause from various fundraising strategies.

    If I give $100, 90% goes to the nonprofit and the nonprofit raises $90 is this better than if I give $100, 10% goes to the nonprofit but the nonprofit raises $1,000? After all, as a donor I care about the nonprofit and if the nonprofit can raise more money isn’t that a good thing?

    These are complicated issues. I will make a stand on one issue. It cost money to do something well. Keeping costs as low as possible should not be the point, it should be about building systems that deliver the best outcomes to multiple stakeholders.

    Sasha, your analysis on Dan’s numbers is good, but don’t forget that the donors were getting something in return for their money. Not just a trinket of thanks, but a life changing experience (as AIDS Rider and Tactical Philanthropy reader Rich Polt put it) in the form of a community of people striving to accomplish the ride. The cost of delivering that should be higher than making phone calls and asking for money.

    And Robert. I love you man. But asking the best and the brightest to “strap on a smile” and figure out that making less money isn’t so bad might be ideal. But it won’t work. If that’s the plan, then say goodbye to Generation Y. Once they get married and have kids, their starry eyed idealism is going to fade and they’re going to realize that they’re worth more than their getting paid and they’re going to move to a for-profit company that will pay them what their time, energy and smarts is actually worth.

    Don’t base a plan for a better world on asking people to behave in a way that people simply don’t behave. Instead figure out how to make the world better by harnessing the motivations that people actually respond to. I refuse to believe that we cannot build a system in which people can do good and earn a competitive salary.

  15. Sean,

    All well said. If I may I’d like to respectfully disagree with one of your points and expand on another:

    1. Where I disagree:

    The goal should not be to have the cost of raising money be zero. The act of influencing, raising awareness, getting people to understand an issue, and influencing their behavior creates value in society. It creates ripple effects of action that are hard to measure but important – this is why advocacy and awareness matter and how large-scale change comes about.

    Separating all of this social value creation out and saying that the ideal is that 100% of funding goes to “the work” (programs) is just not right in my opinion.

    (And yes, this is not categorically different than experiential value of participating in an AIDS ride (though it is somewhat different). So of course it costs more to raise money with a charity ride for 10,000 people. Still, almost 50 cents on the dollar strikes me as high — I’m sure Dan or others can let us all know what the right benchmark is here.)

    2. Expanding on one of your points:

    I frankly don’t think it matters what any of us thinks – the market will decide. The best response to someone who costs $0.47 to raise $1.00 is to find a way to raise that $1.00 for $0.20 or $0.10 or $0.02.

    Thankfully, we live in a world where there is (more or less) open competition for ideas, attention, resources, etc. Wishing that Dan never threw his hat in the philanthropic ring is just a wish – and likely the wrong one since I’m sure that lots of good came from Dan’s work, the money he raised, the people the rides touched, etc. Plus, this feels a little bit like Netscape wishing that Microsoft had never gotten into the web browser business – when the right response is to build Firefox.

    So why not beat Dan at his own game, NOT by slander or criticism but instead by building a better mousetrap (i.e. raising more, but doing it more efficiently)?

  16. Sorry I wasn’t clear Sasha. I definitely did not mean to imply that the ideal is for 100% to go “to the cause”. I was suggesting that from the donors perspective, a frictionless donation might *seem* to be the best. But in fact I believe that this mind set is killing nonprofits.

    I wrote about this in my Financial Times column out today.

  17. robert egger says:

    Dan,

    First of all, I think we should meet.

    I’m in CA often, so I’ll forward some options so that we can, at the very least, lay eyes on one another, and maybe even find some common ground. Given the traffic we’ve got going on this blog, I think Sean should buy the first round.

    But, in the meantime…

    Dude, I’ve spent 20 exciting years here at DCCK. Along with a great crew, we’ve been using perseverance and ingenuity to develop training programs that get great results. What did we do then–we give it away. Not because we’re saints, but because we don’t seek to own ideas that could help others thrive. As Sasha suggested, we are just trying help others “build a better mousetrap”, while we work at a national level for a bigger dialogue about a new era for our sector—so that ideas like .com/.org hybrids, a social stock exchange, a federal office for nonprofits, social e, micro-credit, nonprofit political engagement, new metrics, etc., can thrive.

    But (and I think this is where we split) I’m not interested in working towards these ends just so another generation can go on chasing gold and mistaking the accumulation of it (or the opening of foundations to give it away) for a life well lived. Personally, I think most of the nonprofit sector’s jobs have been to clean up after that parade.

    So…I’m just not that interested in a super bowl for charity. I’m not interested in being a super-deluxe, permanently endowed, soup kitchen with a good market share and a parking space out back for me. As trite as it sounds…I really do want DCCK to go away, so that the art gallery down the street, or the charter school around the corner, or the hospice down the hall doesn’t have to pay somebody 300K to fight with me for money. When we start down the road of paying ourselves that kind of scratch, or taking more and more of our time to raise it, then I worry that we really will have lost our way. Again…I’m 100% for solid pay, but few Americans are EVER going to see 60K a year, let alone 300K. I’m much more interested in working for a shift where all rise to a reasonable level than I am in pursuing an agenda that allows the few who have a trendy cause to flog to prosper.

    Sure—we both agree that change is due—long overdue. And we both have a keen interest in really pushing the envelope. That’s cool. But I don’t see, from your words or your actions, that what you are proposing will lead us into the valley. Frankly…I see it running us further into the ditch.

    But honestly, let’s agree to meet. Who knows…we might come up with something good between us? Or we may just knock each other out. Frankly, if we did the latter, I bet a collective cheer will go up for our equally ample collection of detractors.

  18. I will buy all the rounds if you two agree to meet in the San Francisco bay area. Seriously. I may even bring a crowd and video tape the conversation!

    Paul Brest and Bill Somerville got pretty feisty when I sat them down to talk, but I think you two might do them one better.

  19. Dan Pallotta says:

    Robert,
    Would love to meet and thanks for offering. E-mail gets to be of limited value for discussion after a point, and honestly, I’m having a hard time seeing where our views diverge and come together at this point. I’m no fan of endowments either – almost wrote a section on that in my book but ended up cutting it. I’m all for eradication of problems, not their institutionalization.

    Shaun,
    I think a discussion with Robert and me would be a great event. Not a debate – in a debate, someone always has to be “right.” But I’d be up for a discussion, totally.

    Sasha,
    There’s a some “Inefficient” re-inventing of the whell going on in the discussion of “efficiency.” :) These issues have been written about and studied extensively, especially by Richard Steinberg and more recently by the authors of the Nonprofit Overhead Cost Study and Pollack at the Urban Institute. A few quick points:

    The growth capital at Acumen is essentially a loan. That’s an entirely different beats to raise than money that’s never going back to the source. We raised growth capital – many millions of dollars a year, at zero percent cost;

    Careful of the use of the word “efficiency.” To judge it, you have to be comparing identical outcomes. That includes identical volumes, velocity, and benefits. Our outcomes included massive awareness-raising for the cause and as Shaun noted, the production of life-affirming events for tens of thousands of HIV and breast cancer survivors (not captured in our ratios) None of the charities who followed us were able to lower the cost ratio on these kinds of events – in fact, most had much higher cost ratios, and at much lower volumes;

    Before you judge the cost ratio as inefficienct look at what the cost side is buying and how it is being calculated. Events that followed us off-loaded as much as 50% of costs to “the cause,” cutting their reported ratios in half. We never did. This off-loading is now widely practiced;

    Volume and speed have huge value. People with cancer want a cure now, not after they’re dead. the speed at which money is raised must be factored into any estimate of societal value;

    One average cost ratio is dangerous. Our ratio on the Breast Cancer 3-Days was 40%. On some of the individual events it was as low as 28%. The average includes all of our activity, including experiemental evenets, events for new causes, klunkers in cities with low participation, etc. Look at means and medians on our website;

    You must consider incremental effects. Steinberg has written extensively about this.

    read my book, especially chapter 3, if you have the time…

    Kind regards,

    Dan

  20. Fascinating discussion in the comments of Sean Stannard-Stockton’s review of "Uncharitable" by Dan Pallotta: http://tinyurl.com/6wec6q

  21. Dan, I will read the book.

    In the meantime, just to clarify, the $100M to Acumen Fund is NOT a loan – it is philanthropic capital for which donors to our 501(c)3 receive a tax deduction.

  22. Beware that the notion of non-profit and for-profit organizations can play by the same rules.. in the for-profit world, whenever you make a profit, it’s good. I believe the total non-profit capital is far from that elastic.

    If I raise $100 for mosquito nets by convincing a guy on the street to donate $100 bucks to my organization I might just be moving most of those money around in the non-profit world. The average person – I believe – keep a mental budget of how much she is giving to “good deeds” in any given year. So even though I raise $100, the total non-profit capital pool wasn’t increased by $100, because those money (or at least some of them) would’ve been donated to another organization.

    That’s why advertising is such a hard game to play in the non-profit world. Because even if you can make more money than you spend, the math doesn’t necessarily add up in the bigger picture. Your organization might actually be limiting the total non-profit capital pool by spending already “defined” resources on advertising.

    Just as well, a higher paid marketer might generate a bigger profit, doesn’t mean he’s increasing the total non-profit capital pool, he might just be moving the money around, from one organization to another.

    Return On Investment (ROI) changes dramatically because non-profits are in this together, unlike for-profits, which actually win when other organizations in their field are hurting. Non-profits don’t, when one hurt they all hurt.

    In order to get a positive ROI, the amount of new funds added to the total non-profit capital pool must exceed the expenses to “rake in” those new funds. This is where most charity advertising campaigns fall short (and thus, I believe, actually waste money).

    If donors don’t mind (enough to stop donating) and a CEO can make a non-profit $100 millions of which 10 millions is new funds added to the total non-profit capital pool, then feel free to pay him $9 millions if that’s what it takes. But if the amount of new funds are only $8 millions and you pay him 9, then the math doesn’t add up, even if he’s making that particular non-profit $300 millions a year.

    So I think this poses a natural (rather than a moral) limit on how high salaries in the non-profit world can get. Especially when we’re talking advertising/marketing employees as much of the income they generate is money moved from one non-profit to another.

  23. Morten,
    You make some good points, but I don’t think I can agree. People’s spending is limited by the amount they earn. Since giving is a small percentage of income, it seems to me that there is far more potential for people to give more than there is potential for them to spend more. The only way to spend more is to save less (American’s save almost nothing) or use debt (which we’re in the process of reversing. But people can give MUCH more than they currently do.

    If the total giving budget was fixed, than I might agree with you that there would be a strategic rationale for nonprofits to work together to minimize the costs of getting those funds. But it still wouldn’t suggest that salaries should stay low. Paying more would not necessarily mean having higher total expenses. Higher pay would mean higher quality employees, who are more productive.

  24. Justin Pollock says:

    I too have not read Dan’s book, but in reading this thread a few things come to mind. First, let me disclose that I am one of those people that had a “life affirming” experience while participating in the last of the Pallotta Team Works California AIDS Rides, during which there was much conversations about the fees and salaries. I won’t step into that quicksand, because a “worthy” salary is truly a personal question.

    But the larger issue about how people view nonprofits and what their expectations are is important. My basic understanding is that Dan is arguing that the public creates expectations on nonprofits that limit what nonprofits are allowed to do (be it pay, program expenses, fundraising methods, etc). This may be true and it is probably true that some of those expectations are based on a lack of information about what it realistically costs to accomplish “good” in our communities.

    Nonprofits trade on the notion of “doing good.” We all have a personal sense of what we consider to be good and use that in determining to which charities we give. However, “doing good” includes more than just positive impact in the community. We psychologically apply to all aspects of the organization in question and the lives of those involved. This is why scandal, either real or perceived, hurts the sector. It compromises trust.

    The issue is raised that donors may be “outraged” to learn about highly compensated directors or high fundraising ratios. It goes against their sense of what “doing good” looks like. And in some cases they may be right to do so. But are these same donors as “outraged” when, as consumers, they purchase goods that harm the environment, lead to sub-living wages, exploit lax tax laws, and contribute to excessive for-profit salaries? Generally not. But not because they don’t care, rather because they may not know. Nonprofits inherently have more transparency and are much more prone to scrutiny.

    My concern is that the argument to change the public’s perception is a “lowest-common-denominator” approach. We are asking people to redefine what “doing good” looks like to focus primarily on the impact / outcomes. This may lead us to the same place we are in the for-profit world, goods and services that don’t adequately reflect the costs to produce/provide them.

    Perhaps what we should be doing is creating more transparency all around. Therefore, people will know the “good” that comes from all aspects of operating a nonprofit and the “bad” the comes from all aspects of operating a for-profit. Then they can chose which they think is better.

  25. Dan Pallotta says:

    Morten,

    You raise some good points and good food for thought, but I don’t think I can agree either for a few reasons. First, I don’t want to, because if we cannot increase market share for charity, then all hope is lost and we might as well shut down the discussion. Charitable giving has remained constant at about 2% of GDP for the last thirty years. This is woefully inadequate against the scale of the social problems we confront.

    Aside from me not wanting to believe it, I think there is strong, basic economic data to support the notion that charity can take market share from the for-profit sector. First, Arthur Brooks’ book, “Who Really Cares” finds that conservatives give 30% more than secular liberals. Why? In my opinion, it’s because they are solicited more. Solicitation is a form of marketing, or building demand, or building “want” as Galbraith would have called it. The differences in giving among different demographics indicates that charitable giving is not something that’s static, but rather something that is quite changeable.

    In my own case, we studied the impact of our AIDSRides on the AIDS Walks before we proceeded with our Breast Cancer 3-Days, precisely to insure that we wouldn’t be cannabalizing other breast cancer events. We found that the AIDSWalks actually did better in cities where we held the AIDSRides, because the large marketing campaigns we employed seemed to heighten overall interest in the cause. Now, that doesn’t rule out cannibilization of other causes, but it is a very positive piece of data because most of the gay communities’ giving tended to be within the AIDS cause itself – there wasn’t really anywhere else for significant money to be diverted.

    Last, we have seen different industries take market share from others throughout the course of history. I think that people respond to the demands we create for them, and that, to the extent we market and educate more, we can create more demand for charity

  26. Dan Pallotta says:

    Justin et al.,

    On the issue of transparency, I would like to think Pallotta TeamWorks was a model of it. We posted very granular financial details on each specific event on our website. This detail included the percentage figures that Sasha was concerned participants might not know about, and it also included some of the embedded value, or “good,” that you wrote about, .i.e. we broke out the marketing expenses and the logistics expenses for each event separately for all to see. We also posted our fees for each event, gross income, and net income. Visit http://www.pallottateamworks.com and http://www.pallottateamworks.com/financial_detailed.php for the detailed financial disclosure.

    Unfortunately, the large events that have followed us do not, by and large, make this kind of event-specific detail available to participants. I can sort of see why. lacking a sophisticated audience like Tactical Philanthropy’s, this level of detail and transparency can actually work against you in the short run.

  27. Rich Polt says:

    With a mere six hours left until 2009 (and one glass of wine already in me), I will keep this post short. I want to thank you Sean for the wonderful forum you’ve built and thank all the participants in this thread for their insights.

    In particular, I’d like to thank Dan Pallotta for the book he has written and for taking the time to respond to everyone’s comments so thoroughly. I am about 2/3 of the way through Uncharitable, which I have been devouring over the last few days. Dan’s ability to logically present an argument is inspiring, and to do so while deconstructing such a complex topic is no small task.

    I look forward to the continued dialogue his book has evoked and hope it continues to play out on Tactical Philanthropy and in the mainstream media outlets that are now covering it.

    Happy New Year all!
    -Rich

  28. Must read the lively discussion between R.Egger and D.Pallotta at: http://tacticalphilanthropy.com/2008/12/uncharitable – got me thinking!

  29. @Sean,
    I agree with you.. I wasn’t suggesting the total budget is fixed. All I was trying to say was I don’t think it’s as elastic as the first 20 or so comments would suggest it is. It’s definitely changeable, which was in fact my point when arguing we need to make sure that the extra expenses are covered by “new” funds.

    @Dan
    Again, I wasn’t saying the total budget is fixed, so on that I complete agree with you. I also think we need to work hard to change it – for the better. However, in order to do so, we need to know which parameters to measure. That was what I was in part trying to unravel and argue that “an increase in donations to [insert non-profit name here]” isn’t enough. That increase must be in “new” donations, new funds to the total budget. I actually think we’re on the same page on this matter.

    My whole point of “non-profit and for-profit organizations can’t play by the same rules..” is something we both agree on, at least to some point, because we agree that cannibalizing is a dangerous and bad thing in the non-profit world (opposed to the for-profit world).

    And that’s my point, we must make sure the extra fees aren’t covered by cannibalizing on other non-profits. Headlessly turning up for the for-profit world’s tactics could potentially lead to such cannibalization. As I said “If donors don’t mind (enough to stop donating) and a CEO can make a non-profit $100 millions of which 10 millions is new funds added to the total non-profit capital pool, then feel free to pay him $9 millions if that’s what it takes.”

  30. Well put Morten. Taking share in the for-profit world is only a good thing for the company taking share. But it is more complicated for nonprofits. However shifting a donated dollar from a less effective nonprofit to a more effective one is a good form of share taking. This makes the math even more complicated. But you bring up a really important point.

  31. Just catching up on this debate and wanted to add a quick point of consideration. My question would be: how much is Dan’s work expanding the charitable pie vs. how much of it is simply redirecting the way pie is spent?

    It seems to me that logically, we have two competing values – that of fundraising efficiency and that of total charitable profits. In a perfect world, both could be fulfilled simultaneously (high net profits & low fundraising costs). As I understand it, Dan is making the argument that profit = impact and thus net profit should be pursued regardless of cost.

    While I see that a defined event’s profits = impact for the beneficiary nonprofit, what does it do for the profits of the nonprofit sector as a whole (and thus the impact potential of the sector as a whole)? When people attend one of these events and give a $1000 check, of which ~$500 goes to the nonprofit, does that mean that they are less likely to give $1000 to a different nonprofit that would have spent $850 of it on programming?

    What I’m trying to argue is that we need to be looking at the effect of these high-cost fundraisers on the proceeds of the nonprofit sector as a whole. If these type of practices are simply expanding the pie of charitable dollars, then I’m all for them. But if the $169,000,000 raised in 2002 was a simple redistribution of funds that would have gone to other (just as worthy) organizations who could have spent less than $87,000,000 to raise it, then I think we need to take a long, hard look at the sector-wide impact of such strategies.

    -Kjerstin Erickson
    http://www.FORGEnow.org

  32. @jsteig says:

    @jefftrexler YES. that’s it. http://is.gd/eHjN UNCHARITABLE. (not jeff, the name of the book — thx jeff!) Amazon link: http://is.gd/eHjB

  33. @taxgirl On topic of CEO comp, have you seen the discussion re "Uncharitable" at Tactical Philanthropy? They slug it out..http://is.gd/eHjN

  34. @hcouvreur says:

    "As a culture we embrace a certain way of achieving good at the expense of actually doing good in the world" http://is.gd/eHjN

  35. Doug Shingleton says:

    Dam Pallott did good things, he created something out of nothing and raised multi millions of dollars doing it. GHis comapny received 4-5% doing it, encapsulating most of liability and costs. In my years dealing direclt with non-profit agencies, they expend as much of 30% or more producing their own events. I am not sure what your people demonizing this guy for… Having the intelligence to create concepts and opportunities to raise money for charities in sore need for that money, or for producing events that providing higher rate of return than the charities themselves could produce, or for simply collecting a salary for doing it…. PLEASE LEARN ABOUT TRUE FUNDRAISING EFFORTS AND EXPENSE OF EVENTS FOR THESE NON PROFITS PRIOR TO DAN”S INVOLVEMENT AND THE NET RETURN THEY EARNED PRIOR TO HIM JOINING WITH THEM AND THEN THANK DAN FOR FINDING A WAY TO MAKE THE PROFIT MORE SUBSTANTIAL AND APOLOGIZE FOR VILIFYING THE MAN

  36. Diane Wolfe says:

    Sorry, but as a 15-year nonprofit veteran who voluntarily left the private sector at the top of my game, I gotta differ with the premise that welcoming self service and self interest into the nonprofit sector represents progress.

    Been there, seen it. When it becomes more about money than mission, a nonprofit becomes a jobs program for college-educated, white collar professionals who want to be greeted with respect in the marketplace and to be given the best seats in the house.

    It’s like setting out fly paper for narcissists, as Dr. Peter Steinke puts it. On such principles was built the poverty industry that Habitat for Humanity’s founder railed against in his lifetime.

    When an organization adopts the values of the culture that is creating need and want, it ceases to be a force in easing those ills.

  37. Thanks for your thoughts Diane. One thing this whole debate has clarified for me is that a significant portion of people believe that the role of the nonprofit/foundation is to correct the problems that the market creates. I don’t happen to believe that. But if I did see that as the role of the Third Sector I would certainly be sympathetic to the idea that more money might lead to the wrong people entering the field.

  38. Doug Shingleton says:

    Will people stop vilifying Dan Pollatta for creating a “brand” the AIDS RIDES…

    They sure raised a lot more money than if the non-for-profit ran it. Hell I will even go far out and say, they couldn’t even have created that Brand, and gotten those levels of commitment from corporate support for an “AIDS” event aimed at the glbt community. The agency’s they just couldn’t, I know most of those agency’s and they just couldn’t

    The man did good things in this world, for you to continue to terrorize him without really knowing what he did, and how it was different, and how it hasn’t been seen since. IT WAS A VERY GOOD THING..

  39. Dan Pallotta says:

    Diane,

    I agree with Sean, no big surprise. You wrote that, “When an organization adopts the values of the culture that is creating need and want, it ceases to be a force in easing those ills.” I disagree that our culture is creating need and want. Need and want are out natural states as Bill Niskanen has stated. There was a great deal more need and want in the world before capitalism showed up. And, I would argue, the fact that there is inequality 400 years post the start of capitalism is not an indictment of capitalism. It is an indictment of a deprivation mentality that has banned capitalism from the eradication of helping the neediest. Capitalism isn’t the problem. The lack of it is.

  40. Diane Wolfe says:

    We all have our point of view, of course, but I don’t see the market or capitalism as factors in philanthropy beyond the fact that they may or may not generate dollars for it.

    The best of philanthropy, and I consider Habitat for Humanity an excellent example of it, seeks to meet human need simply because need exists, not because we’re a guilt-ridden capitalist society or any other twaddle that would spin us off on exhaustive surveys of naval lint that help no one.

    But if the suggestion is that the best motivation for philanthropy is that there’s a buck in it, then we have a very serious disagreement indeed.

    If you want to make a pot of money, there are faster and easier ways to do it, and God bless you; I don’t mind if you enjoy a high standard of living. I just don’t want to see effective programs that really help people shortchanged so you can have your goodies.

  41. Diane,
    I actually rarely write about “for-profit philanthropy”. I do think there are opportunities for organizations to make money while doing good, but that’s not what I’m focused on at all.

    My point has been that employees of nonprofits should be paid fairly rather than the current situation where the public at large feels that nonprofit employees do not deserve to be paid as well as people who work for a for-profit.

    For instance, if Habitat for Humanity wanted to hire a really top notch in house marketing team, they simply could not pay as much as a for-profit company could. I think this hurts Habitat’s ability to attract great people and therefore hurts their ability to do good.

    I’m not suggesting that people only work for money. In fact, in both the nonprofit and for-profit space, studies consistently show that people want jobs that offer meaningful work. Many nonprofits offer that (as do many for-profits). But I think our current requirement that nonprofits pay less than for-profits, does nothing but handicap their ability to do good.

  42. Diane Wolfe says:

    Well, Sean, I won’t be the one to tell the marketing and PR staff at Habitat’s headquarters that their employer could have a real top-notch team if only it paid competitively.

    The assumption that people working in the nonprofit sector are second-rate simply because they accept a lower level of cash compensation is really insulting to most of us who’ve done it.

    Nonetheless, your argument has its most receptive audience in the nonprofit sector itself, where “competitive adjustments” are employed not to attract a better of class of applicant from the for-profit side but to retain the people who are already working in the sector. This is where it gets funny.

    So by this argument, nonprofits can end up paying more for the same people considered second-class under the price-equals-value equation. You’re not getting more for your money, just more of the same.

  43. The idea that I’m saying that people in the nonprofit sector are second rate is a way to mislead and confuse. I’ve never said that.

    I think that the work that people in the nonprofit sector do is so valuable and important that I think it is a shame that funders and the public at large believe that paying nonprofit employees well is morally unacceptable.

  44. Diane Wolfe says:

    We see the matter of nonprofit compensation from different vantage points. I see it from the standpoint of 15 years’ work with a nonprofit that relied heavily on volunteer labor for delivery of its essential service. Most of the people there, and for the first nine years I was one of them, were paid nothing for their work.

    Adequate funding of overhead is, I agree, essential. The idea of competitive compensation nonetheless is a slippery slope; everyone who works in the nonprofit sector makes a personal sacrifice of some sort, and that is part of their contribution to the cause. That principle of sacrifice brings to nonprofit organizations people with a heartfelt commitment to their work, one that can’t be bought at any price.

    I’ve seen people join a cause for a paycheck. They don’t last.

    My thanks again for your willingness to give voice to differing points of view; your point is well-taken: the worker is worthy of his (or her) hire.

  45. Dan Pallotta says:

    Diane,

    This is not and should not be an either/or circumstance, i.e. either you’re in it for sacrifice or you’re in it for the money. The fact that people have a vision for their economic future that might include a second home, sending their kids to private schools, and flying business class does not mean they don’t have love in their hearts or that they are not capable of making valuable contributions to the great causes of our time. Furthermore, the notion that the nonprofit sector already has all of the best and the brightest is short-sighted and perhaps worse.

    I have to say, and I say it with respect, that your point of view is a danger to human life. You are essentially saying, “keep things the same.” I am not in favor of it. In fact, I will fight with all my heart and soul to change things. In the last ten years, U.S. breast cancer deaths have stayed the same, global malnutrition has stayed the same, and global AIDS deaths have doubled. Our system is not working. It is not alleviating suffering on the scale or at the pace at which it must be alleviated. As they say in AA, the definition of insanity is doing the same thing and expecting a different result. The people who will die of AIDS, hunger, breast cancer, MS and everything else while we keep the system the same will surely have a different opinion about the merits of attempting to use compensation as means to stop their suffering.

    This has now become a moral issue, and I believe that those who have their heels dug in about sacrifice are on the wrong side of it.

  46. Jon Husband says:

    Our system is not working. It is not alleviating suffering on the scale or at the pace at which it must be alleviated. As they say in AA, the definition of insanity is doing the same thing and expecting a different result.

    And at the same time you say the cure for capitalism not working well enough is more capitalism ?

    Notwithstanding some valiant efforts in the various comments, I see on this thread a stand-off between world-views and a seeming unwillingness to suspend beliefs and explore alternatives.

    Better (or even just more) marketing to raise more funds works in the USA, because it is a fundamentally marketing-driven society. If it moves (including philanthropy) there must be a way to make money from it. But if it takes large overhead to raise more funds, accommodating that overhead must be justified and so, I posit, the nature of the undertaking changes. It becomes a business, and the cause it addresses becomes the focal point of is services .. but the fundamental nature of the thing has changed.

    If you’re all good with the business-ification of everything, there’s a wealth of justifications in the thread above.