I’ve just heard a story of a major nonprofit organization that receives tens of millions of dollars annually from a single donor – around half of its operating budget – but is laying off staff because they don’t have enough unrestricted operating cash.
Again, Dan Pallotta’s awesome TED talk notwithstanding, we find ourselves having the same conversation, one that boils down to: is it a wasteful to pay nonprofit professionals to do their jobs well?
I wonder if it is we in the nonprofit space who need more guts when we take on this question. Maybe it’s time to say something along the lines of, “if you want your money to go directly into the hands of very poor people who need it, you should do just that and give to Give Directly.” GiveDirectly is optimized for this, they are efficient and transparent in their operations, they rigorously study their results, and they’ve shown the effectiveness of direct cash transfers for creating both short- and long-term improvements in people’s lives. It’s a completely legitimate way to help others, and it’s a great benchmark against which to measure our work.
“Or,” we should have the courage to continue, “you can have the point of view that the programmatic work that we’re doing is better than giving cash.” “Better” can be because it does different things (fights corruption); “better” can be because the impact of giving a dollar is more than $1 (investing in a scalable social business); “better” can be because of long-term return on investing that’s higher than the social return on giving cash (supporting a child’s education).
“But,” we should be sure to say, “if you believe that the IT that we do matters, if you believe that there is something real that we are bringing to the table that goes above and beyond your money ending up in the hands of someone who will benefit from it, then you’re saying that our judgment, our relationships, our expertise, our capacity for oversight, and our ability to create leverage for each dollar you give is real. This means that you trust this judgement and our expertise. So please give in a way that respects that judgment and expertise, or don’t give at all.”
Our homework is to really look in the mirror and evaluate why what we’re doing is, in fact, better than the money going directly to our beneficiaries. And, once we’ve sorted that out, we must have the courage to make that case and the willingness to look someone in the eye and say, “if you don’t believe this, then you shouldn’t give to us in the first place.”
I had the privilege of attending the TED conference last week – a bounty of new ideas, optimistic predictions, and insightful reflections on the world today and the world as it could be tomorrow.
The most challenging and exciting talk for the nonprofit sector was by Dan Pallotta, author of Uncharitableand Charity Case. Dan made a name for himself creating the then-ubiquitous AIDS and breast cancer walks and rides – these events raised $108 million and $194 million for charity, respectively, according to Dan’s numbers. Dan’s pitch, which he has been making for years but never as clearly or effectively as he did last Friday, is that we are never going to solve the world’s toughest problems if allow the prevailing orthodoxy to rule in the nonprofit sector and in the minds of the philanthropists who fund them.
Dan Pallotta speaking at TED (Photo: James Duncan Davidson)
Dan has been a lightning rod in the nonprofit sector for more than a decade because he has been such a vocal, unabashed voice for change. He was fully transparent about this, starting his talk explaining how challenging and frustrating it was when his company was shut down because of the backlash that came when it became clear that putting on the rides/walks used up a big portion of the funds that people raised – despite the nearly $300 million net raised for these charities.
The two most controversial points Dan made in the talk were about nonprofit pay and fundraising. On nonprofit pay, the line I found most memorable was, “You can make $50 million in a year selling violent video games to kids and they put you on the cover of Wired magazine; but if you make $500,000 as a nonprofit executive director working on solving some of the world’s toughest problems they will run you out of town.” Indeed.
On fundraising, Dan’s big point is that if you can take a philanthropic dollar and turn it into $10 or $100, then it is absurd not to do so and even more absurd for a philanthropist to feel like you are wasting her money when you spend it in this way.
What I love about Dan’s talk is the conversations it forces us to have, ones that get to the heart of what philanthropy is, why people give, and what it will take to make real change in the world.
To me the conversation starts with a basic question: do you think that the people who work for nonprofits are adding value; or, put more technically, is the amount of good they create – in terms of the problem you’d like them to solve – greater than they amount that they are paid. (Ironically, it’s easiest to figure out this question when you analyze a person on the fundraising because you can easily quantify the funds she raises against how much she costs the organization.) If you don’t feel like nonprofit organizations/their staff add value, then it’s easy to conclude that the organization itself should take up as few resources as possible.
Philosophically, one wants as much ______ (money, water, chickens, anti-malarial bednets) to land in the hands of the needy recipients as is humanly possible, and so one wants a nonprofit sector whose only role is to do the minimum possible to make those ________ (things) end up in others’ hands, and to eat up as little as possible of each donated dollar to make that happen along the way.
At the other end of the spectrum, if you believe that there’s a thorny set of problems that haven’t yet been solved in the world, then we need the most highly capable, intelligent, hard-working, long-lasting people on the planet to solve those problems. So making sure one has the tools to get and keep the best people becomes vital and, more importantly, one quickly understands the limitations of a worldview that says that those people are “overhead” (a.k.a. something to be minimized.)
Of course the world does not exist in black and whites. Development professionals who live in gated communities in multi-million dollar homes, separated by barbed wire fences and Range Rovers from the people they ostensibly are in the business of serving – well that’s obviously hugely problematic. So the message isn’t “more pay is better.” We need some basic checks in the system or it’s never going to work. At the same time we need to ask ourselves whether the system we have today is oriented towards “efficiency” (which itself is elusive) at the expense of effectiveness: I could easily waste very little of your money but never actually manage to solve the problem you ultimately hope to solve, by shoveling 90 cents out of every dollar into direct aid but never change the system that created the need for aid and charity in the first place.
While we know there are no easy answers we cannot pass on asking the tough questions, on having an out-loud conversation about whether this system we have built is actually working. Because many think it is. A philanthropist I spoke with after Dan’s talk told me that he found the talk to be very troubling: Dan, he said, does not understand the mindset of the philanthropists at all and he completely missed the mark. “If I find a startup that I believe in,” this philanthropist said (I’m paraphrasing), “I’m happy to put up some risk capital in the knowledge that it might succeed or it might fail. But when I dip into my philanthropic pocket, I want the charity to treat that capital as precious, to spend it wisely, and to make sure as much of it as possible goes to those in need.”
“….treat that capital as precious…” is the key phrase there. Guard it, protect it, mete it out carefully and cautiously and be sure you don’t make any mistakes as a steward of that capital.
“So,” I asked, “I absolutely can understand that you want nonprofits to careful with your money. But where do they go for risk capital? Or investment capital?”
Unfortunately we couldn’t finish that conversation, but I feel better equipped to have it thanks to Dan’s talk, thanks to seeing Dan’s outrage at how backwards the system we created is, thanks to statistics like the one Dan shared that, since 1970, while only 144 nonprofits have grown to more than $50 million in annual revenues, more than 46,000 for-profits have crossed that threshold. Put another way, a new non-profit is less than 1/300th as likely than a new for-profit to grow big enough to have enough scale to really matter, to have enough scale to figure out what they are doing and have some heft to actually solve a problem.
That doesn’t feel right.
What it feels like, what Dan is saying is that we’re asking nonprofits to take on the toughest problems in the world, problems that the private and the public sector still haven’t managed to solve, and to do it with one hand (“you can’t spend money to make more money”) and one leg (“you can’t use my donation as risk capital”) tied behind our collective back.
Nicholas Kristof had a very interesting column in Tuesday’s NY Times called “The Sin of Doing Good,” focusing on Dan Pallotta and his new book, “Uncharitable.” Kristoff leads off the column with this question: “If a businessman rakes in a hefty profit while doing good works, is that charity or greed?”
Pallotta ran a for-profit company that invented fundraisers like AIDSRides, events which “netted over $305 million over nine years for unrestricted use by charities” ($35 million / year, for those keeping score) while Pallotta pulled in a $394,000 salary, which is, in Kristoff’s words, “low for a corporate chief executive, but stratospheric in the aid world.” And if you want to get a whiff of the ire Pallotta inspires, check out this discussion on Philanthropy.com.
Let me start by saying that I know nothing about Pallotta outside of what I’ve read in this article and poking around some on the Internet, so I cannot vouch either way for his person, his values, etc. However, a bigger-than-life personality who is finding new and exciting ways to raise visibility and funding for important causes certainly catches my attention (hence the manifesto I wrote a few months back).
Here’s Kristof’s money quote from Pallotta, which really makes you think a little harder about this question:
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. 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.
The (provocative) question I’d like to ask is is: is making sure nonprofit leaders (and their staff) have pure motives and low salaries more important than getting the results we so desperately need? How do we, as a society, want to reward people for the paths they take in life?
And here’s the broccoli analogy: for years, whenever I made vegetables with meals, I thought, “these are going to be healthy.” Hence the boiled, flavorless broccoli. Guess how often I prepared (let alone ate) the broccoli. Pretty infrequently.
More recently, I’ve discovered if I make my veggies taste good, they become part of almost every meal. So now they often have olive oil, salt and pepper, and sometimes even bits of bacon or pancetta, but they taste delicious and they’re part of my daily diet, not the exception I dabble in when I’m feeling virtuous.
(And for the ultimate blogging aside: if you want to change your mind about Brussel sprouts forever, prepare them following Ina Garten’s recipe in her Barefoot Contessa Cookbook.)
So while there’s a woman who I met once – who I’m sure will live forever – whose diet consisted mainly of humongous bowls of salad (no dressing), I don’t think that’s going to work for most people. Large numbers of people are healthier when whole societies have cuisines that centers on fish and olive oil and red wine (go figure!).
So while I don’t know much about Dan Pallotta, I’m sure we need more openness to new ways of doing things in the nonprofit sector, and new ways to attract, motivate and keep the best and brightest. Maybe this is through contests or pay raises or incentive pay – for now I’ll defer to others to fill in the details. But I would love to live in a world where society stands up and says, “These problems are so big and important that we will align resources against them to get them solved.”
Better yet, if someone really were to make a great living solving one of the world’s big problems, don’t you think that person would be just as likely to plow the money they made back in as charitable donations?
