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Reason TV Interview on "Uncharitable"


Dan Pallotta Interview on ABC News

The Stanford Social Innovation Review has just released the following review of "Uncharitable:"

The Double Standard
By Renée Irvin  Spring 2009

Dan Pallotta has written Uncharitable as a response to every media report about a charity spending $400,000 to raise $1 million, every donor who wants at least 90 percent of her donation to go toward the cause, and every nonprofit executive director who eschews marketing for fear that donors will consider it extravagant. "Enough already!" the book explodes. And it does so with such good reason and blunt candor that it deserves to become the nonprofit sector's new manifesto.

Pallotta reviews the frugal, almost prudish constraints the public expects from nonprofits, everything from a ban on paid advertising to substandard wages for nonprofit employees. But if we want the nonprofit sector to do without the successful tactics of the business sector--say, marketing--how can we expect the nonprofi t sector to aspire to greatness? How will it ever grow, get results, and reach new supporters? Why, for instance, did the American Cancer Society spend only $1 million on anti-tobacco legislation in 1998, when, during that same year, the five largest cigarette manufacturers spent more than 6,000 times that amount in advertising and promotions?

Not only must nonprofits be allowed to use the tools of commerce to thrive and accomplish their missions, Pallotta argues, but the public also needs to get over its mistaken and tenacious fixation on fundraising costs and overhead ratios. He goes on to show how misleading, easily manipulated, and plainly irrelevant these ratios are, and suggests we instead ask 16 questions that would reveal "What has the organization achieved, and what can it achieve with my donation?" Everyone who cares about nonprofit organizations and their potential accomplishments--from journalists to sophisticated donors to foundation officials--should read this section of the book. They'll surely be convinced that fundraising ratios and program expense ratios are a silly, useless, and even fraudulent way to compare "efficiency" across nonprofit organizations.

Every nonprofit professional, meanwhile, should read Pallotta's section on how nonprofits can use the power of advertising. If donors and staff members complain that "a dollar spent on advertising could have been spent caring for the needy," he advises the nonprofit manager to explain that exposing new supporters to the cause could result in a tenfold increase in donations. Indeed, as John Kenneth Galbraith noted in The Affluent Society: "The engines of mass communication, in their highest state of development, assail the eyes and ears of the community on behalf of more beverages but not of more schools. Even in the conventional wisdom it will scarcely be contended that this leads to an equal choice between the two."

Pallotta goes on to speculate why the public expects nonprofits to behave so differently from for-profits and points the finger at Americans' Puritan heritage of self denial and frugality. Perhaps the Puritans do have a moralistic hold on us with regard to nonprofit t sector endeavors, but given the apparent absence of Puritan influence elsewhere in 21st-century America, I'm doubtful of this hypothesis. We economists would instead blame nonprofit sector managers who reassure donors that their money is well stewarded by signaling their steadfast frugality. And sociologists would say that employees self-sort into a nonprofit avocation--that is, people uncomfortable with business-sector strategies and culture gravitate toward the nonprofit sector.

But whatever the underlying cause of the public's belief that administrative costs are wasteful and overhead is bad, Pallotta believes we must speak up on behalf of nonprofits and educate donors on the necessity of not just administrative expenses, but all of the business strategies that can build the best launching pads for nonprofit endeavors.

Pallotta ends the book with a case study of Pallotta TeamWorks, the author's own for-profit firm that was wildly successful in raising funds on behalf of nonprofit clients. In nine years of producing three-day walking and one-week cycling events, the company netted $305 million for several health-related charities. But despite the massive new infusion of donations generated for these charities, Pallotta reports that the press focused on the costs the events incurred, including those of professional marketing and branding--its message was, Couldn't that money have gone toward the cause instead? When negative media coverage didn't stop, the nonprofits disassociated themselves from Pallotta TeamWorks and the firm shut its doors in 2001. The nonprofits eventually redeemed themselves in the eyes of the public, but without the revenue generated by the lucrative walking and cycling events, they were forced to lay off staff members and cut programs.

This case study is fascinating, and it will surely invite armchair quarterbacks to reckon how they might have handled both the media and the nonprofit organizations. The study also tempts us to write off the book as motivated by Pallotta's bitter experience of being pilloried by the moralistic media for having managed his business like a business.

But that would be hasty. Uncharitable gives us much more than a tale of sour grapes. Pallotta has written thoughtfully and forcefully on why and how we limit the effectiveness of the nonprofit sector, and he asks us point-blank to change our thinking. For the sake of the nonprofit sector, I hope he succeeds.

Renée Irvin is an associate professor of planning, public policy, and management at the University of Oregon. She also directs the university's graduate certificate in nonprofit management program. Her research focuses on the economics of nonprofit and philanthropic organizations.


This Week

Uncharitable's at #1 in the "Nonprofit Organizations and Charities" category today on Amazon, probably as a result of an article on giving in the current issue of the UTNE Reader in which the book is described. 

Over the last ten days I spoke at a Milken Institute Forum (view video here), at the Clinton School of Public Service (view video here) located on the campus of the Clinton Library in Little Rock, and at the Canadian FundRaiser conference in Toronto (a simple trip that turned into a Planes, Trains and Automobiles adventure when I discovered the night before my flight that my passport had expired.)

I continue to be dismayed by the attachment that some people have to the potentially contaminating effects of higher compensation in the sector. One blogger writes about how he finds other benefits beyond money, and thus questions whether we need to pay people more in the nonprofit sector. My response to this is that it is inaccurate for us to believe that there are not also non-monetary benefits in for-profit sector jobs. The people at Apple sure look passionate and seem like they're having a lot of fun to me. Do we really believe that people in the for-profit sector find no satisfaction in their work beyond the pay? Furthermore, when you add in the lack of resources that the nonprofit sector offers to talented people, and how that de-leverages all of their talent, and then take away compensation on top of that, all while you give the for-profit sector folks high compensation, job satisfaction, and the resources with which to explore their full talents, you have a totally discriminatory and counter-productive paradigm. 
I was at Harvard two weeks ago to do a presentation at the Hauser Center for Nonprofit Organizations. There's a lively discussion that I'm a part of on the Hauser blog, specifically centered on compensation - definitely check it out. Also, if you're in L.A., come to the Milken Institute Forum I'll be presenting at this Wednesday at 4:30. It's free, but you have to register. And, if you feel like flying to Little Rock, I'll be speaking at the Clinton School of Public Service this Friday.

New Reviews

Uncharitable was well-reviewed in The Economist and in IN Los Angeles Magazine this week.I also made an appearance on Air America's program The Young Turks. I'm in Boston this week to do a presentation at the Hauser Center for Nonprofits at Harvard and to tape Emily Rooney's "Greater Boston," on WGBH.

Los Angeles Launch Party

My good friend Rick Jacobs and his partner Shaun hosted a launch party for Uncharitable at their home in Los Angeles. About seventy-five people attended. Questions after the presentation were great all-around. It's obvious that people are hungry for change in this whole arena, and even people from outside the sector get the need to give charity the same operating freedoms we give to business. It's very encouraging to see that, just with a few minutes of explanation on why the question, "What percentage of my donation goes to the cause?" is deeply flawed, even the average lay person is ready to stop asking it. They want to know what questions they should be asking. They're extremely open to another way.

Boston Globe Review and Response

Rich Barlow of the Boston Globe reviewed the book this morning (click here to view). I added a comment, which appears below, but it wasn't nearly as good as Paul Horne's comment:

"Sorry Rich, I can't let you get away with such a careless review of Pallotta's book. "Executives compensated like sultans?" "Promiscuous spending on overhead?" If you think that is honestly Pallotta's recommendations for charity, then it doesn't sound like we read the same book, if indeed you read it at all. Pallotta's ideas for me represent the sea change we need, and I was offended by the hyperbole you used in your review. Even the term "do-gooder," which Collins and American Heritage both define as "a naive idealist who support philanthropic causes" is blatantly incorrect. Pallotta has dedicated his life to these causes, and to suggest his approach to fundraising is naive, given his extraordinary track record, does your readers a disservice. "Uncharitable" opened my eyes to what's possible in philanthropy and lit a fire under me to re-dedicate myself to the causes I'm passionate about. More than just "not bonkers," I think this book is a game changer."

My Comment on the Piece:
Thank you so much for the review and for reading the book. A few corrections and comments:

"...glitzy advertising, massages and cucumber eye masks for event participants - siphoned too much money from charity."

Dozens of committed volunteers provided massages for free, at zero cost to the charities (these were grueling events involving up to 10 miles of cycling or 26 miles of walking a day, often creating extreme muscle stiffness.) Some of the more humorous volunteer-run water stops provided cucumber eye masks on the road, also at zero cost to the charities. 

As for the advertising, it was primarily on radio stations and in major metro papers, like the Boston Globe (which earned a profit off of the advertising) - it always began with compelling statistics about AIDS and breast cancer. It is a powerful example of the double-standards we have between the for-profit and nonprofit sectors that we call it "building demand" in business but "glitzy" in charity. It is further evidence that in charity we see money spent on advertising as money taken away from charity, when in fact, without the advertising, there would have been no money going to charity. The advertising is what drove people to the events. We don't deny furniture stores or department stores the ability to use full-page ads in the Globe to drive customers to their stores, why would we deny it to charity? It only keeps our causes muted, and, therefore, small.

"Our Puritan ancestors insisted that giving be motivated by love of humanity, not the desire for gain; profit and its attendant risk-taking, they felt, polluted charitable acts."

Actually, the New England Puritans were capitalists and were accused of extreme profit-making tendencies. Charity was a way of doing penance for that. Puritan giving was motivated primarily by anxiety about eternal damnation, reciprocity (if I help you now you will help me later if I am in need) and the desire for community standing. They were often more concerned about how their own benevolence rated them in the eyes of God than they were about the objects of their benevolence. Most important, they viewed the divide between rich and poor as ordained by God - inevitable - and something that would always be with us. Not a great worldview if we want to eradicate poverty. 

"...pay investors in fund-raising events a return from the net take."

Close, but what I am actually advocating is a stock market for charity, whereby people and institutions at all socio-economic levels (including retirees with 401ks, union pension funds, and even college endowments) could invest desperately needed growth capital in their favorite charities, helping the charity to grow and getting a financial return themselves. It's not for the sake of the investor that I advocate this, but for the charities, who are currently deprived of the capital they need to scale up to the problems they confront.

"Pallotta's critics contended his company fell short on disclosure."

The company was a model of disclosure. Participants could go onto our website, or could get an annual report right at our events that disclosed our company's fee for each event, dollars raised, dollars spent on marketing, dollars spent on logistics, and dollars netted after all expenses. That data is still available at https://www.pallottateamworks.com in the "Full Financial Disclosure" section. We were not required by law to post any of this on our website - we did it because we cared about disclosure. One would be hard-pressed to find other event companies (or charity events) that provide this level of disclosure, if any.

"...a 1996 AIDS ride promised participants that 60 percent of the take would go to charities, when they actually got only 19 percent."

One hundred percent of all funds raised went to the charities, into lock box accounts under their exclusive control. They then reimbursed us for expenses on a dollar-for-dollar basis with zero mark-up. We were paid a fixed-dollar production fee for each event - never a percentage. A hindsight calculation puts that fee at about 4.01% of the total dollars we raised. We never promised percentage returns. Post 1996, all of our pledge forms indicated that we never guaranteed percentage returns, and that those returns depended entirely on the number of participants that registered and the dollars they raised.

Again, thank you for the thoughtful review.

Kind regards,

Dan Pallotta
Author, "Uncharitable"
Founder, Pallotta TeamWorks


This Morning's KQED Interview

I did an hour-long show on NPR San Francisco with Dave Iverson this morning. The show is called "Forum." Dave is a great interviewer and was genuinely into the subject matter. Good call-ins too.  Click here to listen.

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