At this year's TED 2013 conference, activist and fundraiser Dan Pallotta called out the double standard that drives our broken relationship to charities. Too many nonprofits, he says, are rewarded for how little they spend, and not for what they get done. Instead of equating frugality with morality, he asks us to start rewarding charities for their big goals and big accomplishments... even if that comes with big expenses.
In this article, Gregg DesElms both agrees with and recommends Pallotta's prescription; but also cautions, with respect to the executive compensation piece, that just because we can do a thing does not necessarily mean that we should.
HOW WE THINK ABOUT CHARITIES IS DEAD WRONG
An excellent, must-see video; but also a word of caution
by Gregg L. DesElms
In this bold, brief (only 18-minute) TED talk, given on March 1, 2013, Pallotta's voice breaks a times or two, and those in the audience also became emotional by its end, as he delivered his powerful and compelling overarching message: Let's change the way we think about changing the world.
"The way we think about charity is dead wrong." Dan Pallotta, at TED 2013, on March 1, 2013.
"The nonprofit sector is critical to our dream of changing the world," Pallotta says in his new book Charity Case. "Yet there is no greater injustice," he continues, "than the double standard that exists between the for-profit and nonprofit sectors. [The for-profit sector] gets to feast on marketing, risk-taking, capital and financial incentive, [and the nonprofit sector] is sentenced to begging."
This economic starvation of our nonprofits is why Pallotta believes we are not moving the needle on great social problems. “My goal," he says, "is to fundamentally transform the way the public thinks about charity within 10 years.”
Pallotta is best known for creating the multi-day charitable event industry, and a new generation of citizen philanthropists with its AIDS Rides and Breast Cancer 3-Day events, which raised $582 million in nine years, but for which work he was chastised by some. Pallotta is now president of Advertising for Humanity, which helps foundations and philanthropists transform the growth potential of their favorite grantees.
A few quotes from Palotta's TED talk:
"The next time you're looking at a charity, don't ask about the rate of their overhead. Ask about the scale of their dreams."
"Our generation does not want its epitaph to read, ‘We kept charity overhead low.’ We want it to read that we changed the world."
"Philanthropy is the market for love. It is the market for all those people for whom there is no other market coming."
"When you prohibit failure, you kill innovation. If you kill innovation in fundraising, you can't raise more revenue. If you can't raise more revenue, you can't grow. And if you can't grow, you can't possibly solve large social problems."
"We have a visceral reaction to the idea that anyone would make very much money helping other people. Interesting that we don't have a visceral reaction to the notion that people would make a lot of money NOT helping other people."
Gregg DesElms's partially-dissenting opinion...
There is no question that, as Pallotta says, the social problems are massive in scale; and also that our nonprofits aimed at resolving them are tiny up against them, and are hampered by a societal belief system which keeps nonprofits tiny and so, then, also ultimately ineffective. I noticed this many years before Pallotta brought it to the world's attention with his books and videos. I'm on record, in face, saying and/or writing, over the years (nearly always controversially) that nonprofits should be allowed to behave more like for-profit corporations in at least certain areas and ways so that they may better build capacity and, therefore, do more...
...all while still maintaining tax-exempt status with the IRS, under section 501(c) of the tax code; and also while not arousing the ire of those Pallotta correctly characterizes as historically puritanical in their backward and limiting view of charity's societal role and appearance of appropriateness. My notice and lament of that problem is, in the main, why I'm so attracted to, and am here promoting, Pallotta's basic message. If there's anything that needs to change in the nonprofit world, it's that both government and society need to finally lift their figurative and collective knee up off the nonprofit world's chest and let it turn small amounts of money into large ones in much the same manner as the for-profit world is permitted to do.
However, that said, it is critically important to remember that it cannot be for the same reasons as for-profit corporations do it, chief among them: the effective payment of dividends to its persons. In the world of nonprofits, there is required, by law, the singleminded focus of all resources on whatever is the nonprofit's declared and IRS-approved mission.
The payment of what most consider obscenely-high executive compensation is just such an illegal dividend in the minds of many. No single issue riles Americans like what it perceives as abuses in that area. Nary a 2008-and-onward bank failure news story didn't either lead with, or at least include high-up in the piece, the matter of the outrageous salaries paid to CEOs and others hign in the corporate food chain while hardworking, everyday Americans were losing their homes to foreclosure, and often becoming homeless, at their greedy hands. And those were for-profit operations about which the news stories were reporting! Whether or not Mr. Pallotta likes it, society's visceral disdain for the CEOs of nonprofit operations being what it perceives to be too-highly-paid is even more palpably bad. As Nicholas Kristof wrote about Pallotta in the New York Times in 2008:
"Critics railed at his $394,500 salary — low for a corporate chief executive, but stratospheric in the aid world — and at the millions of dollars spent on advertising and marketing and other expenses.'Shame on Pallotta,' declared one critic at the time, accusing him of 'greed and unabashed profiteering.' In the aftermath of [that] wave of criticism, his company collapsed."
Pallotta should notice that even on the TED website, on the web page featuring his video, the comments beneath it of those critical of this thinking center, in the main, on the perceived potential for abuses by nonprofit executives... as their collective memory of the various United Way scandals, for example (just to name one well-known nonprofit debacle), helps to so cogently both remind and inform them.
As I've earlier herein written, allowing high advertising and marketing expenses, if the return on such investments may be unambiguously shown, is the very kind of change to the way that nonprofits should be allowed to run which Pallotta prescribes, and with which I agree. However, to the rationale and acts of St. Francis of Assisi I would refer Pallotta for a better understanding of the basic sensibility, regarding executive compensation, which today's nonprofit CEOs should at least understand, if not adopt and model their thinking.
I'm not saying that nonprofits should become Franciscan in their charism regarding pay. They need to be competitive. Even those who want to live-out their mission, as loyal employees, nevertheless still need to not only eat, but to thrive and even prosper. However, while I'm sadly sure it's true that, as Pallotta says, "there's no way you're going to get a lot of people with $400,000 talent to make a $316,000 sacrifice every year to become the CEO of a hunger charity," such as that is probably a blessing in disguise. Persons who think that anyone actually needs to earn over $33,000 per month -- a whopping $7,700 gross pay per week -- have likely lost their perspective; and are no longer in touch with the realities of the very society in which they live...
...a society in which US median household income fell to just over $50,000 in 2011; and in which extreme poverty -- meaning households living on less than $2 per day, before government benefits -- doubled from 1996 to 1.5 million households in 2011. Such $2-per-day income households in extreme poverty, it's both worthy of noting, and sobering, too, contain some 2.8 million children.
I'm not saying that no one should be allowed to earn over $7,000 -- or even far, far more -- per month: I'm not a communist. Rather, I'm simply suggesting that persons working for nonprofits should, just as a matter of moral principle, if nothing else, not only not have such expectations, but, far more importantly, should demonstrate, by eschewing them, that they do not have such values.
That, in the end, is really the crux and bottom line of it: Values. While even I agree that it's a sad thing for the CEO of a hunger (or virtually any other kind of, for that matter) charity to earn Pallotta's cited only $84,000 per year, a more Franciscan-like value system among nonprofit CEOs should help them find equally problematic even the $232,000 per year (a gross income of pushing $20,000 per month) salary of the $5-million-plus medical charity that Pallotta also cited (a salary which, it's worthy of note, would amount to almost 5% of gross giving).
In a country -- among the richest on earth, mind you -- where nearly 3 million children live in households earning $2 per day or less (a mere $730, or less, annually), the value system of the hopefully at least mindful of Franciscan sensibilities nonprofit CEO should guide him/her to the fundamental repugnance of any nonprofit executive earning, in only three months, some nearly $9,000 more than this nation's median household income for an entire year. Moreover, the imperative of such a value system for a nonprofit CEO should not have to be explained to Pallotta. Res ipsa loquitur. That it seems to, speaks volumes.
Sadly, such a self-evidently more moral ethic seems lost on him, else he would not have rationalized, in his both presentation and book, what some might consider the highly-paid nonprofit CEO's greed by painting what he hopes will be the sobering practical picture of its distasteful alternative: "[Actually, t]hey might be smart," he said. "It's cheaper for [such persons] to [work in the for-profit sector and then] donate 100,000 dollars every year to the hunger charity, [thereby saving] 50,000 dollars on their taxes, [and] so still be roughly 270,000 dollars a year ahead of the game; [and then, suddenly] now be called a philanthropist because they donated 100,000 dollars to charity, [then] probably sit on the board of the hunger charity -- indeed, probably supervise the poor SOB who decided to become the CEO of it -- and have a lifetime of [that] kind of power and influence and popular praise still ahead of them."
Telling is how derisively Enron-like feels Pallotta's cavalier characterization of the hunger charity boss who settles for a mere $84,000-per-year salary as "the poor SOB who decided to become the CEO of it." Keep in mind, as you read, here, that instinctual dismissiveness of his, as well as the obvious allure for him of the alternative he described, on account of his being used to making the really big money in life. I'll be referring to it, here, in a moment.
While, yes, a person may (and should) do good, even as s/he does well, that Pallotta can look at such a way of thinking as not only wholly incompatible with the very nature of nonprofit executive compensation, but also not wholly sinful for at least nonprofit executives, is his Achilles heel in this thorny argument. It's really only the executive compensation part on which Kristof, in his New York Times piece, keeps choking, even as he, like me, is agreeing with Pallotta that nonprofits "would be more effective if they borrowed more tools from the business world, and that there is too much 'gotcha' scrutiny on overhead rather than on what they actually accomplish."
"I confess to ambivalence," Kristof wrote. "I deeply admire the other kind of aid workers, those whose passion for their work is evident by the fact that they’ve gone broke doing it. I’m filled with awe when I go to a place like Darfur and see unpaid or underpaid aid workers in groups like Doctors Without Borders, risking their lives to patch up the victims of genocide. [But] I also worry that if aid groups paid executives as lavishly as Citigroup, they would be managed as badly as Citigroup."
Similarly worried are so many in the sadly-spirit-crushing nonprofit world, including those of, yes, the historically puritanical thinking who donate their hard-earned money to it. And so, then, such is at least part of the reason they have so much trouble buying-in to Pallotta's paradigm.
He should, then, separate from his mission his understandable, but, in the end, pointless and only self-serving need to justify his own statospherically-high (by nonprofit organizational standards) $394,500 annual salary while running his ultimately failed company which ran the AIDS Rides and Breast Cancer 3-Days, and concentrate, instead, on what's adequate and just in the way of nonprofit executive compensation. A CEO earning $150,000 per year is just as both capable and likely as a $400,000-per-year CEO of advertising extensively and even turning an effective profit... that is, to the degree that nonprofits may even legally so do; the issue, of course, being that, under the law, such "profits" must ultimately be used solely for the nonprofit's stated mission. None, then, may be paid as effective dividend, as with for-profits.
I would argue, in fact, that the $150,000-per-year CEO, might, because his/her feet are closer to the ground, be a better steward of such "profits." Such a CEO would also, I believe, be far less likely to think of the $84,000-a-year CEO as the "poor SOB" of Pallotta's earlier instinctive derision. It is, then, far more about a mindset of stewardship than Pallotta and his mindset of wealth and concomitant excess, without also comprehending its scale, seems to grasp; a stewardship mindset which the $84,000-a-year CEO is far more likely to exhibit, I dare say, than is the $400,000-a-year one...
...as the formerly-$394,500-per-year Pallotta, and his unthinking words of derision, and telling revelation of values, so deftly demonstrates.
Pallotta says his goal "is to fundamentally transform the way the public thinks about charity within 10 years." I hope he succeeds with at least the parts of it which don't inordinately direct donation income toward executive compensation that is beyond what is adequate and just. At the same time, he should also be fundamentally transforming the thinking of his treasured $400,000-per-year MBA talent to become more Franciscan in nature so that it may more easily differentiate between that of nonprofit executive compensation which is adequate and just, and that which is facially obscene.
They should so differentiate not only for the better public image it casts, but also for the fundamental charism-for-good that it imposes on their executive decision making, and the better stewardship of even huge "profits" that would likely result.
Maybe if Pallotta worked the executive compensation piece from both of those ends, society might be able to agree on a happy medium somewhere on the lower median end of the scale ranging from the $84,000 to the $400,000 per year extremes cited in his presentation. Trust me: There's plenty of $400,000-per-year talent out there who would work for something less, pursuanat to their value system which imposes on them the ethic of accepting as compensation only that which is, under the circumstances, both adequate and just. They would do it because understand the moral imperative, and also because they honor their obligations under the implied social contract. Nonprofits should never stop embracing that charism; and should seek only executives who do, too.
Gregg L. DesElms
Napa, California USA
gregg at greggdeselms dot com