Dan Pallotta’s inspiring, thought-provoking and somewhat controversial TED Talk: “The way we think about charity is dead wrong” seems to have provoked a kind of awakening in the social sector since it was aired at the beginning of March. Online message boards and forums have blown up with lively discussions between non-profit professionals, philanthropists, and anyone connected to the social sector. What’s all the fuss about? Here’s a summary:
The argument Mr. Pallotta makes
In this bold talk, Mr. Pallotta argues that we need to change the way we think about non-profits if real change is ever going to take place. As it stands now, “the donating public is obsessed with restrictions—non-profits shouldn’t pay executives too much, or spend a lot on overhead or take risks with donated dollars.” This way of thinking, Pallotta argues, is holding back the success of the world’s charities. Non-profits are rewarded for how little they spend, not for what they get done.
Pallotta argues that there should not be a separate rule book for business and charity. Big problems, require capital and innovation. He says: “There is no greater injustice than the double standard that exists between the for-profit and non-profit sectors. One gets to feast on marketing, risk-taking, capital and financial incentive, the other is sentenced to begging.”
What’s the solution? Pallotta says that we need to stop equating frugality with morality, and drop this idea that charities should have small overheads in relation to programs. This way of thinking has created a broken relationship with charities. Instead, he says, we should start rewarding charities for their big goals and big accomplishments (even if that comes with big expenses).
Pallotta is not alone in this thinking
While Pallotta may be the loudest, he’s definitely not the only one making this argument. Here’s a video created by donors’ forum as part of a project called “Real Talk About Real Costs” that makes a similar case.
And, quoting Andre Spokoiny from The Jewish Week:
Probably one of the most harmful fixations of funders is with the so-called “overhead.” No one checks an airline’s overhead before buying a ticket; you actually hope that it’s high and they aren’t saving on pilot training or eliminating redundant controls. I don’t care about my favorite Brooklyn coffee shop’s overhead either; the coffee is good, the price is reasonable, and that’s all I need to know. Only when it comes to philanthropy do we obsess about overhead. While there have been some abuses and some organizations are unnecessarily bloated, overhead — or operational costs — is what allows an organization to work with proper tools; to have good and trained professionals; to have contingency plans for emergencies, etc. “Good” overhead is not useless administrative circuits. Rather, it’s what allows an organization to function.
The reaction from the social sector
Since the TED talk aired, much of the reaction from the social sector has been extremely positive, with people describing the talk as: “Fantastic,” “inspiring,” “a must watch,” “an eye-opener,” “home-run,” “thought-provoking,” “powerful,” and “right on the money!” Of course, there are also a few people who disagree with the arguments he makes.
Agree or disagree, you have to admire Mr. Pallotta’s courage in standing up and arguing for what he believes, and calling for change!
Here is just a brief look at some of the more interesting comments online:
Agreement from the social sector
“There’s nothing more frustrating than having a great program idea and no means to promote or run it.”
“It is a mistaken popular notion that non-profit ‘effectiveness’ can be measured merely by calculating the percentage of contributions attributed to mission programs.”
“We don’t demand self-sacrificing pilots because we want them to take good care of us! Yet we demand self-sacrifice of employees in the social benefit sector. Why? It doesn’t say much about the value we place on non-profit work.”
Claire Axelrad, Non-profit Consultant:
After 30+ years in the non-profit trenches I’m still amazed at how small many of us think. I’m constantly trying to remind folks to think bigger. In 2008 all I heard was cut, cut, cut. No one wanted to talk about how to grow, grow, grow so that more (not less) needs could be met. Yes, some efficiencies were created. But did they result in sustainable organizations? Deep down we all know you must spend money to make money. We expect it of the for profit sector. Yet somehow when we cross the threshold of the non-profit all our common sense seems to leave our heads. We pat ourselves on the backs for being self-sacrificing (“overworked and underpaid” was a common refrain, and spoken with a deal of pride yet an underlying, gnawing sense of outrage and/or lack of self worth).??
Calling for a new measure of impact
Ken Davenport, Managing Director at Mission Edge San Diego:
Those of us who work on the front lines of philanthropy support in the U.S. know that the real problem is that charities lack the market response mechanism that is core to the for-profit world: sales. If you have something people want they buy it — and vice versa — which is a very powerful feedback mechanism that tells you whether you are having an impact. Charities base their impact on how much money they raise and how low they keep their administration-to-programs ratios because it is the only readily available guide that donors have to go on. Charities need to change their orientation to a fuller, more comprehensive method of showing what impact they are having on the problem they are trying to solve. They need to create a measurement of “sales” that shows market penetration, growth and ROI.
Calling for a new word for “non-profit”
In the full Wall Street Journal article Why Can’t We Sell Charity Like We Sell Perfume?, Pallotta explains that “the dysfunction at the heart of our approach is neatly captured by our narrow, negative label for the charitable sector: ‘not-for-profit.’” And it seems that many people share this view. Here are just a few of those comments:
“The words we use are powerful. Stop using the word ‘non-profit.’ It’s just a tax status. How can we reframe what we do? Social impact sector? Others?”
Claire Axelrad echos this concern: “I have often wondered why we’re the only sector that defines ourselves by what we’re NOT. Non-profit. Why not what we ARE? Social benefit. Maybe when we begin to value what we do more, then so will the rest of the world. It’s not about money. It’s about accomplishments. That’s where the value lies. The social benefit sector is hugely undervalued.”
And maybe they’re right. According to George McCully from the Catalogue for Philanthropy, “only about one in ten non-profits are philanthropic: ‘private initiatives, for public good, focusing on quality of life.’” He also suggests alternative names for the sector: “benefit sector” or “philanthropic sector.” And for individual organizations: “charities” or “philanthropies.”
The few in opposition
There are of course a few who think that Pallotta is misguided; that his arguments are misleading, and his facts are wrong. Here are just a few of those:
“I dispute the idea that more effective ‘overhead’ is the answer and that the public sector suffers because it does not spend the money on top talent, top advertising and ultimately, top bureaucracy. His arguments are based on a failure to create the scale of fundraising necessary to raise more money, but what good is such scale beyond the creation of larger organizations that constantly need more funds to survive?”
“Pallotta reportedly sometimes ran up to an 86% cost ratio vs. program contribution for the AIDS Ride events his company produced before shutting down… As someone that made a profit off of poor people, he has a lot of nerve to get up in front of people and demand that more money be ushered toward administrative costs within charities themselves.”
“I hope there is some independently validated data and it’s not just the usual TED pablum for rich folks’ entertainment. Let’s see….”
It will always be difficult to find the best balance between resources devoted to the mission and resources invested in skills that support the mission – skills like marketing, communication, and finance.
On one side you have to be aware that real results require investment, and you know deep down that overhead is less important than the results obtained. But, on the other hand, you have to be mindful of how the public will react to spending. While Pallotta’s argument is powerful, change will not happen overnight. For that reason, non-profits must continue to be concerned with showing measurable results in order to build trust. If donors and the public can see the outcomes of your existing programs, that you have a good track record, and that you spend wisely, they are more likely to give to new programs without regard to overhead.
It’s also important to keep the discussion going, keep challenging current beliefs, and keep pushing for a change in how donors, the media, and the general public around sees you.