Nonprofits and the Chains That Bind Them

More than 300 people spent last Friday morning listening to author Dan Pallotta talk about his 2008 book - Uncharitable – that has provoked debate in the nonprofit sector for asserting that entrenched cultural beliefs about charities are crippling nonprofits' ability and potential to respond to the scale of social ills they confront. (Tactical Philanthropy has a good example of this debate.)

Pallotta's book stems from his experiences as the founder of the now defunct Pallotta TeamWorks, a for-profit company that organized large-scale, multi-day walks and bike rides, raising $305 million over nine years for causes like AIDS and breast cancer.

Palotta argues that nonprofits will never achieve the scale of capacity they need to create real change because public perceptions deprive nonprofits from enjoying freedoms afforded corporations, especially in regards to:

• Executive compensation: Low salaries turn away good talent and leadership, yet high salaries draw suspicion
• Marketing: Nonprofit advertising is OK only if it's donated
• Risk-taking to generate revenue: Nonprofits are afraid to take risks because of the criticism that will ensue if they fail
• Investment in long-term revenue growth: Everything is measured in 1-year increments, which doesn't fit all nonprofits
• Profit as incentive to raise growth capital: Profit-making ventures draw suspicion

Less controversial but no less provocative was his argument that nonprofits are especially harmed by the overhead-program ratio -- "What percentage of my donation goes to the cause?" -- what Pallotta calls the "most sinister question" perpetuated by charity watchdogs and the media. Sinister because it:

• Makes the public think overhead is not part of "the cause"
• Forces nonprofits to forgo what they need to increase capacity to solve problems, like a powerful (but expensive) new leader or a major ad campaign to increase long-term giving
• Gives donors bad information since it says nothing about program quality (Did it make a difference?) and is subject to aggressive accounting methods

(See Pallotta's blog postings for HarvardBusiness.org to read his key arguments, many of which he echoed in Friday's presentation.)

A panel discussion followed Pallotta's presentation.  Participants included the author, plus:

• Joe Bankoff, president and CEO, Woodruff Arts Center
• Bill Bolling, founder and executive director, Atlanta Community Food Bank
• Martin Lehfeldt, author and former president, Southeastern Council of Foundations
• Milton J. Little, Jr., president and CEO, United Way of Metropolitan Atlanta
• Carol Naughton, vice president for communities, New Community Ventures, LLC
• Dennis Young, Professor of Public Administration and Urban Studies and director of the Nonprofit Studies Program at Georgia State University

Some recurring themes and questions were:

• Nonprofits need to do better at educating donors and the public about their accomplishments and return on investment, but how?
• Nonprofit workers are drawn to the sector for altruistic motivations, but how to balance that with personal economic interest?
• What is the 10-second answer to the persisting question of overhead-program ratio?
• How can the nonprofit sector adopt and/or hybridize some corporate methods, like social purpose investing?
• The whole nonprofit sector could use a re-branding campaign to improve its image (Pallotta's suggestion: "social transformation sector")

Our Events Archive will post a video of the event within a few weeks so that you can see and hear the full discussion as well as the audience Q&A session afterwards. 

Do you agree with Pallotta? What can nonprofits do, if anything, to change public perception of the sector?

Sandy Pon, Virtual Library/Learning Center Specialist

Comments

[sandypon]

In his self-described Al Gore-like crusade to liberate nonprofits so they can take more risks, Pallotta may have an ally in none other than the nation's wealthiest and perhaps most influential foundation.

PND recently reported after billions of dollars in grants, the Bill & Melinda Gates Foundation found that the key to better education was not necessarily smaller schools but more effective teachers.

In response, CEO Jeff Raikes said the foundation not only has the resources to support — and learn from — initiatives that might fail, it also has a responsibility to try. "Almost by definition, good philanthropy means we're going to have to do some risky things, some speculative things to try and see what works and what doesn't," said Raikes. "I'm quite confident that some things [we try] will succeed, and I'm quite confident that some things will fail."

Here's the PND article: http://foundationcenter.org/pnd/news/story.jhtml?id=253300034

[Kayron]

You can find a video of this event at our web site at http://www.foundationcenter.org/events/archive/atl_pallotta.html.

[Kayron]

The previous url for the Pallotta video doesn't seem to be working. Try this:
http://tinyurl.com/lp5y2k