Asked & Answered

Letting Nonprofits Loose

Dan Pallotta argues in his latest book, Uncharitable: How Restraints on Nonprofits Undermine Their Potential, that society's separate rule book for nonprofits limits their capacity to address the world's problems in an effective way. An author and entrepreneur, Pallotta has a degree in development economics from Harvard and has organized fundraising events for AIDS, breast cancer, urban poverty and suicide prevention. His company, Pallotta TeamWorks, raised $556 million for charity in nine years.

Interview by Donna Stokes | World Ark managing editor

World Ark: In your book Uncharitable, you say donors are told to ask the wrong question when deciding which nonprofits to support, namely: What percentage of my donation goes directly to programs and not to overhead? Why is this the wrong question?

Dan Pallotta: It's the wrong question for many reasons. The questions we should be asking are, how do you intend to solve this problem and what are the things you're doing toward that end. High overhead doesn't mean there's wasteful overhead. Investing in leadership, educating donors and marketing events to raise money greater serve the end cause. If as a donor you demand that your favorite charity keep overhead low, you may very well be demanding that the charity be less effective for it. Charities can't solve long-term problems if we hold them to this higher moral standard and refuse to allow them to use the same tools of capitalism that allow for-profit businesses to succeed.

The overhead question is also the wrong one because it doesn't tell you anything about the quality of the charity's programs. You may learn what percentage of your money is going to the cause but not what long-term result or effect it might have. For instance, you can put two soup kitchens side by side and one has lower overhead on paper, but it serves rancid soup. The second soup kitchen reports slightly higher overhead but buys quality ingredients and serves a healthful meal to more people. We're taught to give to the option with lower overhead, with no further questions. But which one is more effective and more useful to those who need it? You don't ask about overhead when you buy a new pair of shoes; you're interested in the quality of the shoes. Why should that be different when you're talking about donations to charity?

What are the right questions to ask nonprofits?

Some of the right questions for charities are:
What are your goals and what progress are you making toward those goals? What challenges are you facing and how are you trying to overcome those challenges? How do you know that you're being effective? Tell me what you know about the effectiveness of your work.

The answer to the overhead question tells you nothing about those three things.

How do you answer the questions about trust that arise from arguing that nonprofits be allowed to use the tools of capitalism, such as higher CEO salaries and more spending on marketing and advertising, to be more effective?

Trust is a completely different issue from the rules by which the game will be played. People who are untrustworthy are that way regardless of where they are. I don't think we as a society, despite all the problems we have right now, are saying let's jettison capitalism. We're still trying to bail out auto companies, still buying laptops, groceries, clothing, etc., all produced by the wheels of capitalism.

Because we cling to old ways of thinking, some people will look to examples such as Bernie Madoff to find reasons to not donate to charities. One has nothing to do with the other. People will be greedy; people will bend the rules. That's not an argument for denying nonprofits equal access to the tools that can help them better achieve these ambitious world goals. We're never going to solve big problems until we apply equal standards of economics to nonprofits.

You said that your book Uncharitable is about dreams, not management. What are your dreams and goals for the future of nonprofits and for the causes you care about?

I think our dreams ought to be outrageous. End AIDS in 10 years. Make poverty obsolete. If you say let's end hunger within the next decade, it creates a whole different urgency. You start to see that to end AIDS in 10 years, you're going to have to consolidate these hundreds or thousands of groups to get this done. A whole set of plans comes together that's completely different than not setting a definite goal.

On a plane ride back from Toronto recently I watched the DVD Moon Machines on the building of various pieces of the Apollo space program. I've always been a huge fan of Apollo, the last truly great thing that America achieved. And what's interesting and distinctive about Apollo is that President Kennedy in 1962 set the goal in time; he said we will see a man on the moon before this decade is out.

The nonprofit sector has lots of seductive phrases like "let's find a cure" or "we won't stop walking until AIDS is over" or "let's end poverty" but no one puts their rear end on the line and says by when. When you listen to the Apollo engineers and see how they turned that nine-year deadline into reality, it's awe-inspiring. When I talk about dreams, I mean solid ifying them in space and time. Nonprofits need to assert real leadership and set goals in time for the eradication of these great social problems, take our cues from the Apollo program. Apollo offers amazing lessons for anyone trying to engage some huge, vexing problem. And isn't it time we find inspiration in something that's happening now?

What other steps are necessary?

Educating and challenging donors. We have to educate donors about what we need to solve these problems. We live and breathe that stuff so we should be holding big workshops and seminars to change the perspective instead of cowering when they say our overhead is too high. Nonprofits need to say, "Investment in our future is necessary and produces results and let me show you why." Charities need to stop following what donors want and start leading donors. That's our real responsibility, to set bold goals and educate donors. Which is more inspiring to a donor—to say that we're on a campaign to end poverty in the next seven years, or that our overhead is less than 22 percent? Educate them about spending money, and you'll find a powerful new understanding and more willingness to give.

And do the donors have a role?

The donor's responsibility is to just show up. It is the charity's responsibility to figure out how to get more donations, and the donor's role is to listen to what the charity has to say. I think we'll find donors already bright-eyed and openminded about doing what it takes to make the biggest difference. I've found from my talks that all it takes is 45 minutes and they say, "I'm with you." People are anxious to make a change, to make donations smarter. The nonprofit sector and America's compassion have so much more potential than we've allowed them so far. I believe if we take the shackles off charities, we can reap benefits the like of which we can never imagine.

For more information on Pallotta's book, go to www.amazon.com or www.uncharitable.net.

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