This series is about the TED Talk by Dan Pallotta: The Way We Think About Charity is Dead Wrong. You can find the video and transcript here.
I’ve spent several posts writing about the basic points that Dan Pallotta makes in his TED Talk: The Way We Think About Charity is Dead Wrong. And while I agree with several of his points – that we need to invest in advertising and marketing risk making and that we need to allow the time necessary for nonprofits to gain success from their innovations and experiments – I believe that I have made it quite clear that I find his underlying view troubling. That view is that philanthropy does not present an alternative to market and business forces, but a supplement to them; that the role of philanthropy is, at best, to fill the gap between the world that those forces create and a world that works for everyone. At worst, of course, given the final point of difference between the for profit and nonprofit worlds that he discusses, the nonprofit sector simply becomes another iteration of the for profit sector: a social location for the coexistence of the love-for-others of philanthropy and the love-of-self of the profit motive.
The rest of his talk is about the underlying problem that causes these distinctions between the for profit and nonprofit sectors: donors are, supposedly, concerned not about the impact that nonprofits have on the world, but about the amount of their money that goes to things like advertising and marketing, compensation, risk taking and so on… the areas of nonprofit work far too often referred to as ‘overhead’. I’ll take a moment to address this concern, but while this is what the rest of the talk is about, it isn’t what the rest of the talk is about.
So let’s talk about impact and overhead. Pallotta has a point that somewhat ridiculous to, for example, give $350,000 to a cancer researcher if an alternative exists where that $350,000 can be leveraged into $194 million:
We launched the breast cancer three-days with an initial investment of 350,000 dollars in risk capital. Within just five years, we had multiplied that 554 times into 194 million dollars after all expenses for breast cancer research. Now, if you were a philanthropist really interested in breast cancer, what would make more sense: go out and find the most innovative researcher in the world and give her 350,000 dollars for research, or give her fundraising department the 350,000 dollars to multiply it into 194 million dollars for breast cancer research?
The problem, though, is not that there is some massive cultural failing where donors – or investors – are refusing to give money that will be leveraged into more money. After all, what Pallotta did was take $350,000 and throw a massive event that raised more money. Organizations across the country do this – some with more success than others – in the form of golf outings and basketball tournaments and silent auctions and a thousand other attempts to turn donations into more donations. As the events that Pallotta’s former clients attempted show, he was rather more successful at it than many others, but that doesn’t change the basic nature of what the breast cancer three-days are.
Most fundraising events, of course, aren’t nearly as successful. However, it does strike me as at least plausible that a nonprofit could market a fundraising even to potential sponsors on the basis of such a multiplication of gifts: the sponsor covers the entire cost of an event that is expected, of course, to raise considerably more than the sponsor’s gift would be worth on its own. And this would indeed require marketing savvy, a willingness to take risks and so on. Pallotta is right about that, even if I still think he’s wrong about the compensation issue and his apparent desire to blur the lines between the for profit and nonprofit sectors.
But, as I said, this isn’t really what his TED Talk is about.
So what is his talk about? It’s about legitimizing a particular model of independent fundraising that is, effectively, for profit.
Reading the transcript of the talk carefully, one would notice that while Pallotta uses words like ‘charity’ and ‘nonprofit’ and ‘philanthropy’, and while he uses generic examples of hunger charities and breast cancer charities, when he gives specific examples he turns to his own work with breast cancer three-days and AIDS Rides. While he speaks generically of delivering services, when it comes to specific examples he turns to fundraising.
There is, of course, no problem with drawing on one’s own experience – and Pallotta’s experience is in fundraising – but there are important differences between service delivery and fundraising. So, for example, it makes no sense to speak of a hunger charity taking six years to achieve scale before it put any money into actually serving the hungry. That would be like a restaurant waiting six years to achieve scale before it served a single dish to customers. All, of course, while still expecting investors to keep it funded. A service delivery organization – whether for profit or nonprofit – that does not deliver any services is, at best, skating on thin ice.
And what Pallotta means in this example is, of course, not ‘deliver a service’ but ‘turn a profit’:
So Amazon went for six years without returning any profit to investors, and people had patience. They knew that there was a long-term objective down the line of building market dominance. But if a nonprofit organization ever had a dream of building magnificent scale that required that for six years, no money was going to go to the needy, it was all going to be invested in building this scale, we would expect a crucifixion.
While I’ve already discussed this at some length, it’s worth noting the asymmetry of the analogy again: Amazon’s equivalent of putting money towards serving the needy is not “returning… profit to investors” but selling a book.
But once we look at this – and Pallotta’s other issues – in terms of fundraising, it all makes sense. A fundraising operation may only break even for a number of years before it reaches a scale to return money to service providers. There may even be a case for allowing a fundraising activity to lose money for some time if there is a reasonable expectation that it can reach the necessary scale – and eventual return – to make that investment worthwhile.
Now, say we apply Pallotta’s other suggestions not to service delivery but to a fundraising operation: imagine a fundraising agency with a staff whose compensation allowed it to compete with the for profit sector, that could spend large sums of money on advertising and marketing, that could take substantial risks with investors’ money, that didn’t need to produce results for years and that could use some of the money that it eventually did make not for service delivery but to pay its large investors. What you might end up with is a fundraising operation that looks a lot like Pallotta TeamWorks (PTW), Pallotta’s now defunct for profit fundraising agency. This, of course, is the agency that, in the talk, “went out of business, suddenly and traumatically” when organizations decided to start doing their own fundraising events instead of paying PTW for them.
There is, of course, a place for companies like PTW and Pallotta’s more recent venture: Advertising for Humanity. And there is a place for all the other for profit advertising and marketing groups and fundraising consultants and web developers and text-to-give operations and so on that are available to nonprofit organizations. But it is important to remember that this are not charities or philanthropic organizations or even nonprofits. These are businesses that happen to be available to nonprofit organizations.
And what Pallotta is proposing in this talk is not, ultimately, a way of transforming charity. It is a way of opening a market for businesses – like those he has run – that make their profits from helping charitable organizations: if people were not so concerned with outmoded concepts of ‘overhead’, the criticisms of PTW and massive fundraising events would simply never have appeared. That is a market that, perhaps, should be opened. Wouldn’t it be wonderful if, as Pallotta suggests, we increased charitable giving in the United States to three percent of GDP and if this increase went mostly to health and human services projects? Of course. And as long as for profit agencies like those Pallotta champions demonstrate that they can make this happen, there will be a place for them.
But those same agencies will – and should – be reigned in by the very criticism Pallotta laments. It really is a valid question whether a particular dollar should go to pay a fundraiser’s salary or to provide bread for the hungry. It really is a valid question whether a particular dollar should be spent on an advertisement that might attract more donors or a water pump that will allow a family in a drought stricken region to grow crops and lift themselves out of poverty. It really is a valid question whether another year should be given to the fundraiser to realize returns or we should begin meeting the immediate needs of those we serve.
And it is these legitimate questions and criticisms that come alongside them that allow people like Pallotta to do very well for themselves while also demanding that companies like the ones he champions do not become pseudophilanthropic organizations, playing upon the desire people have to serve others and playing at helping charitable organizations while really aiming to enrich executives and investors.
So what do we do with this?
Well, first we recognize that Pallotta has legitimate points that affect both fundraising and service delivery: nonprofits really should invest both money and time in advertising, marketing and innovation.
Second, we recognize that while these investments are good and useful, they must never cause us to lose sight of the fact that philanthropy is about values. We should see the legitimacy of asking whether large salaries for CEOs – especially in the face of unimaginable human suffering – is compatible with our values. The same is true when it comes to spending money on advertising and marketing, on innovative (and therefore risky) ventures and on ‘profit-returning’ philanthropic vehicles.
Third, we recognize that – because philanthropy is about values – it need not be subsumed by the values of the market or of business. Philanthropy is not merely a supplement to the market, but an alternative to it.
And in recognizing these things we can move beyond the idea of doing well for oneself while doing good for others and begin to ask the deeper questions of what doing well for oneself and doing good for others actually means. We can begin a dialogue between the for profit and nonprofit sectors that transforms both and actually moves us closer to the world that works for everyone.