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October 05, 2009

Philanthropy Roundtable
How Much Should Charity Resemble Business?

At last week’s Philanthropy Roundtable conference, two speakers squared off on the issue of how much the nonprofit world can mirror big business.

Dan Pallotta, a former fund raiser and author of Uncharitable, argued that charity leaders are unfairly held to a different standard than corporate ones. For example, they are vilified if they receive good salaries, spend a lot of money on marketing, or take experimental approaches that may produce big dividends.

“You put the nonprofit sector at an extreme disadvantage to the for-profit sector,” he said.

He said the heart of the problem comes from the Puritans who helped found America. They fostered a culture that requires “self-deprivation” to help the less-fortunate, which leads to the expectation that charities, especially social services, should pay modest salaries and have little overhead costs.

Breaking such cultural barriers would get more money to flow into charity work and produce a huge “Apollo-like” effort to eradicate global poverty, disease, and other major problems.

But William A. Schambra, director of the Bradley Center for Philanthropy and Civic Renewal at the Hudson Institute, in Washington, questioned Mr. Pallotta’s suggestions.

While he supported the idea that charities should adopt some business practices, he cautioned that the author “may have gone a bit too far. He wants to make charity itself a business.”

He said the charitable spirit in the country was not Puritanical per se but was the “self-interested fellowship” that Alexis de Tocqueville chronicled in the 19th century. Without a sense of “community-minded self-sacrifice,” philanthropy would cease to exist altogether.

Mr. Schambra also warned against Mr. Pallotta’s call for a massive charitable endeavor to end social needs, saying it would be like the government’s War on Poverty in the 1960s. Such efforts, he argued, become too bureaucratic and fail to appreciate that often the most successful philanthropy is local and modest in its goals.

Mr. Pallotta countered that such thinking would keep philanthropy about feeling good rather than achieving good and would keep nonprofit leaders as “society’s janitors,” cleaning up other people’s messes instead of preventing them.

“Given the world’s problems, should we resign ourselves to smallness?” he asked.

— Ian Wilhelm

Monday October 5, 2009 | Permalink

Comments

1. Dan Pallotta continue to “not get it”. The nonprofit sector has been set up the change many parts of the status quo. It is not going to create change by becoming like the very institutions that are part of the problem. Big buildings, big budgets, big programs and big salaries are not going to create change. They simply give those on the inside a very strong incentive to keep things the way they are. And remember, small can be beautiful.

   — Philanthro Joe    Oct 5, 03:20 PM    #

2. Mr. Pallotta does get it. Historically grassroots organizations have been underfunded. I have worked as a social worker for 20 yrs. I now run a non-profit that works with families who have been affected by homicide. The message is since you work with the poor and minorities whose lives are not valued. You and your work are not valued. Thus you have low salaries or no salaries and sub-standard equipment.Thank you Mr. Pallotta for speaking the truth regarding this serious problem.

   — Victoria Greene    Oct 5, 03:52 PM    #

3. Mr. Pallotta seems to understand that in addition to the Puritanical determination, what made this country great was innovation. Philanthropy needs to insert some inventiveness into its practices to answer the needs that continue to grow.

   — PK Hogan    Oct 5, 04:11 PM    #

4. Wow, that would have been a great debate to hear in person. As with most good debates, there is probably much truth to both sides with some middle ground that is workable. Mr. Pallotta may be correct in surmising that nonprofits may be bound in effectiveness by having to limit resources to meet unrealistic societal expectations of “nonprofit”. Could this limitation actually be increasing as charities “compete” for donors…by hyping lower and lower overhead? There has to be a balance of loss of effectiveness vs a ceiling on reasonable expectations of expenditures to get the job done. As previously commented, social services may be tipped too far one way and other nonprofits tipped too far the other. Ultimately though, it is the individual donors who decide the balance for the organization by their giving, just as investors in companies may shift their investments if they decide if corporate excesses are over the top.

   — Robert Croft, CFRE, Consultant    Oct 5, 04:34 PM    #

5. Perhaps you mean that “Alexis de Tocqueville chronicled in the 19C”? If we are using historical concepts to support the argument, it might be helpful to set them in the proper context.

   — BDR    Oct 5, 05:09 PM    #

6. As a proverbial ‘fly on the wall’ to this conversation with only this article to draw upon, I would suggest there is a more open dialog-driven approach than either speaker presents. While I do not know Mr. Schambra, he does represent the “old guard” in the nonprofit sector. And, having been involved in the California Aids Ride during Mr. Pallotta’s tenure, as well as following the demise of his participation, I have seen how far away from the “servant-leader” construct he believes we should go. The only way to find a new path, and we do need one, for the sector is through open dialog. I am suggesting an inclusive dialog in which the major, well-funded npos, the small and mid-size npos, and the philanthropic community sit together as equals to discuss the paradigm shift that must occur. This is not a conversation that takes place at one, well-publicized meeting, but a true dialog taking place over time in a transparent environment. Without such equality the two sides represented here cannot begin to understand the issues of the majority of the sector, which is made up of small and mid-size social service organizations. These are the npos serving the greatest need. They are also the agencies most scrutinized and least funded by the donor base. And, as we all know,they are held to much higher standards than the majors. Perhaps several of the larger foundations can work with several of the nonprofit membership/support organizations to begin and fund the process. Perhaps it begins with salons held in every nonprofit community across the country, followed by democratically appointed delegates participating in a year-long nation-wide process. It may be beneficial to bring in the Society of Organizational Learning at MIT to facilitate as this type of dialog is most certainly their specialty. And from this, perhaps a new paradigm will emerge.

   Shelley Hammill, Consultant

   — Shelley Hammill    Oct 6, 09:54 AM    #

7. Well said. The truth lies somewhere in the middle and the dialogue must be one that happens not only at conferences but in nonprofit board rooms and chambers of commerce as well as social sector meetings and trainings. The balance is critical but I applaud Mr. Pallotta“s starting a very neglected conversation that can only help build on the strengths of the sector and spur innovation.

   — Maggie Osborn, MGO Partners    Oct 6, 11:03 AM    #

8. “Profit” companies should adopt NPO ways not the other way around – they should become mission driven, service purposed, do more with less for the right reasons, changed lives as bottom line and a long horizon not a “get mine now” approach organizations. We all wear many hats in the NP world and are here because we believe in our work and are not short term, profit driven at all costs people. We should think about 7 generations out and be true “investors” and not short term profit takers. The world would be in better shape with this approach and more sustainable.

   — Daniel Stetson    Oct 7, 04:13 PM    #

9. I’m glad to see the previous comment. While I agree with the assertion that revenue expectations for nonprofits must increase dramatically if our organizations will ever gain traction against the problems we fight, I don’t believe this will be possible without a parallel shift in the for-profit sector. Social business concepts are enjoying more acceptance, but existing corporations will have to embrace service to people and the planet above profits in order for this sea change to occur.

   — Sue Knaup, OneStreet.org    Oct 14, 12:13 AM    #

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