December 2008 Archives
A Saturday headline on the Los Angeles Times front page print edition (click here for online edition - different headline) reads, "L.A. nonprofit spent zero on charity work in 2 years." In reality, the article has no evidence to back this up, as it never makes an effort to define what "charity work" means. I don't have any evidence with which to defend or condemn this particular charity; it sounds like they may actually be less than great stewards. . But the real point here is how society and the media view any expenditure that does not immediately benefit the needy as something other than "charity work" and how the media uses every charity report as an opportunity to re-indoctrinate the general public in this idea. It is irrational on its face. What would donors prefer, if they really thought about it - that I spend $1 million today on a fundraising engine that could increase annual revenues for the needy to $10 million within five years, or that I give the $1 million to the needy and condemn the cause to low revenues in perpetuity?
We demonize growth expenditures as "overhead." We say that they aren't part of charity work, and instead call it charity to spend every penny we have on program needs immediately in the short-term, leaving no hope of ever solving the long-term problem that gives rise to the program needs in the first place.
Lest anyone think we are making mainstream progress on new evaluative methods for charitable efficacy, and despite the fact that academic experts agree that the %-spent-on-charitable-purpose measure is utterly useless, the article states, right there on page one - in the Los Angeles Times - that, "Charity watchdogs say that nonprofits should never have zero program expense in two successive years..." (as if they have defined what program expense even means) and that "well performing charities direct at least 70% of their annual spending to their charitable purpose." Really? In 1995, Physicians for Human Rights had revenues of approximately $1.3 million. They spent approximately $750,000, or 58 percent of revenues, on programs. Today it would fail all of the watchdog standards for "efﬁciency." It would not be eligible for a seal of approval. The Nobel Peace Prize committee felt differently. Physicians for Human Rights won the Nobel Prize in 1997 for its work as a founding member of the International Campaign to Ban Landmines.
It's time to close this gap between what the smartest people working on charitable efficacy know and what the mainstream media feeds the public. It is standing in the way of all hope of progress. I can think of no cause more urgent. This misinformation is an umbrella tragedy that towers over all of the other tragedies charity exists to address.
Richard Steinberg at Indiana University / Purdue University Indianapolis sent me a tremendous collection of various academics' quotations, from a variety of perspectives, on the failings of the "efficiency measure." This from Phyllis Freedman eleven years ago. That not much has changed in eleven years shows just how entrenched the measure has become:
"In fact, the Cost of Fund Raising ..., along with Program Expenditure Rate, ... should not even be considered by donors when evaluating charities. In fact, these calculations overlook entirely the real measures of success. If a soup kitchen can feed fifty additional homeless people a week if it raises more money, although in doing so the cost of fund raising rises to 50%, should those fifty people go hungry so the soup kitchen can meet an arbitrary Cost of Fund Raising standard? Is that a real measure of effectiveness? Wouldn't the parents of a child with leukemia consider a charity worthy of support if it contributes $10 million dollars a year toward a cure, even though it spends half of every dollar raised to reach that goal?"
- Freedman, Phyllis. 1997. "Fundraising Cost Percentages: Do They Really Matter?" Federation Folio of the National Federation of Nonprofits, Vol. 1 #3, October 1997. pp. 1-5.
For more than a decade now one of the cruelest and most dangerously disingenuous messages being preached to the nonprofit sector is that it should act more like business; cruel because we won't allow it to and dangerous because it creates the illusion that we do, pre-empting any efforts at change under the theory that they are already under way.
What we are really demanding when we say "Act more like business," is more efficiency and less overhead, as if efficiency were a substitute for vision, and as if we know what we're talking about when we use the word "overhead". What we are really demanding is more blood from the stone. We aren't for a minute ready to give charity the big-league freedoms we really give to business.
We let businesses pay people according to their value. But we don't want people to make a great deal of money in charity. Want to make a million selling violent video games to kids? Go for it. Want to make a million ridding kids of cancer? You're a parasite. This has the effect of sending the best and brightest from the nation's top business schools directly into the for-profit sector. This we call ethics. We let businesses advertise until the last dollar spent no longer produces a penny of value. But we don't want our charitable donations spent on paid advertising. The result? Charities can't build market demand. Budweiser is all over the Superbowl. AIDS and Darfur are absent. This we call benevolence. We let businesses make big mistakes. We expect charity to spend our donated dollars cautiously. Disney can make a $100 million movie that flops and it's considered part of a non-linear business model. If a charity tries a $5 million walk-a-thon that doesn't show a 75% profit the first year we want the attorney general to investigate. The result? Charities can't develop serious learning curves for revenue generation. This we call altruism. We let businesses think long-term. If it takes Amazon six years to turn a profit in an effort to build market dominance, so be it. But if a charity we ever to embark on a plan that showed no return for the needy for seven years we'd demand a crucifixion. And last, we let businesses pay a profit to attract investment capital. But there is no stock market for charity. Profit is prohibited. The donation is its only financial instrument. Thus the for-profit sector monopolizes the capital markets. This we call philanthropy, as in "love of humanity."
Put all of this together - no competitive compensation, no advertising, no risk-taking, no long-term vision, and no capital markets, and you have a perfect storm of deprivation that puts the nonprofit sector at the most extreme disadvantage to the for-profit sector on every level, especially in the competition for the consumer's dollar. Amazing that some would blame capitalism for the inequities in our society, and then refuse to allow charity to use the tools of capitalism to rectify them. Capitalism isn't the problem. The lack of it is. It has been banished from the domain of the world's most urgent problems because of a Puritan ethic that considers it contaminating. As a result, charity is in a one-legged foot race with a competitor in a Ferrari.
The nonprofit sector is the custodian of America's compassion and generosity. That generosity, as measured by the 2% of our GDP we give to charity each year, is double that of the next closest nation. But the potential of our generosity is bound up by these irrational and counterproductive rules, handed down to us from another age, when charity was all about neighbor-to-neighbor assistance. They no longer apply to an age in which we ask charity to address the greatest macro problems humanity has ever confronted. If we begin to give charity the same freedoms we give to business, we can achieve change on a scale we never previously imagined, and leverage our compassion for immeasurably more productivity. The amazing things that charity has achieved in this country with both hands tied behind its back should give us great hope about what it can achieve if we truly set it free. Its time for equal economic rights for charity.