December 2008 Archives


The Wall Street Journal Gets It

Here's a great column on the failings of efficiency measures and the shortcomings of the rating agencies that report them in the December 19th issue of the Wall Street Journal. One of the best mainstream paper articles I've ever seen on the subject.

New York Times Op-Ed Yesterday

Nicholas Kristof, the great Op-Ed columnist for the New York Times, wrote a piece on Uncharitable yesterday that generated considerable commentary. It is fascinating, exhausting, and exhilarating to me to see how many misconceptions people have about charity - specifically about 1) what "overhead" means, and what it buys and how it contributes to the advancement of causes, and 2) the validity of "efficiency" measures, which , in reality, give the public dangerous and useless information. The reason its exhilarating is simply because it is not that difficult to change people's minds when they are simply working off of the wong facts.


A good friend sent me the following passage from the Bible. Looks like doing well and doing good is an age-old idea. The Puritans intervened and mixed it all up.

"You know that those who work in the temple get their food from the temple and that those who serve at the altar get their share of its offerings, don't you? In the same way, the Lord has ordered that those who proclaim the gospel should make their living from the gospel." - 1 Corinthians 9: 13, 14
I was on Bill Handel's morning show yesterday. He asked great questions, was a quick study, and his grasped of the issues rivaled that of those who've been studying this for a long time. Click here to listen.

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.


Opinion Piece on Huffington Post Today

I have a piece on the Huffington Post today. Comment and pass it around! Thanks.

To read the commentary and/or comment on the APM website, click here.

Further Evidence

Excerpt from a letter I sent to the Editor of the Chronicle of Philanthropy in response to their story this week:

"...The article also quotes an Avon representative stating that, "...PTW had priorities other than fundraising for the cause, which was (and remains) the mission of the Avon Foundation." Sadly, the article did not mention that,  according to Avon's own financials, Avon's fundraising for breast cancer from the events dropped from approximately $140 million in 2002 when we were producing them to $29 million in 2003 when Avon produced them on their own. 
Separately, the article's conflation of my $394,500 salary in 2001 (we netted $69 million for charity that year) with the notion of "get[ting] rich," is more evidence of our suffocating double-standards between the for-profit and non-profit sectors. Forbes reported that Avon's CEO, Andrea Jung, earned $11.1 million in total compensation in 2007. Avon's shareholders are neither stupid or gratuitously benevolent. Presumably they pay her that amount because she produces commensurate value. Doesn't the eradication of breast cancer deserve the same talent as the sale of cosmetics - even if we have to pay someone $11.1 million annually? And isn't its eradication what we should be striving after? Surely, women with breast cancer deserve a say in the matter, and it doesn't take a sooth-sayer to predict what their answer would be."


You can watch it at this link:

"Should Not Even Be Considered..."

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. 


Equal Rights for Charity

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 i’s 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. It’s time for equal economic rights for charity.


Over Overhead

A reporter was interviewing me yesterday and asked me to name some charities I think are doing a lot of good and some that are wasting people's money; i.e. "paying these honchos big salaries" when the money is supposed to be going to the needy. There again the zero-sum game rears its head, where money spent on a CEO is necessarily seen as money taken away from the cause, instead of being properly seen as money invested to bring more money to the cause - and this without even knowing if the "honchos" are or are not bringing in a lot more money. And what is a "honcho" anyway, and why do we start from that premise? I responded to him that there was a 2008 NYU study, done by Paul C. Light, that found 70% of respondents think charities waste a great deal or a fair amount of money. But there have been no studies done that show that charities actually do waste money. 

On the contrary, I think charities deserve enormous credit - way more than they get - for the amazing things they do with the limited resources they have and the huge constraints they're under. The prevailing cultural prejudice that they waste money comes from this incessant focus on "overhead," without the public really even knowing what overhead is or isn't; what value it has or does not have. It's like the preverbial idea of what happens when I tell you not to think of a polka-dotted elephant. When all anyone asks about is overhead, and when all anyone talks about is overhead, what image do we think the public is going to come away with with respect to charity? Overhead. And thus this unsubstantiated notion that charities waste a lot of money. This is yet another reason that the overhead measure has to go. Overhead has become the be-all and end-all measurement of charity, when in fact, the word has no meaning, and the measurement of it, even if it did, has nothing to do with results. Smart people, from Steven Smallwood to Richard Steinberg to the U.S. Supreme Court have recognized this and been saying it since the seventies. It's time we all caught up to them. 

Let's Stick Together

I received an e-mail from a real innovator running a really imaginative, socially entrepreneurial fundraising engine. He just received a copy of "Uncharitable" and wrote:

 "I opened it to two random pages, one about Google, and one about win-win being a no-no.   All I can say is Yep, and Yep.   Sometimes I wonder if it is worth it.  Being an investment banker or talk show host is a lot more remunerative.   Maybe only Don Quixote and crazy people try to innovate in this field.  Sigh. Cheers, and thanks for writing this."

I get it. Boy do I get it. That's why those of us who really do want to see breakthrough innovation in this sector have to stick together. The forces of entropy are powerful, and it's very difficult to stick with this work if you get the slightest bit isolated. On the other hand, with like-minded people supporting one another we become a force of nature. This notion that we ought to be able to do well and do good, and the notion that we can scale the nonprofit sector to brilliant heights, at which it can be fun and exhilarating to work because of the progress we can make and the bog tools we can play with  - these are, as Victor Hugo said, "ideas whose time have come." So let's stick together, enthuse one another, defend one another against the critics, and keep our visions alive, thriving, and expanding. 

Note: the Bill Handel / KFI AM 640 interview was taped - will air next week. Details to follow.

UPDATED: AirTalk with Larry Mantle

What a pleasure it is to do an interview with a host who has read your book and is actually interested in the issues. I was on Larry Mantle's AirTalk show this morning talking about the book. You can listen to the interview by clicking here.