March 2009 Archives

The Stanford Social Innovation Review has just released the following review of "Uncharitable:"

The Double Standard
By Renée Irvin  Spring 2009

Dan Pallotta has written Uncharitable as a response to every media report about a charity spending $400,000 to raise $1 million, every donor who wants at least 90 percent of her donation to go toward the cause, and every nonprofit executive director who eschews marketing for fear that donors will consider it extravagant. "Enough already!" the book explodes. And it does so with such good reason and blunt candor that it deserves to become the nonprofit sector's new manifesto.

Pallotta reviews the frugal, almost prudish constraints the public expects from nonprofits, everything from a ban on paid advertising to substandard wages for nonprofit employees. But if we want the nonprofit sector to do without the successful tactics of the business sector--say, marketing--how can we expect the nonprofi t sector to aspire to greatness? How will it ever grow, get results, and reach new supporters? Why, for instance, did the American Cancer Society spend only $1 million on anti-tobacco legislation in 1998, when, during that same year, the five largest cigarette manufacturers spent more than 6,000 times that amount in advertising and promotions?

Not only must nonprofits be allowed to use the tools of commerce to thrive and accomplish their missions, Pallotta argues, but the public also needs to get over its mistaken and tenacious fixation on fundraising costs and overhead ratios. He goes on to show how misleading, easily manipulated, and plainly irrelevant these ratios are, and suggests we instead ask 16 questions that would reveal "What has the organization achieved, and what can it achieve with my donation?" Everyone who cares about nonprofit organizations and their potential accomplishments--from journalists to sophisticated donors to foundation officials--should read this section of the book. They'll surely be convinced that fundraising ratios and program expense ratios are a silly, useless, and even fraudulent way to compare "efficiency" across nonprofit organizations.

Every nonprofit professional, meanwhile, should read Pallotta's section on how nonprofits can use the power of advertising. If donors and staff members complain that "a dollar spent on advertising could have been spent caring for the needy," he advises the nonprofit manager to explain that exposing new supporters to the cause could result in a tenfold increase in donations. Indeed, as John Kenneth Galbraith noted in The Affluent Society: "The engines of mass communication, in their highest state of development, assail the eyes and ears of the community on behalf of more beverages but not of more schools. Even in the conventional wisdom it will scarcely be contended that this leads to an equal choice between the two."

Pallotta goes on to speculate why the public expects nonprofits to behave so differently from for-profits and points the finger at Americans' Puritan heritage of self denial and frugality. Perhaps the Puritans do have a moralistic hold on us with regard to nonprofit t sector endeavors, but given the apparent absence of Puritan influence elsewhere in 21st-century America, I'm doubtful of this hypothesis. We economists would instead blame nonprofit sector managers who reassure donors that their money is well stewarded by signaling their steadfast frugality. And sociologists would say that employees self-sort into a nonprofit avocation--that is, people uncomfortable with business-sector strategies and culture gravitate toward the nonprofit sector.

But whatever the underlying cause of the public's belief that administrative costs are wasteful and overhead is bad, Pallotta believes we must speak up on behalf of nonprofits and educate donors on the necessity of not just administrative expenses, but all of the business strategies that can build the best launching pads for nonprofit endeavors.

Pallotta ends the book with a case study of Pallotta TeamWorks, the author's own for-profit firm that was wildly successful in raising funds on behalf of nonprofit clients. In nine years of producing three-day walking and one-week cycling events, the company netted $305 million for several health-related charities. But despite the massive new infusion of donations generated for these charities, Pallotta reports that the press focused on the costs the events incurred, including those of professional marketing and branding--its message was, Couldn't that money have gone toward the cause instead? When negative media coverage didn't stop, the nonprofits disassociated themselves from Pallotta TeamWorks and the firm shut its doors in 2001. The nonprofits eventually redeemed themselves in the eyes of the public, but without the revenue generated by the lucrative walking and cycling events, they were forced to lay off staff members and cut programs.

This case study is fascinating, and it will surely invite armchair quarterbacks to reckon how they might have handled both the media and the nonprofit organizations. The study also tempts us to write off the book as motivated by Pallotta's bitter experience of being pilloried by the moralistic media for having managed his business like a business.

But that would be hasty. Uncharitable gives us much more than a tale of sour grapes. Pallotta has written thoughtfully and forcefully on why and how we limit the effectiveness of the nonprofit sector, and he asks us point-blank to change our thinking. For the sake of the nonprofit sector, I hope he succeeds.

Renée Irvin is an associate professor of planning, public policy, and management at the University of Oregon. She also directs the university's graduate certificate in nonprofit management program. Her research focuses on the economics of nonprofit and philanthropic organizations.