Dan Pallotta’s recent TED Talk, “The way we think about charity is dead wrong”, has garnered more than 1.2 million views online and he is the keynote speaker at NTEN’s upcoming 2013 Nonprofit Technology Conference.
He remains just as passionate today about making meaningful change in the world as he was during an appearance on The Today Show in 1983. Back then, Dan was the chair of the Harvard Hunger Action Committee that led a 4,200 mile cross-country bike ride to fight hunger.
Dan Pallotta would go on to invent the multi-day charitable event industry with the AIDS Rides and Breast Cancer 3-Days. These events raised $582 million in nine years and continue to shape event fundraising across the globe. Since then he has authored several books and has become a voice for change in the nonprofit sector.
Pallotta’s latest book, Charity Case: How the Nonprofit Community Can Stand Up For Itself and Really Change the World, was released in late 2012 to very positive reviews. It is the follow-up book to the critically acclaimed Uncharitable: How Restraints on Nonprofits Undermine Their Potential from 2010. Dan’s TED Talk and keynote at NTC focus primarily on the ideas in Uncharitable.
Charity Case begins with a brief recap of Pallotta’s main points from Uncharitable and goes on to outline clear steps to start driving real and meaningful change in the nonprofit sector. As Dan points out, “in Uncharitable, I tried to state the problem. Now it’s time to get to work solving it.”
Central to Pallotta’s argument is that “for hundreds of years, charities have been forced to follow a rule book that doesn’t allow them to spend money on the things they need to achieve real change.” The separate rule book discriminates against the sector in five big areas:
1. Compensation: We let the for-profit sector pay people a competitive wage based on the value of what they produce. But we don’t want people making money in charity.
2. Advertising and Marketing: We let business advertise until the last dollar no longer produces any value. But we don’t like to see charitable donations spent on advertising.
3. Risk Taking in Pursuit of New Donors: It’s OK for a big budget movie or new product to flop. But if a $5 million charity walk doesn’t show a 75% profit in the first year, then it’s considered suspect.
4. Time Horizon: Companies can go years without returning any money to investors in the interest of a long-term goal. But if a charity has a long-term goal that doesn’t show short-term results, then it’s scandalous.
5. Profit: Business can offer profits to attract investment capital and there’s an entire ecosystem around funding new ventures. But there’s no such vehicle for a charity and they are left starved for growth capital.
These are brief summaries of the challenges faced by the sector that are covered in much more detail in both Charity Case and Uncharitable. Pallotta passionately argues just how big a problem this separate rule book creates
“If you put these five things together — you can’t use money to attract talent, you can’t advertise, you can’t take risks, you can’t invest in long-term results, and you can’t have a stock market — then we have just put the humanitarian sector at the most extreme disadvantage to the for-profit sector on every level.”
While Uncharitable explored some of the reasons why the sector evolved this way, Charity Case takes the next big step to discuss ways to start changing the status quo. Pallotta argues that “people in our sector need to have courage” and that “we need a civil rights movement for charity – and this book is about how we start one.”
Charity Case goes into detail around five key steps that should be taken:
1. Act as an anti-defamation league for the sector
2. Enlighten the public through paid advertising and media
3. Gather the best thinkers to design a national civil rights act for charity and social enterprise
4. Challenge unconstitutional laws targeted at the sector
5. Organize ourselves, our friends, and colleagues
The point behind the anti-defamation league for the sector is to respond to the regular stream of charity salary scandals, media reports that put charities on the defensive, and other public perceptions that reinforce the double standards faced by nonprofits. In each case cited, there was a missed opportunity for a “teachable moment” about the ramifications of double-standard rules.
“Our sector does have an extremely proficient and hard-working national advocacy organization: Independent Sector. It has an annual budget of $8 million.” For comparison, Pallotta notes that the Anti-Defamation League has an annual budget of $70 million, the NAACP a budget of $28.4 million, and the Human Rights Campaign has a $25 million budget to combat issues specific to their mission.
When it comes to paid advertising, Pallotta points out that he’s not talking about public service announcements or cheaper ad space at 3:00 am when no one is watching. Instead, he argues why there must be a concerted effort to engage the public through the mainstream media: “Zero is what the humanitarian sector as a whole spends on its collective effort to educate the public about fundamental issues that stand in the way of our ability to make progress.”
Charity Case says that in 2009, Save the Children spent $3.3 million on advertising. In 2010, Disney spent 582 times more than that on advertising or as Pallotta puts it more bluntly: “Save the Children 1. Entertain the Children 582.” This is not to say that nonprofits are the same as a multi-billion dollar entertainment industry, but there are several clear examples of groups spending on advertising to change perceptions and attitudes in measurable ways.
In 2009, the American Egg Board spent $15.8 million on advertising and marketing as part of the “Incredible Edible Egg” campaign. The American Petroleum Institute spent $39 million on advertising in 2010. The California Milk Processor Board, the people behind the “Got Milk?” campaign started out with a $25m budget just for California. Every single one of these campaigns generated both greater awareness and revenue for these groups.
Charity Case also explores the need to go after state and federal laws that keep the nonprofit sector stuck in the status quo. The Chronicle of Philanthropy recently published a story called “Oregon Again Seeks to Crack Down on High Fundraising Costs” that highlights the type of laws that should be be stopped in their tracks. That is not likely to happen with just pro bono legal services.
The book also discusses the need to create corporate structures for for-profit foundations that can “drive a whole new class of entrepreneurial and creative thinking into civil philanthropy.” These organizations would not be tax exempt and would have to pay taxes on their profits. But, they could deduct 100% of gifts to charity from their taxes. More importantly, any donations to the entity are fully tax deductible.
Pallotta is not the only one with ideas for transforming the nonprofit sector. There are several mini-essays in Charity Case written by respected voices like Jennifer Aronson, Director of Nonprofit Effectiveness at the Boston Foundation, Leslie Lenkowsky, Professor of Public Affairs and Philanthropy Studies at Indiana University, Bill Shore, Founder of Share Our Strength, and Alexander Alvanos, Co-founder of Commonwealth Market. An underlying theme throughout Charity Case is the need for ideas that can move the sector forward.
Dan Pallotta gives the nonprofit sector plenty to think about and consider in Charity Case: How the Nonprofit Community Can Stand Up For Itself and Really Change the World. The book is bound to have some skeptics and it’s not surprising that some critics are from the nonprofit sector itself. As Machiavelli once wrote: “The innovator has for enemies all those who have done well under the old conditions.”
If you work in the nonprofit sector and truly want to advance important causes, then Dan Pallotta is a voice worth listening to. You may not agree with every word, but it will absolutely make you think differently about the nonprofit sector. And that is progress that is really needed right now.
I recommend starting with his book Uncharitable first. Consider it the introductory course before moving on to Charity Case where there are actionable next steps. These books are truly required reading for anyone in the nonprofit sector.