In his new book, Uncharitable: How Restraints on Nonprofits Undermine Their Potential, Dan Pallotta argues that charity leaders sabotage their ability to be most effective by buying into the belief that their work requires self-sacrifice. Mr. Pallotta, who founded the now-defunct Pallotta TeamWorks, a California company that planned three-day charity bike rides and other big events, argues that self-interest should be a key motivator, even within the charitable world. The book is also a defense of Pallotta TeamWorks, which he says brought in $305-million for AIDS and breast-cancer research during an eight-year period, but which also drew criticism for Mr. Pallotta’s six-figure salary — $394,500 in 2001 — and for other issues.
Following are excerpts from the book, which has just been published by Tufts University Press.
The fact that charity exists at all is a testament to the tenderness of the human soul. We feel for others. When someone else is suffering, we suffer ourselves, and we have a powerful and emotional need to help. The very fact that charity is an emotional subject is further testimony to our love for one another. On the question of whether or not humankind is basically good, this reality speaks for itself. The system we have for channeling this inner charity is itself called “charity,” and just as we all have a desire to make a difference, we have all been taught by this system how best to do it. But as we look around at the persistence of poverty and need, of disease and suffering in a world of unimaginable affluence and productivity, we have to ask ourselves, Does the system work? Is it the best system we could have? What other systems are available? It is to these questions that this book is addressed.
The possibility that there is another system that could take our love for one another and leverage it into social progress on a scale we have never even considered must be examined. Like most people, I never asked questions about our system of charity. Why would I? Who was I to question a system that had been around for centuries? It never dawned on me to ask questions about it. Then I spent two decades working inside the system. During that time an observation was gathering momentum’this system doesn’t work. Another observation was gathering momentum about a system that does.
This book is about those observations. Specifically, it is about eradicating the nonprofit beliefs that are the basis of our system. This book advocates a reversal of almost everything we have been taught about doing good, in order that we might achieve good on a scale not previously imagined. It is about freeing charities — and all of the good people who work for them — from a set of rules that were designed for another age and another purpose, and that actually undermine their potential and our compassion. It is about giving charity equal rights with the rest of the economic world and allowing it to use the system everyone else uses to get things done — free-market capitalism.
Whenever I told people I was writing a book about freeing charity to use the tools of capitalism they would nod their heads, believing they were in total agreement, and proceed to say that we absolutely need to put more restraints on charity. This response was consistent. It made me realize something else — that the only way most of us can even conceive of improving charity is by constraining it further. I could see that this belief was so ingrained that it had compromised my friends’ hearing — literally. Our nonprofit ethos is a kind of religion on which we have been raised, and it doesn’t easily suffer the bigger picture. In fact, like most religion, it obscures the bigger picture. Suffice it to say, this book is not about adding constraints. It is about removing them, in the interest of the bigger picture.
For example, after explaining to a friend that we need to let charities hire the most talented people in the world, he wholeheartedly agreed and then said something that didn’t logically follow: “It makes me angry to see people making high salaries in charity.” “Even if they’re worth it? Why?” I asked. “Because it’s supposed to be nonprofit,” he replied.
Right there he gave expression to the entire problem. His logic was internally consistent but externally nonsensical. Still, I understood where he was coming from. Twenty years ago I felt the same way. In fact, I remember thinking it was unconscionable that a charity event producer I knew about was making a profit “off of,” as I thought of it at the time, people’s compassion. “Nonprofit” means you don’t seek gain for yourself. So when someone wants a high salary, of course it makes us angry. It is a violation of the fundamental basis of the system.
But what if the fundamental basis of the system is the problem? What if a system that frowns on self-interest turns out to be an inferior way of serving the interests of others? What if a system that allows people to satisfy their own self-interest as well as the interests of others turns out to be a much more effective way of helping those in need? In other words, what if the whole system should not be nonprofit in the first place? Then my friend’s logic, and the whole of society’s, is rotten to the core, and everything we have come to believe about helping the needy is as well.
Our system of charity doesn’t produce the results we are after because there is a flawed ideology at work. Its error flows directly from the Puritan belief in human depravity. The principal tenets of this ideology go something like this:
- People who want to work in the nonprofit world should be more interested in the good they can do than in the money they can make. Those who want material abundance do not have the concerns of the needy at the forefront of their minds.
- Charities should not take risks. They are taking risks with earmarked funds. They should be cautious.
- Charities do not have the luxury to think about the future. Donated money should be spent immediately to alleviate the suffering of others.
- Charities should not waste money on expensive advertising. It is money that could otherwise go to the needy.
- Charities should not make mistakes. A mistake means a charity is wasting money and waste is immoral.
- No one should seek to earn a profit in charity. Profit making is for the for-profit sector.
- Charities should maintain a low overhead percentage. This is the only way to know that any good is being done. Low overhead is moral. High overhead is immoral.
The canon to which these mistaken ideas belong is what I refer to as nonprofit ideology. It is a dysfunctional mentality based on deprivation.
Our loyalty to it keeps us from getting what we are really after.
Let me be clear that by “nonprofit ideology” I do not mean the nonprofit sector.
I do not mean nonprofit organizations or the people who work for them.
Nor do I mean the wonderful ideals of a better world that the people who work in the sector strive after every day. By “nonprofit ideology” I mean the oppressive set of rules that the whole of society has forced on these good people and organizations — the severe restraints we impose on them that keep them separated from the dreams that brought them into the sector in the first place.
That said, there are other tenets that come from the observation of the natural behavior of human beings and the fundamental laws of nature.
They are not contrived but predictable. Their validity has been established by nearly three hundred years of capitalist productivity, and if we are serious about curing breast cancer, ending poverty, and advancing the cause of humanity, they warrant our attention:
- If we allow charity to compensate people according to the value they produce, we can attract more leaders of the kind the for-profit sector attracts, and we can produce greater value.
- The more that charities take calculated risks, the better the chance that they will break new ground.
- The more we allow charities to invest in the future instead of only the current fiscal year, the more they will be able to build the future we all want.
- Advertising builds consumer demand. The more that charities are allowed to advertise, the better they can compete with consumer products for the consumer’s dollar, and the more money they can raise for the needy.
- The more mistakes a charity makes in good faith, the faster it will learn and the quicker it will be able to solve complex problems. This is the only path to solving problems — one must “fail upward.”
- Profit is the key to investment capital. If people could make the same return from investment capital in charity as they can in for-profit investments, charity would raise massive additional investment capital.
- A charity’s overhead percentage doesn’t give you any data about the good it is doing in the world. If charities focused more on solving the world’s problems than on keeping overhead low, more of the world’s problems would get solved.
But this is not what we have been taught. Instead, we have been force-fed a set of ideas about doing good that actually accomplish the opposite. They prevent real progress.
A story in Salon.com commented on the tension between profit and piety. It could easily have been written by a historian observing the Puritans:
Almost from the beginning, riders have had a love-hate relationship with the company. Pallotta delivers fun, smooth-running events that some even describe as “visionary,” but the fact that he does it as a business bothers riders who worry about corporate taint — they balk at the fact that part of every donation collected goes to Pallotta TeamWorks.
While it is not true that part of every donation went to Pallotta TeamWorks (our fees were not tied to donations), we were being paid by charities out of donations, and we were a for-profit entity; we were earning a profit in a charitable setting.
Instead of asking people to do the least they could do, our events asked people to do the most they could do. This included bicycling or walking up to 105 miles a day on some of the AIDSRides and up to 22 miles a day on the 3-Days, for days on end. Also, you had to sign up for the whole event — you could not sign up for just one or two days — and you had to raise a mandatory minimum of $1,000 to $10,000. If you didn’t raise the minimum, you couldn’t participate in the event. The traditional standard allowed you to take part in a charity event no matter how much you raised, even if it was less than what it cost the charity to accommodate you. This was not logical to us. If the charity had expenses associated with each participant, it had a right to set a minimum fund-raising requirement.
Individual and group empowerment was a by-product of the scale of the events, and a marketing message as well. We were trying to show people that their potential was beyond what they may have imagined.
One of our slogans was “I’mpossible.” This kind of approach had never been applied in a systematic way on any grand scale in a charitable context. The New York Times called our achievement ‘a breakthrough in the history of American enterprise: the first successful marketing of pain.’
Critics took issue with the idea of individual empowerment and construed our logistics expenses as an inefficient related cost. In truth, the long distances gave rise to the need to spend money on things like food, showers, and chemical toilets. The large volume of donations to riders and walkers was a direct result of the fact that they could tell their friends they were traveling these long distances. If participants were empowered, it was merely a by-product of traveling the long distances on which the fund-raising model depended. It was not achieved by spending dollars on “empowerment.” We needed to feed and shower people whether they were being empowered or not.
One story on the front page of The Washington Post in 2001 stated that our events “Stress ‘Human Potential’ at Cost to Charities, Some Say.” In addition to misconstruing the economics, the Post story all but exemplifies the Puritan prohibition on self-regard, in this case, the notion that people shouldn’t empower themselves with charitable dollars. This take misrepresents the new dollars being raised by these empowered participants for the cause as a “cost” to the charities. We ourselves even fell into the trap of devaluing the empowering characteristics of the events’we never allocated any of the expense that went into empowerment or raising awareness as money going “to the cause,” even though generally accepted accounting practices allow it.
One activist, conflating personal transformation with charitable detriment, complained, “That’s telling people the way to fight AIDS is to take a prepackaged transformative vacation.” One story said, “This focus on the participant and his or her experience has engendered scrutiny and criticism,” and quoted an ACT-UP activist saying of the riders themselves that “they’re greedy. They have their friends and relatives pay for a four-day bike journey with food, showers and massage. It’s a glorified vacation.” The notion that riding a bike for seven days and six hundred miles while surviving on Gatorade and bananas is a vacation can be maintained only by someone who has never attempted it.
This article was excerpted from Uncharitable: How Restraints on Nonprofits Undermine Their Potential, by Dan Pallotta, with permission of University Press of New England. Copyright © 2008 by Tufts University Press.