Tag Archives: charity

How We Think About Charity is Wrong

This is a fantastic TED presentation by Dan Pallotta on why the non-profit industry is perpetually hamstrung by its inability, among other things, to break out of a structure that limits compensation, suppresses risk-taking, prohibits access to capital markets, imposes frugality at the expense of future growth potential and tags all overhead as negative.  It’s a must-watch for anyone in the non-profit sector, but the charitable arm of the non-profit sector in particular.

Here’s a link to the full transcript and a couple of excerpts that really hit home:

So in the for-profit sector, the more value you produce, the more money you can make. But we don’t like nonprofits to use money to incentivize people to produce more in social service. We have a visceral reaction to the idea that anyone would make very much money helping other people. Interesting that we don’t have a visceral reaction to the notion that people would make a lot of money not helping other people. You know, you want to make 50 million dollars selling violent video games to kids, go for it. We’ll put you on the cover of Wired magazine. But you want to make half a million dollars trying to cure kids of malaria, and you’re considered a parasite yourself…

Businessweek did a survey, looked at the compensation packages for MBAs 10 years of business school, and the median compensation for a Stanford MBA, with bonus, at the age of 38, was 400,000 dollars. Meanwhile, for the same year, the average salary for the CEO of a $5 million-plus medical charity in the U.S. was 232,000 dollars, and for a hunger charity, 84,000 dollars. Now, there’s no way you’re going to get a lot of people with $400,000 talent to make a $316,000 sacrifice every year to become the CEO of a hunger charity.

Some people say, “Well, that’s just because those MBA types are greedy.” Not necessarily. They might be smart. It’s cheaper for that person to donate 100,000 dollars every year to the hunger charity, save 50,000 dollars on their taxes, so still be roughly 270,000 dollars a year ahead of the game, now be called a philanthropist because they donated 100,000 dollars to charity, probably sit on the board of the hunger charity, indeed, probably supervise the poor SOB who decided to become the CEO of the hunger charity,and have a lifetime of this kind of power and influence and popular praise still ahead of them…

So we’ve all been taught that charities should spend as little as possible on overhead things like fundraising under the theory that, well, the less money you spend on fundraising, the more money there is available for the cause. Well, that’s true if it’s a depressing world in which this pie cannot be made any bigger. But if it’s a logical world in which investment in fundraising actually raises more funds and makes the pie bigger, then we have it precisely backwards, and we should be investing more money, not less, in fundraising, because fundraising is the one thing that has the potential to multiply the amount of moneyavailable for the cause that we care about so deeply…

This is what happens when we confuse morality with frugality. We’ve all been taught that the bake sale with five percent overhead is morally superior to the professional fundraising enterprise with 40 percent overhead, but we’re missing the most important piece of information, which is, what is the actual size of these pies? Who cares if the bake sale only has five percent overhead if it’s tiny? What if the bake sale only netted 71 dollars for charity because it made no investment in its scale and the professional fundraising enterprise netted 71 million dollars because it did? Now which pie would we prefer, and which pie do we think people who are hungry would prefer?

 

A Revival of Compassion, Part II

Earlier this week I wrote a post that was prompted by Rev. Mike Aiken's letter to the editor that calls into question our elected leaders' compassion for the poor. In that letter he wrote:

Congress continues to debate proposed massive cuts to the food stamp program. As a result of a computer glitch at the N.C. Department of Health and Human Services, the demand for emergency food bags more than doubled overnight. With the decision not to extend unemployment benefits, 12,000 Triad families are facing homelessness. In July, Urban Ministry assisted many of these families with more than $52,000 in direct assistance. The decision of our legislature not to accept federal Medicaid funding that would cover an additional 500,000 North Carolina medically indigent residents was a major factor in the decision to close the HealthServe Medical Clinic at the end of August.

Rev. Aiken is the Executive Director of Greensboro Urban Ministry and thus has an up close and personal view of the effects these cuts in government programs are having. His organization is being stretched thin trying to keep up with the increased need, and his isn't the only one. From an opinion piece in yesterday's Winston-Salem Journal written by David Heinen, director of public policy and advocacy for the NC Center for Nonprofits, and Holly Welch Stubbing, senior vice president and in-house counsel for Foundation for the Carolinas:

Sequestration spending cuts may cause members of Congress to assume nonprofits in our communities will always be able to fill the gaps in providing basic safety net programs. The reality, however, is that the ongoing effects of the recession have placed such a strain on nonprofits that many lack the capacity to take on this added responsibility.

The workload of many nonprofits has increased as the number of North Carolinians living in poverty has jumped to nearly 18 percent. In 2011, 93 percent of North Carolina nonprofits experienced an increased need for services, and 58 percent were unable to meet these needs. Two out of every five nonprofits operated at a deficit last year, and one-third had to cut programs or services.

The main point of Heinen and Stubbing's piece was to stress the importance of state and federal governments fully preserving the deduction for charitable contributions as they work on tax reform. They pointed out the stress being felt by nonprofits is extreme due to the increased demand for their services prompted by a still rough employment situation and a reduction in government aid, and they argued that if states and the federal government were to eliminate or reduce deductions for charitable contributions it would truly put the nonprofits in an even more tenuous position. 

Quite frankly we as a society are currently in the position of having to choose between negative options when it comes to the poor and needy: do we help them via government programs, nonprofit programs or some combination of the two? These are negative options because they are reactionary in nature and do nothing to address the root causes of poverty and hunger. Until we address those root issues – jobs, education, out-of-control health care expenses, etc. – our government/non-profit programs will continue to be needed by too many people instead of serving their proper role as a safety net of last resort for the very unfortunate who have hit rough times due to unforeseen circumstances.  Here's the crucial part though: until we do address and resolve those root problems then we must find away to keep people off the streets and my fear is that the programs we have in place won't be able to do it.