Tag Archives: nonprofit

Donation As Investment

Sasha Dichter has written a great post about why it is NOT bad for nonprofits to pay decent salaries for talented, hard working people or to invest in new technologies:

…we find ourselves having the same conversation, one that boils down to: is it a wasteful to pay nonprofit professionals to do their jobs well?

I wonder if it is we in the nonprofit space who need more guts when we take on this question. Maybe it’s time to say something along the lines of, “if you want your money to go directly into the hands of very poor people who need it, you should do just that and give to Give Directly.” GiveDirectly is optimized for this, they are efficient and transparent in their operations, they rigorously study their results, and they’ve shown the effectiveness of direct cash transfers for creating both short- and long-term improvements in people’s lives. It’s a completely legitimate way to help others, and it’s a great benchmark against which to measure our work.

“Or,” we should have the courage to continue, “you can have the point of view that the programmatic work that we’re doing is better than giving cash.” “Better” can be because it does different things (fights corruption); “better” can be because the impact of giving a dollar is more than $1 (investing in a scalable social business); “better” can be because of long-term return on investing that’s higher than the social return on giving cash (supporting a child’s education).

“But,” we should be sure to say, “if you believe that the IT that we do matters, if you believe that there is something real that we are bringing to the table that goes above and beyond your money ending up in the hands of someone who will benefit from it, then you’re saying that our judgment, our relationships, our expertise, our capacity for oversight, and our ability to create leverage for each dollar you give is real. This means that you trust this judgement and our expertise. So please give in a way that respects that judgment and expertise, or don’t give at all.”

He references a TED talk on the same subject that’s an essential watch for anyone interested in how we can make sure the nonprofit sector can deliver the goods and services that are increasingly in demand. Here’s a link to it and I highly recommend you watch it.

While I do work for a nonprofit, it’s a trade association so it truly feels much more like a business. Our members pay dues and we provide services and products to help their companies and industry at large succeed. Basically our members see us as more of a business and while we do sometimes have to defend our compensation it isn’t viewed as morally wrong for our staff members to be paid a decent wage. On the other hand the “feel good” nonprofits that are addressing a social need, like the food bank I often volunteer with, often are judged harshly if they pay a competitive wage because every dollar they spend on compensation is seen as a dollar not spent on food.

As Dichter points out this is faulty logic. If you pay a competitive wage and invest in good tools then you can attract and retain talented, dedicated people who, properly armed, can work magic with those dollars and generate a return that is many times greater than the dollar given. Take the food bank example – would you rather go to the store and spend a dollar that would buy one can of soup on sale, or donate it to an organization that could turn it into seven full meals? That’s the kind of thing that well run nonprofits can do.

This isn’t to say that nonprofits shouldn’t be monitored and evaluated to make sure they’re providing the best possible service for the communities they serve. It is to say that if a nonprofit is delivering the goods, so to speak, that there is nothing inherently wrong with the people doing the good work making a decent living or with them being provided adequate tools to do their jobs.

Anyone who has spent time volunteering with a social nonprofit has likely seen the effects that poor pay and lack of capital investment can have on an organization. People who spend 80 hours a week doing something they truly believe in, but are hamstrung because they’re using outdated technology that was likely donated, and barely make enough money to keep food on their own tables, much less save money for retirement or their kids’ college education, tend to burnout and that leads to turnover. Turnover leads to increased hiring expenses and a loss of expertise that puts even more pressure on the staff and volunteers who are left to do the work, which leads to more turnover, and so on, and so on, and so on.

Please, the next time you hear someone criticize the pay of a nonprofit staff, or question the wisdom of buying a new computer, tablet, truck, etc. please try put it in perspective by looking at the big picture. If the organization is barely serving anyone while the senior executive is tooling around in a new Mercedes leased by the organization, then by all means ask a lot of hard questions. But if the organization is meeting a community’s needs, if it’s returning multiple dollars of service for every dollar donated, then support their efforts and find a way to help them do even more.

The Importance of Good Governance

*Update 1/26/16* – Well it took a while, but they’ve indicted Powell on four felony charges. They’re Class C felonies because more than $100,000 is involved. I’m going to guess that PTP’s governance processes have been tightened significantly.*

News broke today that the former CEO of the Piedmont Triad Partnership is being investigated for financial irregularities stemming from his time at the organization. From the Triad Business Journal:

In a prepared statement released at noon today, the regional economic development group said the following:

“The Piedmont Triad Partnership has provided law enforcement authorities information about financial irregularities involving former CEO David M. Powell. When PTP learned of the irregularities following Mr. Powell’s resignation earlier this year, it immediately began its own assessment of what had happened and what amount of money is at issue. That assessment is ongoing.”…

“We’re taking this issue very seriously,” said Stanhope Kelly, who took over as CEO of PTP from Powell. “We will get to the bottom of this, and ensure it does not happen again. At the same time, the Triad needs jobs, and the Piedmont Triad Partnership’s primary goal is to attract jobs. And we’ll keep working to make good things happen in economic development.”

This caught my eye for a few reasons. First, PTP’s office is literally right across the street from where I work so it hits close to home. Second, I work for a non-profit and am in the equivalent role for my organization that Powell was for his.

Total aside – I was curious what Powell made and what kind of budget PTP had so I pulled up their 1099 from 2013. I’d say they took good care of him, because with salary plus benefits his compensation came to a little over $325k from an organization that had about $1.8 million in revenue that year.

Third, I know who’s on this board and if it ends up that there were financial irregularities with that board overseeing the organization then you can rest assured that it can happen to anyone.

Because no one owns a nonprofit the members of the board play the critical role of representing the interests of the organization as a whole, and by extension the interests of all of the organization’s constituencies. As you can imagine one of every board’s primary functions is to make sure that the organization’s resources, particularly financial, are sufficient enough for the organization to fulfill its mission. With some nonprofits that can be a challenge because the board members may not have the financial or business acumen necessary to truly understand what’s going on. A prime example would be a local food pantry with a board made up of passionate, mission-focused people who may have never seen a balance sheet in their lives.

The board for the PTP is the opposite. It’s comprised of business VIPs, mayors, bank executives and the like. If any board is loaded with people who are sophisticated enough to smell a financial rat this is it, yet they might have had money misappropriated on their watch. Now this story just broke and there could very well be a good explanation for whatever they found, but it’s also a healthy reminder that any organization can fall victim to malfeasance.

In the nonprofit world the topic of governance often gets the groans and eye rolls you usually associate with discussing taxes or budgets at home. We all recognize it’s important, a necessary evil if you will, but we usually dread doing anything about it. That’s too bad because from the perspective of the nonprofit executive and staff it really should be something we embrace. If nothing else it protects us from ourselves; if we make an honest mistake we stand a good chance of our board catching it before we get too far down the road. If we have a staff member that is taking advantage of a weakness in our systems we stand a better chance of catching it if we’re constantly vigilant because our board is demanding it of us. Is it drudgery sometimes? Sure. But in my mind the whole purpose of governance is to acknowledge the inherent weaknesses we all have as humans and to protect our organizations from them.

Now, I’m gonna go do a double check of the books at work to make sure I’m not casting stones while living in a glass house.

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?