Review of Uncharitable by Dan Pallotta

Dan Pallotta is outraged.

Are you outraged when you hear about the CEO of a nonprofit corporation making a salary five times as high as your own? Are you outraged when a high-profile charity spends large amounts of money on advertising and whose percentage of money spent on overhead rises noticeably above the standards set by watchdogs such as Charity Navigator and the Better Business Bureau Wise Giving Alliance? Were you outraged when you heard that the Red Cross attempted to set aside for future catastrophes some of the vast quantity of donations that poured in after 9/11, instead of spending all the money immediately and directly on relief for the victims of 9/11?

If so, then Dan Pallotta is outraged at you.

It would be easy to dismiss Uncharitable as nothing more than sour grapes. As described in detail in the case study at the end of the book, the author founded a for-profit company called Pallotta Teamworks in the 1990s that raised huge amounts of money for charity through its AIDSRides and Breast Cancer 3-Days. Despite its success, the company was forced to shut down because of controversial claims that it was making too much profit and not spending a high enough percentage of its revenues on AIDS and breast-cancer research. The tone of the book is often strident and self-righteous, which will undoubtedly turn off many readers.

It would be a mistake, however, to ignore the numerous valid points that Pallotta makes, points that most people in the nonprofit sector immediately recognize as valid but are too afraid to voice out loud. Pallotta identifies a point of view that he calls the “nonprofit ideology”—not because it is necessarily held by nonprofit organizations themselves but because it represents a widespread and uncritically held set of attitudes that many people have towards charities—and summarizes it crisply in seven bullet points:

Pallotta systematically attacks each one of these assumptions and demonstrates the illogic and hypocrisy underlying them. The nonprofit ideology might be defensible if the only function of a charity were to transfer money from the donor to the needy, a task that would presumably require little effort or expertise. In a complex world of complex problems, however, charities do far more. They must recruit talented employees to solve challenging problems; they must find innovative ways of raising funds and stretching the value of the limited dollars at their disposal; they must savvily manage relationships not just with donors and clients but with governments, the media, and other charities. In short, charities face the same challenges as (if not greater challenges than) for-profit companies. Why then do we deny them the the use of the same tools that for-profit companies are allowed to use without restriction?

Pallotta does not mince words. For example, Pallotta responds to the charge that “people who want to make money in charity are obscene” as follows:

The billionaire who spends 1 percent of his time on charity and 99 percent of his time building wealth we call a “philanthropist.” The three-hundred-thousand-aire who spends 100 percent of his time working on charity and 0 percent of his time building real wealth we call “obscene.” What ambitious, talented, self-respecting Stanford MBA is going to say yes to this proposition? …

Is it not more obscene that we would allow people to continue to die of AIDS because we would restrict from the market, on grounds of obscenity, the people who might be able to eradicate it? Is it not more obscene that we would pay a soccer player $50 million a year to generate $500 million a year in ticket and merchandise sales and television royalties but not pay someone $50 million a year to engineer the elimination of world hunger, the value of which would be inestimable? … The point is not that it is obscene for David Beckham to get paid $250 million. It is obscene that our society would prohibit a charity from paying a fraction of that amount to the people who might be able to help us end world hunger or cure AIDS. It is obscene that a paper asks “Who cares?” about this but refers to a charitable professional making 2 percent of the same amount as a “scam artist.” The double standard is what is obscene.

Pallotta devotes an entire chapter to attacking the ubiquitous practice of measuring a charity’s value by the percentage of its budget that it devotes to “program expenses” as opposed to “overhead.” Anyone who has run a nonprofit knows how artificial and stifling this particular measure is, but it persists because it is easy to compute and because it fits into the nonprofit ideology.

What we have been taught is that things like the salary for the receptionist at our favorite charity has little or nothing to do with the cause and that she herself has little or nothing to do with the cause. She is stigmatized as “overhead.” Her employment reduces the number of stars the charity gets on its efficiency scorecard and, we are told, should reduce our confidence in its efficiency. But tell the scientist doing cancer research that he has to start running to the reception desk to pick up the phone fifty times a day and we will soon stop saying the receptionist has nothing to do with the cause. At least the scientist will.

Pallotta points out that in 1995, Physicians for Human Rights spent only 58% of its revenue on programs, a figure which would fail all watchdog standards for efficiency. Fortunately, the Nobel Prize committee did not rely on watchdog seals of approval in 1997, when Physicians for Human Rights shared the Nobel Peace Prize for its work as a founding member of the International Campaign to Ban Landmines. Instead of asking for the percentage of revenue spent on programs, Pallotta advocates asking sixteen more meaningful questions, the top three of which are:

Pallotta’s incisive observations about the unreasonable and unquestioned assumptions about charities that many people harbor, as well as the hypocritical double standards that they apply, resonate strongly with my own personal observations. We should stop thinking of charities are mere postal services for delivering our money to needy people, and think of them instead as companies that we hire to attack social problems. I also agree with Pallotta that a large part of the solution lies not in implementing a particular program or a particular piece of legislation.

So it is not a matter so much of what we must do as what we must stop doing. Toward that end, we confront a simple but profound philosophical challenge, not a complex organizational problem. We are not developing a national health insurance plan. This is about changing our thinking and behavior. Each of us has the power to do that right now. We need not wait for a government program.

From my point of view, it is therefore unfortunate that Pallotta allows certain philosophical prejudices to drive his narrative, thereby diluting his message. For example, Pallotta is uncritical, even worshipful, of capitalism and free-market ideology. He frequently and enthusiastically quotes Ayn Rand. He lays all the blame for incorrect thinking about charities squarely at the feet of the Puritans. It is natural to be skeptical of Pallotta’s recommendations when he fails to scrutinize his own presuppositions as carefully as he scrutinizes others’, or when he writes an amazing paragraph like this one:

Jesus, on the other hand, proposed an unsustainable model. He could imagine selling all one had and giving it to the poor because he had miraculous powers that enabled him to manifest bread and fish whenever he wanted them. What are the rest of us without such powers to do? He walked around from house to house as a guest. If all his hosts had sold everything they had and given it to the poor, where would he have stayed?

Yet despite its shortcomings, Uncharitable is one of the most important books I have ever read about the nonprofit sector. Anyone who cares about charities should pay close attention to its lessons.

Posted December 2010

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