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May 12 / Michael Wright

Allowing charities to succeed

Multiple choice: If you gave $100 to charity, what percent of your gift would you like to see go to the people actually in need? (Hint: yes, this is a trick question) A: 100%   B) 75%   C) 50%

If you’re like most people (and me), you would pick “A,” because you want every penny you give to help the cause you support. You would want as little money as possible — and none, if at all possible — to go to the expenses of the charity, aka “overhead.” Because that’s skimming money away from the people who really need it, right?

Of course. But here’s the “trick” part of the trick question above. What if, by allowing a good percentage — let’s say 50 percent — of your gift to pay for overhead support, you could multiply your gift substantially, and help a lot more people. Well that changes things. And that’s the case being made by Dan Pallotta in his TED talk “The way we think about charity is dead wrong.”

I began this TED talk with serious skepticism, having worked for 25 years in the for-profit world before joining Wayne State — a public university and a nonprofit organization. I felt that if an institution was allowed to avoid taxes — especially if it were a philanthropic organization — it had better channel every penny possible to the beneficiaries of the charity.  My skepticism was bettered by Pallotta’s logic — and evidence.

Pallotta maintains that we have a different rulebook for nonprofits — one that discriminates on compensation, marketing, risk, time and capital — and makes it dauntingly difficult for charities to succeed.

Let’s take compensation as an example. We don’t want people running nonprofits to be rich, do we?  Heck no.  We want them working heroic hours in patched clothes, teetering on the edge of their own financial calamity, smiling grimly in the glow of goodness. That feels right. But what does that do for attracting talent? Not much. Why would a young, hotshot MBA want to live like that when he or she can make so much more, so quickly, in the private sector? So, even those with a heart for charity go off and make money — rather than following their heart — until they build up enough security to be able to “give back” without personal hardship.

What if they could earn as much in the nonprofit sector from the start, and all that talent and creativity and energy could help a nonprofit bring in 10 or 20 times the revenue? A bit more “overhead,” way more revenue, and a happy, heart-following hotshot.

Pallotta makes similar sense in describing discrimination in areas like risk and marketing and capital. It bugs us when we see ads for charities, right? “That money should go to the people who need it, not the greedy ad execs!” But if the advertising creates massively more awareness and revenue, isn’t it serving the cause far better than a bake sale that brings in 87 dollars and 43 cents?

I went into this talk ready to call BS; I came out ready to take up the cause.  Charities want to save people, to change the world. That is good.  But it’s hard to do it with bake sales and bingo, as worthy as those activities may be. We want them to succeed — we need them to succeed.  We can always help by writing checks, but we can help even more by changing our paradigm about how charities should operate.

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