Dan Pallotta: The way we think about charity is dead wrong

There has been much controversy recently around how we measure success in the not-for-profit sector. I really like this TED Talk by Dan Pallotta which challenges conventional thinking in this area and suggests that we:

focus on the scale of charities dreams rather than the size of their overheads.

His argument picks-up five aspects where charities face what he calls ‘discrimination’ against the expectations and standards we have for the private sector:

#1 Compensation
Pallotta argues that salaries and bonuses that are associated with ‘doing well for yourself’ appear to be almost without limit in the private sector. Whilst ‘doing something good for society’ too often seems to be on the basis of a personal sacrifice rather than a decent salary in the charitable sector. Clearly there needs to be some recognition of the source of the funding and the purposes behind donations but Pallotta’s arguments about achieving scale and outcomes versus keeping overheads down are well made.

#2 Advertising and marketing
Similarly the private sector ethos is very much you need to spend to make people aware of your product and drive sales. Whilst in the charitable sector advertising is seen as an overhead that is at the expense of the needy rather than a means of potentially raising more money and achieving scale. Advertising appears to be much more acceptable if it is limited to what can be collected as a donation rather than purchased and counted as an overhead.

#3 Risk taking
Like the public sector the charitable sector suffers from a fear of failure and consequently the inevitable dearth of innovation. This means we are left with massive global social and health problems and no serious means of going beyond short-term amelioration to deal with the root causes.

#4 Time
Amazon had at least 6 years of investing in infrastructure with little or no return on investment without much of a problem. Can you imagine a charity that asked for 6 years of donations to build an infrastructure before it could make an impact? Pallotta argues that is exactly how we should be thinking. The major global problems of disease, poverty and environment are not susceptible to short-term fixes or quick returns on donations.

#5 Profit to attract risk capital
Pallotta argues that because charities are barred from making a profit this denies them access to the $trillion capital markets. I’m not so sure about this one but it might be that charities developing ring-fenced for-profit projects could work as a way of driving forward  innovative solutions. However, I think that charities working in partnership with private companies that are prepared to carry some of the risk (with complete financial transparency as pre-condition) might be a better model.

Overall Pallotta makes a good case for rethinking the business model for charities. His conclusion is that the epitaph of our generation should not be be that ‘we kept the overheads of charities low’ but rather that ‘we helped to resource the achievement of their dreams’. I for one would be more than happy with that!

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