Wednesday, September 29, 2010

Enabling Nonprofit Collaboration

Steve Goldberg, author of the outstanding book - Billions of Drops in Millions of Buckets: Why Philanthropy Doesn’t Advance Social Progress, provides a guest post below. As is reflected in this blog entry, Steve has been helping Charity Navigator to move toward CN 2.0. We can never thank him enough for all the help he has provided thus far.


Enabling Nonprofit Collaboration

Despite a number of encouraging experiments in collaboration among nonprofits, it’s an idea that is (in Hamlet’s words) “more honor’d in the breach than the observance.” A recent agreement among seven leading organizations in support of “Charity Navigator 2.0” offers a new model based on advancing the mutual interests of the parties in order to make the whole greater than the sum of the parts.

I’ve been engaged in a lively online discussion with John MacIntosh of SeaChange Capital Partners and Sean Stannard-Stockton of Tactical Philanthropy on the intriguing subject of “Burning Bridges to Make Venture Philanthropy Work.” John recently responded to my suggestion that perhaps nonprofits and their funders could become more accountable and disciplined through purposeful collaboration:

"My thought exercise was about the merits of “unilateral bridge burning” as a strategy to tackle problems of commitment and self-control in the absence of market forces. But you make a good point: entering into a “collective” could be equally effective (e.g. AA) and more psychologically plausible than going it alone. However to be effective such a “collective” needs be long-term and difficult to exit, must require that each participant give up some rights by ceding important decisions to “the group”, and must serve as a shared space of trust where people (or institutions) can candidly debate, discuss and declare their “public reasons” for a particular course of action (think Rawls or Habermas). My suspicion is that most funder “collaboratives” have none of these characteristics (let alone all three) and those that do were created through external pressure (like the SIF?). I hope I’m wrong. "

I don’t think John is wrong about traditional ingredients for effective collectives, including long-term commitments, at least partial relinquishment of independence, and high levels of trust. However, I do think that other approaches are possible, and might be more conducive to productive collaborations among independent organizations seeking to work together without any kind of compulsion.

As many of you know, Ken Berger has been leading a heroic effort at Charity Navigator to reform CN’s outdated rating methodology, which has been the subject of heated and often justified criticism long before Ken’s arrival in 2008. On July 1, 2010, CN took the first big step forward by launching its “accountability & transparency” rating, which, as the site explains, focuses “on how the charity reports publicly – both on the IRS 990 and on its web site. We consider in our methodology whether the charity is making easily available, information regarding its governance practices, ethical practices and financial information.” Although it will take about a year to run through all 5,500 charities that CN rates before the accountability and transparency dimension can be factored into CN’s star-rating system, CN’s small but hard-working staff has published information on how 393 nonprofits did on the new methodology. This is a great development (in which I was involved as Advisory Panel member and CN consultant.)

CN hopes to revise and expand the financial dimensions of its ratings systems by the end of the year, and, in 2011 or 2012, incorporate the holy grail of “effectiveness and results” into its methodology that will weigh independent evidence of performance, not just self-reporting. When CN completes this work, it will have a three-dimensional rating system -- financial strength; transparency and accountability; and effectiveness and results -- that will finally enable CN to become the simple and complete “guide to intelligent giving” that donors and nonprofits alike so desperately need.

At the same time, fixing CN’s rating system will not, by itself, transform the nonprofit capital marketplace into a mechanism for guiding more money to the most effective charitable organizations. As I show in my book, there is almost no connection between funding and nonprofit performance: good nonprofits don’t raise more money and weak nonprofits don’t raise less, because fundraising is based on building relationships and telling engaging stories about what nonprofits are trying to do, not what they accomplish. (New Philanthropy Capital has just released an outstanding paper on this subject, “Talking About Results.”)

There are many reasons for the disconnection between funding and performance, none of which include laziness or ineptitude by nonprofits. Collecting and reporting meaningful and useful information about nonprofit accomplishments is difficult, time-consuming and expensive, and funders typically won’t pay for such efforts or the expertise required. When I began writing my book in 2005, the idea that charitable funding should recognize and reward strong performance was a foreign concept to all but a few forward-thinkers such as Clara Miller and George Overholser at Nonprofit Finance Fund, Paul Brest at the Hewlett Foundation, Martin Brookes at New Philanthropy Capital, Lucy Bernholz at Blueprint Research, Mario Marino at Venture Philanthropy Partners, Bill Shore at Community Wealth Ventures, Andrew Wolk at Root Cause, and Katherine Fulton and Andrew Blau at Monitor Group. (Apologies to anyone I omitted from the honor roll.)

There is now a growing consensus that social progress will be held back until nonprofits can attract greater and more sustainable funding by the simple act of accomplishing their objectives. As I put it in my book (with no small amount of jargon that I explain in plain English in the book), “We need a financing system that helps highly-engaged social impact investors to direct third-stage growth capital to the best mid-cap nonprofits, instead of one that forces those nonprofits to spend all their time looking for more drops to fill more buckets.”

Charity Navigator’s expanding rating methodology will become an essential part of this emerging performance-based nonprofit capital market, but it will not be the case that (unlike the movie, Field of Dreams) “if you build it, they will come.” As Hope Consulting’s recent study shows, almost no donors conduct comparative research to inform their giving decisions. Although CN’s three-dimensional rating will make it immeasurably easier for donors who want to maximize the impact of their donations to do so, performance-based philanthropy represents a massive change in social behavior akin to civil rights and public health campaigns. Merely providing new tools will not change long-held habits overnight.

I believe that collaboration will be a critical ingredient of shifting the paradigm and it is something that the social sector is much better at talking about than actually doing. Katherine Fulton and Andrew Blau have presciently observed that “philanthropy itself is not a system”:

“Individual institutions and givers in philanthropy are not in any sense reliant on one another; they exist independently and can act without much reference to what others do. Thus, there is no system where actors must respond to one another, adapt to one another, or learn from one another. This is not to say that donors and foundations don’t relate or learn from one another at all. They do, but only to the extent that they choose to. And they also compete with one another — for ideas, reputation, and credit, which can discourage the free exchange of ideas and lead to fragmentation of effort and isolation.”

It would be an understatement to say that these are not the ideal circumstances for successful collaborations. But they are a reality that must be accommodated in any serious efforts to accomplish what groups of organizations can do working together rather than on their own.

In the case of Charity Navigator, Ken and I realized that CN’s new methodology was necessary but not sufficient for a more performance-driven kind of philanthropy, and that CN did not have the horsepower to move the needle of donor behavior by itself. Thinking about what it would take to shift donor thinking toward supporting nonprofits that could demonstrate their effectiveness, we started talking to a number of respected colleagues who were addressing similar challenges and had developed approaches and assets that we thought could help the cause.

The response was tremendous, leading to the formation of something we call “CN 2.0,” a planned collaborative online platform for intelligent giving “dedicated to the proposition that if donors become well-informed, good nonprofits will get more money.” CN enlisted six “best-of-breed” partners: Keystone Accountability, Philanthropedia, New Philanthropy Capital, GreatNonprofits, Growth Philanthropy Network, and GiveWell. The Hewlett Foundation (via Paul Brest and Jacob Harold) and the Fidelity Charitable Gift Fund (via Cynthia Strauss) have provided both generous financial support and encouragement.

In order to get this thing off the ground (which remains in the planning and seed funding stage), we needed to actively engage the partner organizations, all of which had very full plates before CN 2.0 came along. Without any initial funding by which to purchase their affections, we needed to find a way of enticing these busy organizations to spend uncompensated time with us to develop the concept and build the platform.

To make an already too long story a little shorter, we basically took the opposite approach from the one that John MacIntosh offered above, at least regarding the need for the partnership to “be long-term and difficult to exit, ... [and] require that each participant give up some rights by ceding important decisions to ‘the group’.” On the other hand, we did fully embrace John’s thinking that the alliance “must serve as a shared space of trust where people (or institutions) can candidly debate, discuss and declare their ‘public reasons’ for a particular course of action.”

Ken and I circulated a “letter of intent” which all of the parties were happy to sign (copies of which are available upon request), which set forth “what we hope to accomplish and how we propose to go about it”:

1. We all agreed on a shared purpose to “advance social progress by helping more effective nonprofits grow” by helping “individual donors, who provide roughly three-fourths of all private charitable donations, to find and fund nonprofit organizations that will make the most productive use of their philanthropy.” We stated our belief that “our collective efforts to promote and even universalize informed social investing can guide sizeable amounts of funding to more effective nonprofits and ‘move the needle’ of social progress to an extent that isn’t currently possible in today’s highly fragmented nonprofit capital market.”

2. So that everyone would clearly understand the scope of the undertaking, we summarized the basic parameters of the project in a detailed attachment entitled, “A Growth and Collaboration Plan for Guiding Individual Donations to More Effective Nonprofits.” In brief, we proposed combining “(1) the best available data about the finances, accountability & transparency and effectiveness & performance of charitable organizations with (2) cost-effective and timely analysis of that data, and (3) distribution of that data and analysis as widely as possible.”

3. We also made clear that this was a risky and uncertain venture: “we acknowledge that the pathway to success is far from clear, and that experimentation and trial and error will be the order of the day. We believe that our partnership can develop affordable and practicable approaches that will not allow the perfect to become the enemy of the good, and provide a unique environment in which many of the most promising ideas for expanding social innovation can flourish.”

4. We considered it imperative that the group be governed by operating principles of mutual benefit and open decisionmaking: “CN 2.0 is designed to be a collaborative and consensus-driven alliance of equals, all of whom recognize the complementary value and expertise that the other partners bring to this effort. Charity Navigator is committed to advancing the brands and market positions of the partners in the course of this project.”

5. At the same, we wanted to make real progress, so we created a collaborative governing structure consistent with the operating principles: “CN will take the lead on coordinating the efforts of the collaboration, and Steve Goldberg will serve as CN’s Project Lead (as an independent consultant) to keep our efforts productive and on track. Decisions will be made through consensus to the greatest extent possible, with the objective of enhancing the value of the collaboration to all partners. At this point, all CN 2.0 business models are ‘TBD’.”

6. We did not want anyone to worry about whether the agreement would create potential legal risks, so the letter was drafted as an expressly non-binding “expression of our collective interest in collaborating on CN 2.0 and making it a strategic priority for our respective organizations.” We made clear that any participant was free to leave at any time, that our partnership would be “a voluntary alliance of separate and independent entities that doesn’t confer any rights or impose any obligations of any kind,” and that “nothing precludes any partner from engaging in any work on its own or with others, and we acknowledge that all of us are currently involved in related and potentially overlapping collaborations.” There was additional verbiage (I used to be a lawyer in a former life ...) about intellectual property rights, investment risks, “non-recourse” (i.e., no lawsuits), and a commitment that “We will work out any disagreements as professionals” with “appropriate professional courtesies of prior consultation with the others.” We acknowledged that, at some point, “it might make sense to negotiate a formal legal agreement that would create contractual rights and responsibilities, but we agree that would be premature at this time.”

We’re a long, long way from being able to say that CN 2.0 has accomplished anything worthwhile, but we do think this collaborative model has significant potential across the social sector for organizations looking for ways to work together without becoming distracted by side issues.

Monday, September 27, 2010

Transparency and Fundraising: Is There a Connection?

This article was originally published on the NTEN blog.
By Ken Berger and Robert M. Penna, Ph.D.

As calls increase for charities to be more open and accountable in their management and reporting, it is natural for many of them to ask, considering the extra work involved, "What’s in it for us?. Is there a connection between more transparency and more successful fundraising?"
The answer to that question today is:
  1. There probably isn’t an overwhelming connection at the moment; but...
  2. There should be; and eventually...
  3. There will be.
To appreciate the change we anticipate will come in the next few years, it is important to recognize how things are changing regarding how charities justify themselves and their appeals for support.

Traditionally (which is to say for the last 60+ years or so), charities focused on the magnitude of the problems they were addressing and the efforts they were making to help. For donors, they would point to the number assisted as undeniable evidence that support for their work was warranted. For government, they offered reams of paper showing that they were following the letter of the law in the use of their grants. Unfortunately, these accents on counting activities and maintaining regulatory compliance left unanswered the basic question of effectiveness: Were the efforts of these charities bringing about any meaningful, sustainable, or measurable positive change to those they existed to serve?

The problem was that no one knew for sure, not even the charities themselves. Much of this had to do with the tradition(s) charities inherited from both government and from their own forbearers. From these sources the charities of the latter third of the 20th Century were bequeathed a belief that the simple act of making services available was virtually the same as solving a problem, a concept that worked to the particular benefit of state and federal legislators anxious to show their constituents that, via the appropriations they approved, they were doing something about various social problems. Little effort was traditionally expended, however, to ascertain whether, in fact, those services (and the resources expended) had made any appreciable difference whatsoever upon the underlying issues whose symptoms they were meant to address.1

The outcomes movement emerged in the sector starting in the late ‘80s and presented new tools to help nonprofits set, work towards, and verify meaningful and sustainable results. In addition, more and more charities began to feel pressure from individual and institutional donors alike to be open and honest about the results they are (or are not) achieving.2 As a result, a paradigm shift began.

At the same time, the scandals that resulted in the passage of Sarbanes-Oxley (including more than a few within the ranks of nonprofits) had a ripple effect on the sector. Organizations of all kinds came under new scrutiny regarding their management, spending decisions, and ethical behavior. A new push for transparency, pulling back the time worn veil of secrecy behind which so many of these organizations were run, began to make itself felt in the charitable sector. From the press and watchdog organizations, to whistle blowers and state attorneys general, it seemed that everyone was beginning to peek under the sheets to see what was really going on in these charities. This was especially true for those that accepted (or largely lived on) public dollars -- primarily those that provide human services, international relief, health care or educational services.

Between these two pressures, for evidence of results and for transparency in management, it has been the dawning of a new day for the charitable sector. The degree to which nonprofits have responded has varied. Some have embraced the new standards, making honest efforts at providing donors -- governmental, institutional, and individual -- with real evidence of impact and with accurate, straightforward disclosure regarding their management, decision making and internal policies. Others have attempted to pass off old wine in new bottles and comply in form rather than in true substance.
Charities owe it to those they serve to be effective.3

Similarly, they owe it to their social investors -- those institutions and individuals (taxpayers foremost among them) who provide the resources upon which charities exist. They should be producing a return on the social investment that is made in them demonstrated via proof of effectiveness and the creation of social value. Moreover, just as the collapse of Enron and several Wall Street giants pushed for-profit corporations further in the direction of providing the public and their shareholders with greater transparency regarding what they are doing and how they are spending their investors’ money, so too do charities owe their stakeholders the same. There is simply too much work to be done by the nonprofit sector to have scarce and precious resources squandered on “charities” that are ineffective, inefficient -- or downright fraudulent.4

Social investors and taxpayers are owed nothing less than a full accounting of organizations’ effectiveness, management and expenditure decisions. More to the point, these stakeholders should demand such an accounting. We believe that they have begun to do so, and will more and more base their giving decisions upon such information.

Since its inception, Charity Navigator has striven to provide social investors with unbiased, reliable, and accurate information regarding charities’ finances. In recognition of the emerging tools and the tremendous need for information regarding transparency and effectiveness, we have recently undertaken efforts to include these measures in our rating system. In July of 2010, we added a new dimension to our rating system which considers the accountability and transparency of charities as reflected in certain information on their web site, as well as new information required in their annual IRS 990 filing.5

Furthermore, provided our fundraising efforts are successful (!), within a year social investors will be able to use our website to not only ascertain whether a certain charity is a fiscally sound and meets basic standards of transparency and accountability, but also we will evaluate the organizations effectiveness and results.
We firmly believe that this is no longer the wave of the future, but is the tide of the present. Charities that do not get on board, those which continue to obfuscate and/or try to rely as the justification for their fund-raising efforts upon descriptions of problems, stories of their assistance to a few individuals without robust data to back it up, or data that is nothing more than accounts of activity, will begin to suffer losses in revenue.

We are beginning to see evidence that grants, particularly those from government and institutions, are increasingly going to those organizations that can prove effectiveness. We believe that individual donations will increasingly go to those organizations that are open and accountable about how they are spending the money they get, the associations they maintain, and the decisions they make.

As evidence of this belief, we present the following: prior to launching the transparency and accountability dimension of our rating tool this year, we polled our donors to ascertain their level of interest and support for such information. Ninety eight percent indicated a strong or very strong level of interest in it. The demand exists; and we are going to do all in our power to meet it. And so, our answer to the question of whether there is a connection between more transparency and more successful fundraising is yes, and more and more so by the day. It is unmistakable and undeniable. And you can take that to the bank.

Ken Berger is President and CEO of Charity Navigator, the nation’s leading charity rating service. Dr. Penna is an independent outcomes consultant, an advisor to Charity Navigator, and the author of The Nonprofit Outcomes Toolbox, to be published by Wiley & Sons this winter.

[1] For a more in depth treatment of this subject, see Berger and Penna, “Billy Beane and Outcomes: What Can Baseball Tell the Nonprofit World About Measures and Measurement?” Philadelphia Social Innovations Journal. August 2010
[2] Ibid.
[3] Hunter, David. “The End of Charity.” Philadelphia Social Innovation Journal. October 2009
[4] Vincent, Isabel and Klein, Melissa. “Fraud charges loom for Pedro.” New York Post. July 4, 2010; and Golding, Bruce. “BRONX POL 'FE$$ES UP.” New York Post. May 9. 2009.
[5] The details of this change can be found on our web site ( here:

Thursday, September 23, 2010

Nonprofit Leadership: Money Isn’t Everything

Ken Berger and Robert M. Penna, Ph.D.1

We take serious issue with the absurd notion Dan Pallotta offered in the Toronto Globe & Mail2 in opposition to a Canadian Member of Parliament’s proposed legislation to allow the Minister of Revenue the discretion to act if a charity provides exorbitant salaries and payouts to its leadership.3 Pallotta declared that this action “would cripple Canada’s charities.”

Not quite.

A careful reading of the bill, C-470,4 reveals that it allows the Minister of National Revenue to revoke the registration (the nonprofit, tax exempt status) of a charity which “pays to a single executive or employee annual compensation exceeding $250,000 ($Can.),” compensation being defined as including, “salaries, wages, commissions, bonuses, fees and honoraria, plus the value of taxable and non-taxable benefits.” The bill neither sets a hard and fast cap on nonprofit salaries, not does it mandate that the Minister act to revoke the registration of a charity paying more than that. Rather it provides the authority for action in cases where the Minister determines that the public trust has been compromised or betrayed.

Mr. Pallotta either missed the context in which the bill was introduced or chose to ignore it, but it is an important piece of the total picture. What apparently prompted the legislation was the revelation that the former president of a Canadian foundation received 2.7 million dollars upon being dismissed by the organization,5 In defending the bill, its sponsor, M.P. Guarnieri, stated that its passage could “replace doubt and cynicism about the management of charities with the confidence that the personal financial sacrifice of donors is managed by people who are paid well but not so well as to make a mockery of the concept of charity.”6(emphasis added)

Ignoring the impact of the pay-out in question, reportedly unlike any in Canadian charity history,7 Mr. Pallotta argues that only by offering extremely high salaries can the charitable sector attract the “best and the brightest.” Pallotta writes, “When you increase the amount of money you are willing to pay, you can recruit from a better talent pool….” Now where have we heard that before?

Oh, yeah; that’s the same defense used by Wall Street leaders to justify their policy of obscene salaries and bonuses…offered right about the time of the meltdown, the collapses of some major financial houses, the bailouts, and the current recession.

So, How’s that “best and brightest” thing working out for you?8


Mr. Pallotta seems to be positioning himself as the champion of mirroring corporate for-profit salaries, contracts, and “golden parachutes” in the non-profit charitable sector. We strongly believe that, as an approach to improving the work of charities, it is simply wrong. We have covered this ground with Mr. Pallotta before,9 and have profound disagreements with his perspective on compensation and the amount an executive or fundraiser ought to be allowed to make from donations made to charities. This time, however, Mr. Pallotta has gone beyond arguments in favor of a completely unfettered compensation marketplace.

In his Globe and Mail piece, Mr. Pallotta writes:

Do we wish to see the end of breast cancer in our lifetime? Would we like to see homelessness conquered in perhaps one of our major cities before we die? Would we like to see the day when no child has to worry about dying of leukemia? I know the perfect way to prevent any of these things from happening: Maintain our antiquated ideas about charity compensation.

To Mr. Pallotta’s implication that higher executive compensation will somehow lead to the solution of any of the problems he mentions, our answer is BALDERDASH! There is absolutely no credible evidence that nonprofits that pay outlandish compensation do any better job at bringing about positive changes for those they exist to serve than do programs that pay more modest amounts. It is not executive (or fundraiser) compensation that will lead to solutions, but rather an accent on effectiveness, so that those programs that can demonstrate meaningful, sustainable, and verifiable results can show the rest of the field what really works…and in doing so will garner the greatest amount of financial support. Where Mr. Pallotta advocates a sort of economic Darwinism for nonprofit executives (“Let those who can negotiate the most, get the most”), we advocate a survival of the fittest among nonprofits themselves…based upon effectiveness: Let those who can demonstrate the greatest results, get the greatest portion of financial support.

Mr. Pallotta correctly observes that, regarding many societal problems, we are “not moving the needle.” His diagnosis, however, that the economic “deprivation” of top nonprofit executives is to blame, is simply wrong. As we have written elsewhere, the problem is actually that too many nonprofits and governmental agencies are and have been trying things that simply don’t work.10 That, rather than constraints on executive compensation, is what really needs to change before we will start “moving” Mr. Pallotta’s needle. We know from some of his other comments that Mr. Pallotta does believe in the importance of focusing on effectiveness, however he is far less clear in how to go about it then he is about paying CEO’s more!

Elsewhere in his Canadian commentary, Mr. Pallotta thunders that any limit or control on executive compensation is “nothing less than economic apartheid,” an obstacle which he implies will drive all but the untalented and feeble-minded from the ranks of nonprofit leadership. The bankruptcy of this threadbare argument is not only illustrated by sorry history,11 but by the fact that even as the for-profit sector has been shedding jobs, nonprofits in many states were adding them.12 Presumably, not all the people who took those positions did so because they could not make it in the private sector. The law of averages alone suggests that at least some are talented individuals who can and will make their mark on the sector. In fact, there is mounting evidence that in their search for meaningful work, many people are willing to sacrifice the higher salaries they can garner elsewhere for a nonprofit career. We see it everyday in our interactions with countless professionals of every age.


In dramatic fashion, Mr. Pallotta also asks whether “we [are] prepared to allow millions of people to go on suffering and dying because it offends our ethical sensibilities to pay people money to address these issues?” That is a misleading portrayal of the issue. Rather, the question should be posed as whether we will continue to let deep-seeded problems of poverty, ignorance, injustice, and environmental degradation to be inadequately addressed because we are putting our scarce resources into too many nonprofits that are inefficient, ineffective, or just plain fraudulent.13

We are not suggesting that those who work in the nonprofit sector do so for starvation wages; nor are we suggesting that talent not be compensated. Indeed, our annual Compensation Study indicates that mid to large sized US based charities on average provide a six figure incomes to their leadership.14 That is in the top 10% of wage earners in the US and quite a comfortable standard of living. But when nonprofits seek individual, institutional, and governmental dollars, when they speak of “need,” when some are even cutting or threatening to cut services, it does more than just give one pause when it is revealed that their leadership is paid sums (some in the millions of dollars) that defy both comprehension and logic, particularly in cases such as that cited by M.P. Guarnieri where the bulk of the pay-out was a golden parachute for a an executive who was being dismissed. The question is simple: if things are so tough, if you can barely afford to do what it is you exist to do, how can you justify exorbitant executive packages?

We believe that what needs to happen are several practical steps:

  1. We need a better definition of what constitutes a “charitable” organization, the current notion of “nonprofit” being way too broad and inclusive of too many disparate types of organizations, everything from nudist colonies and ghost hunters, to mega-churches15 and giant hospitals. Some should not be considered nonprofit at all because, other than getting a tax exemption, they are no different than their for profit competitors. The purpose of offering a nonprofit designation is because it is assumed that the for profit sector can not fulfill an important public need. If it can, why should a sacrifice of public tax revenue be offered? Furthermore, while many different organizations may be tax-exempt, and even “nonprofit,” they are not all charities and we need to make that further distinction more clear;

  2. We and many other experts have long advocated that best practice for the nonprofits is to base executive salaries and benefits upon an objective compensation analysis of similarly sized organizations within the geographical and cause area they occupy.16 For the CEO of an organization that serves local youth in a small city to look longingly at the million dollar salary earned by the head of a large “nonprofit” hospital in a large metropolis, and say “Why not me?” is ridiculous…irrespective of whether the hospital CEO ought to be paid that much. Organizations should conduct, and make public, objective (ideally third party consultant) comparative compensation surveys as the basis of what they provide in total compensation;

  3. The Boards of charities need to be better trained (not to mention selected), and coached in their fiduciary responsibilities. Board members are supposed to govern charities in trust for the organization’s stakeholders, on behalf of those the organization serves, and those who support it through donations. Responding to concerns voiced by M.P. Guarnieri, the sponsor of the Canadian legislation he attacked in his article, Mr. Pallotta cynically replied that “a person’s occasional sacrificial donation to charity does not entitle them to mandate a lifetime of economic sacrifice on the part of others.” Actually, a certain level of “economic sacrifice” (rather than millionaires in the top 1% of the population, our poor nonprofit leaders must settle for the top 10%!) is appropriate and those donating are due the consideration of fiscally responsible management. The net gain to those who make such a sacrifice is the satisfaction that is gained in helping others and fulfilling a very important social mission. If some of those working in the nonprofit sector, as Mr. Pallotta did, feel that they are being unfairly subjected to “a lifetime of economic sacrifice” they should feel free to seek gainful employment elsewhere. The duty of charitable Boards is not to make potential CEOs feel as though they have made an economically lucrative career choice; it is to ensure that donors’ support is doing the most good for those the organization exists to serve and that the leadership has a passion and drive to serve others rather than line their pockets. For-profit Boards answer (or should answer) to stockholders; and in the wake of the Wall Street bonus stories and accounts of egregious severance packages,17 they have their own houses to get in order. But charitable Boards should answer to stakeholders…not to maximizing the financial aspirations of executive leadership;

  4. The sector as a whole needs to finally move away from looking at the magnitude of problems, the commitment of those who say they are addressing those problems, and to the degree to which they are “trying” to solve them. Instead it need to finally move wholeheartedly toward looking at results, at effectiveness, as the primary measure of whether an organization deserves individual, institutional, or governmental financial support.18 In one of his closing statements Mr. Parrotta states that “we could replace our doubt and cynicism about charities by taking a look at how hard they work to keep society’s problems from getting any worse.” WRONG! It is not “how hard they work” or “how hard they try” that matters; rather, it is what they are accomplishing! In the end, that is the most critical thing that matters; for if the last seventy years of social investment have proven anything, it is that caring, trying, and even working matter little if the interventions themselves are ineffective.


Of course, the irony of this discussion (and of Mr. Pallotta’s position) is that the greatest compensation challenge in the nonprofit sector is at the very opposite end of the spectrum from where he chooses to focus. In point of fact, it is the front line staff in many nonprofits that are most often grossly under-compensated, particularly in relation to their critical role in delivering vitally needed services.

Rather than worrying about how to increase executive compensation packages, nonprofit Boards and CEOs should focus upon retaining, promoting and rewarding those who perform and deliver vital direct services to people in need. It is an outrage that certain nonprofits pay their executives hundreds of thousands or more, while there is constant churn among their front-line staff, the people who directly interact with clients, because salaries in those positions are so low. Nonprofit organizations need to do a much better job of offering salaries and benefits that provide a decent quality of life for these individuals.


Regarding the proposed Canadian legislation that prompted this chapter in the on-going debate, we too have questions. We are neither in favor of arbitrary caps on executive compensation; nor are we, given the danger that political considerations might come into play, particularly comfortable with a government official having the ability to sanction a charity for what he or she unilaterally determines is an unfounded compensation package. We believe that comparative analysis is the best course of action. We hope that M.P. Guarnieri, and her legislative colleagues will consider this bill carefully, amend it as necessary, and in the end do what is best for Canada. We also hope that in their wisdom, they begin to bring some sanity to executive compensation in their portion of the charitable sector. Here in the U.S. we too still have much to do on this issue. We believe that, in spite of Mr. Pallotta’s position, ultimately common sense will prevail on both sides of the border; and it will be recognized that for mission-driven, high performing, nonprofit leaders, money isn’t everything.


1 Ken Berger is the President and CEO of Charity Navigator. Dr. Penna is an independent outcomes consultant and advisor to Charity Navigator. He is the author of Outcome Frameworks and the forthcoming Nonprofit Outcomes Toolbox, to be published by Wiley and Sons in March of 2011.

2 Pallotta, Dan. “Salary Caps Would Cripple Canada’s Charities. Toronto Globe and Mail. September 6, 2010.

3 Bill # C-470, sponsored by The Honourable Albina Guarnieri, P.C., M.P.

4 Text available at, and an review available at

5 House of Commons Debates, 009 (15 March 2010) at 1095 (Hon. Albina Guarnieri). Also see Donovan, Kevin. “Sick Kids charity boss gets $2.7m send-off.” Toronto Star. October 1, 2009.

6 House of Commons Debates 009 at 1117.

7 Donovan

8 Significantly, the “best and the brightest” was also the term used to describe JFK’s team of advisors…the same individuals who got us mired in Viet-Nam!

9 Berger, Ken. “Is It A Sacrifice To Work For A Charity?” Ken’s Commentary. January 12, 2009.

10 Berger, Ken and Penna, Robert M. “Billy Beane and Outcomes.” Philadelphia Social Innovations Journal. August 2010.

11 Berger, Ken. “Tales of the Dark Side” Ken’s Commentary. January 5, 2009.

12Philanthropy Journal Staff. “Nonprofit jobs in state grew in recession.” Philanthropy Journal. September 7, 2010.

13 Confessore, N. “FBI Raids Bronx Clinic Office Linked to Espada.” The New York Times. April 21, 2010.; “Former CFO of New York Charity Admits Embezzling $324K.” Fraud Talk.; Walters, C. “Homeless Charity Revealed as a Fraud.” The Consumerist. November 24, 2009.

14 Charity Navigator Staff. “2010 CEO Compensation Study”. August 4, 2010.

15 Brooks, David. “The Gospel of Wealth.” New York Times. September 6, 2010.

16 Panel on the Nonprofit Sector, Principles of Good Governance and Ethical Practices: A Guide for Charities and Foundations. October 2007.

17 Bonisteel, Sara. “Nardelli Gets $210M, Average Unemployed Joe Gets ...” Fox News. January 5, 2007.,2933,241680,00.html

18 And while we’re at it, we should also jettison considerations of how well a charity is known, who its celebrity sponsors are, or how politically connected it is!