Tuesday, September 24, 2013

A-Lot-A Pallotta; But Very Little to Charity



By Ken Berger and Dr. Robert Penna

(An excerpt of the following blog post was originally published in the Huffington Post.)

When Dan Pallotta published his first book in 2008, Ken had just joined Charity Navigator after nearly thirty years of running nonprofits serving the poor and other groups of people in need. Bob had spent years conducting researching for a book on the importance of nonprofit’s measuring their results. We both (along with a number of our colleagues) considered Dan’s book too disconnected from the real world to be taken seriously. Surely, we thought, no one would subscribe to such views about how to operate a charity; and especially not from someone with as checkered a track record regarding charities. However, it became increasingly apparent over time that many people were drinking the Pallotta Kool-Aid, and we needed to take his arguments more seriously. Therefore, some of us have been trying to get the message out about the fundamental problems with his viewpoint for years now.

We have both written articles in response to his views; and Ken has debated Dan on the web, on the radio, and has even spoken out against his views on non-profit CEO salaries before the Canadian House of Commons. However, Dan’s popularity has only continued to grow, culminating in the recent TED talk that currently clocks in at well over 2 million views. No one can dispute the fact that Dan Pallotta is a good pitch man, is certainly effective at selling himself, and can convey his message quite convincingly. We believe his message has gained tremendous popularity for one simple reason – he ultimately is arguing that charities should be held to virtually no accountability standards. Yes, we know Dan says people should look at results rather than overhead; but if you look under the hood for details, there is little in his argument on exactly how to go about measuring those results. For example, he speaks of vague notions such as “Charity is in the business of inspiration, so it is particularly problematic for charity that the value of inspiration is not measured;” and “it is not a matter so much of what we must do as what we must stop doing,” yet at the same time he implicitly - and sometimes explicitly - justifies doing away with most clear standards of accountability. Unfortunately, it is evident that this is music to the ears of many leaders in the charitable sector.  Indeed, many of them seem drawn to the notion that if they follow the Pied Piper of Zero Accountability, they can basically do whatever they want and get paid millions while waving the flag of Pallotta’s books and TED talk.

We, on the other hand, thoroughly reject most of what Dan says beyond the kernels of truth at the 50,000 foot level. We agree that results matter more than overhead (Charity Navigator has signed a letter with Guidestar and the BBB Wise Giving Alliance on that very point) and of course we should pay decent salaries for charity leadership (we acknowledge six figure CEO salaries in the nonprofit sector as the norm every year in our CEO Compensation survey). However, to say that it is acceptable to spend 99 cents to raise a dollar of donor money and to suggest that charity leaders should be able to make millions is simply absurd. Moreover, the general public will NEVER buy such notions, even with video of Dan’s cute kids chiming in to the TED talk!

So for those of our nonprofit colleagues who are promoting Dan’s views and inviting him to be the keynote speaker at their conferences we say to you - This Is A Dead End. If you follow Dan’s lead, you will ultimately lose donors and your organization will lose its way overall.  We know for a certainty that those nonprofits that follow Dan’s recommendations will not see the realization of his vision of a future of “reclaiming our dreams”. Instead, they will see a nightmare, in which fewer people are served and the quality of services decline; because those organizations that attempt to follow his vision will lose the support of those who are grounded in the real world and are looking for truly high performing,  efficient and effective organizations. Worse still, these “dreamy” charities will not have a clear path to improving their performance. To truly make the world a better place and make the nonprofit sector more effective, what we need is more serious work on managing and measuring the results of our work to be sure that every dollar is spent wisely; not wasting time entertaining excuses for no meaningful accountability.

12 comments:

Joyful Rant said...

I have to disagree, Ken. I have read both "Uncharitable" and "Charity Case" and Dan certainly is not advocating for ZERO Accountability. He is doing the exact opposite. He is saying that REAL Accountability is difficult to measure, but that doesn't mean we shouldn't try harder to figure it out, and that we should stop wasting time on measuring things that have nothing to do with change and moving the needle on solving really difficult social problems. He is also trying to provide some insight into why we haven't been able to move the needle, and he has identified 5 constraints on non profits. They all have merit. Prior to reading his two books, I read Steve Goldberg's "A Billion Drops in a Million Buckets." This book also provides some insight into why, despite $300 billion in charitable donations each year (each year!) we don't make more progress. I have worked in the non profit sector for 20 years and I am worn out! We have to do something different!

Ken Berger said...

Joyful,

I too have had the unpleasant experience of reading both of Dan's books. As we state in this article, at the "50,000" level Dan appears to be arguing for at least some of the sames things we do - especially a focus on measuring the results of a nonprofit's work. However, when you look for specifics of what to measure and how, Dan comes up with his typical vague platitudes. On the other hand, Goldberg's book is outstanding and we heartily endorse it.

As to our looking for something different and a vision for where we need to go, check out this article - http://www.kenscommentary.org/2013/07/kens-bodacious-dream-for-social-sector.html

Do not despair! There are real answers for how to solve our problems and help many more people. However, Dan Pallotta's ideas (when you get to the ground level) are largely not the way to get there!

Best,
Ken

Joyful Rant said...

I'll check it out. I loved Steve's book and I would love to see a "stock market" for non profits put into place - but wow - what a massive endeavor! And people's eyes glaze over when I try to explain it. Regarding Dan's ideas, do you really think that there is nothing of merit in either of his books? For a simple example, I run a bowling fundraiser. It makes about $100,000 per year with no marketing. If I took half the revenue and invested it bringing in more sponsors and bowlers, I could probably raise 2 or three times more money. No?

Ken Berger said...

Joyful,

As I have indicated in my webinar debate with Dan, where I went into some detail on his first book, http://www.kenscommentary.org/2011/02/uncharitable-webinar-2-1-11.html
there is so much wrong with what he is saying that it negates the valid points. He takes things to such an extreme or creates a phony "straw man" that does not exist and then knocks it down, such that the book is very damaging to get a clear understanding of the issues we face and how to fix them.

As to your simple example, three points.

First, Dan is not saying half the revenue, he is suggesting that even 99 cents of every dollar raised is ok for fundraising cost. That is an example of how he takes something with a kernel of truth (you have to spend money to raise money and SOMEWHAT more MAY help you raise more) to an absurd extreme.

Secondly, there is no compelling evidence that we see providing evidence that long term such a strategy actually works.

Thirdly, most donors are fundamentally opposed to using their funds for such a purpose. In fact they could very well feel betrayed by what they see as a deceptive fundraising approach. Therefore, whereas you MAY increase funds short-term, the long term damage to the trust you have with your donors could be devastated. Taking it a step further, you can not only damage the trust in your own organization, but the nonprofit sector as a whole.

I hope that helps.

Best,
Ken

Joyful Rant said...

No, it doesn’t help really. I disagree that Dan’s valid points are negated. He may go to an extreme to make a point but not ridiculously so. I don’t see how the book is damaging or what it damages. I don’t think the purpose of his books is to “fix” anything – he is trying to bring awareness to why all the constraints on nonprofits hold us back. Regarding saying that “even 99 cents of every dollar raised is ok for fundraising cost” I don’t think his intention is to say that we should spend .99c of every penny we raise to raise more money. He is saying that if you can raise more money by spending more money – which has been proven to be true, we should be allowed to do it. We have a golf tournament that is a perfect example. When we ran the tournament we raised $60,000 – 25% of which was expenses, but when our corporate sponsor took over running the tournament and hired a professional event planning company to run it they increased expenses and started raising a lot more money (this year they raised $1.8 million and 40% is expenses.) The point is that they are raising a lot more than our $60,000.
Why should we not look into whether or not this strategy actually works long term? I find that when you explain things to a donor they feel the opposite of betrayed – they feel involved. There is nothing deceptive about trying to raise more money to serve more people. What we have been doing in the past is just not cutting it.

Ken Berger said...

Joyful,

I agree that the way the nonprofit sector has been doing things does not "cut it". However, your and Dan's proposed solution also does not cut it. I predict that long term you are headed for disaster. Let us agree to disagree on the value or lack thereof of Dan's work and the road you have chose to take. I remain convinced it is a Dead End.

The road out of the mess we are in has to do with managing and measuring your results in a more intentional and meaningful way. Not the vague platitudes of Pallotta. That is where Charity Navigator is headed and where you should be focusing your efforts too. I predict that, long term, THAT is the way to increase your funding.

Best,
Ken

Joyful Rant said...

My organization measures over 100 metrics. We document everything. We have 50 years of solid research that our program is incredibly effective to back us up. We could not be more intentional and meaningful in the way we measure success. Our success is not bringing in more funds. It may help us keep the funds we have but no one is knocking down my door with money to serve the 1,400 kids on my wait list. I have been measuring and communicating to my donors about that measuring for years and it is not the answer. In my opinion all that stuff about measuring results is "vague platitudes." If Charity Navigator is planning to make it less vague that would be fantastic.

Ken Berger said...

Joyful,

I am delighted to hear that your organization measures it's work. However we often find organizations measure outputs and not outcomes. That is the most meaningful of measures and where we need to get to as a sector.

As to Charity Navigator getting beyond vague platitudes, read this - http://www.charitynavigator.org/__asset__/_etc_/CN_Results_Reporting_Concept_Note.pdf

Best,
Ken

Joyful Rant said...

Is this 3.0 system in place now? Are you piloting it? We do almost all of those things - I am especially interested in the constituent voice "ebay" seller feedback component. This is similar to something Steve outlined in his book. I also think it is one of the things that will actually reveal "cheaters." Maybe it's the area I live in and we are ahead of the curve, but our local funders have been requiring this kind of results accountability for several years now - probably over 10 years at this point - and most charities fairly easily figure out how to comply with all the requirements. For example, I remember the first funders meeting I was at where they talked about requiring a logic model - it seemed like a foreign concept to so many, but now it's Standard Operating Procedure. Also we have a local group that is trying to develop a website for consumer feedback - so far it hasn't generated much - but hopefully it will. I'd love to pilot your 3.0 system if you need volunteers. Will it cost anything to use?

Ken Berger said...

Joyful

Yes we launched this new dimension to our evaluation system in January 2013. Here are the further details regarding the effort - http://www.charitynavigator.org/index.cfm?bay=content.view&cpid=1526

We never charge charities a fee of any kind (or site users). Please email me directly at kberger@charitynavigator.org to explore whether we can ramp up your organization sooner rather than later for results reporting and constituent voice efforts.

Best,
Ken

ruben vassolo said...

I am impressed by organizations that publicly report their mission-related results intelligibly, frequently and accurately. Charity Navigator’s CN 3.0 is a big step in the right direction.

After reading the comprehensive Results Reporting Concept Note, I hope CN continues to evaluate and simplify the methodology behind its Results Reporting, Financial and Accountability & Transparency ratings. Success is near when the methodology is easily understood by CN’s audience, including primary constituents, potential donors and donors. This is especially the case if organizations model their disclosures after CN 3.0.

I have worked with public companies and public charities alike. In the case of public companies, shareholders, investors, the SEC, executives, CPA’s, attorneys and securities arbitrators are often at a loss trying to decipher annual reports, quarterly reports and other mandatory disclosures. What good is public disclosure of results by public companies if few understand it?

If the disclosure of mission-related results by organizations and CN’s ratings are to be successful, every step should be taken to simplify the ratings methodology. We must learn the lesson that the SEC and public companies are still learning.

Ken Berger said...

Ruben

I agree completely. We will continue to hone this dimension of our rating system as we go and provide examples for charities to see clearly what we are looking for.

Best,
Ken