Dan Pallotta speaks in Sonoma about on social innovation vs. overhead
Charity activist Dan Pallotta took the stage Monday night at Hanna Boys Center with a firm message to the many event attendees who hailed from the local nonprofit world – we need to rethink our frugal funding of nonprofits.
Perhaps best known for his involvement in multi-day fundraising events like the Breast Cancer 3-Day Walks, the AIDS bicycle rides, and Out of the Darkness suicide prevention night walks, Pallotta addressed the sold-out crowd at the latest talk sponsored by the Sonoma Speaker Series with humor, passion and a roadmap for charitable giving.
Drawing a distinct correlation between the for-profit world and the nonprofit sector, Pallotta clicked through a series of slides that helped illustrate the ways in which Americans tend to view charity. As the founder and president of the Charity Defense Council, Pallotta believes that true social innovation will come from transforming the way the donating public thinks about giving.
He said that, in most instances, “donors to charitable organizations want their contributions to go 100 percent to the cause to which they are giving” rather than to what many perceive as “overhead” – i.e. salaries.
As an analogy, Pallotta drew a comparison to how society might view the salary of a head basketball coach at a prestigious university. The coach is paid a large sum to recruit top talent to the team, therefore keeping that university in the spotlight, promoting interest and growth – and the university’s donors are invariably on board with that level of spending.
By contrast, said Pallotta, the CEO of a nonprofit that fights hunger makes a 10th of that salary, is expected to achieve nearly the same rate of growth for his organization but isn’t given the ability to spend the same amount of money to bring awareness to the cause. The difference, said Pallotta, is not that the head coach is overpaid, but the CEO of the nonprofit is underpaid – after all, both have the same goal: to grow an organization.
“The social issues facing us today are massive in scale but the organizations that support them are tiny up against them and we have a belief system that keeps them tiny,” said Pallotta. “We have two rule books: one for the nonprofit sector and another one for the economic world.”
Pallotta went on to list the five areas in which the economic world discriminates against the nonprofit world – all of which revolve around an aversion to overhead.
The first is compensation and a belief that we don’t like nonprofits to use money to incentivize people to produce more for social services.
The second is advertising and marketing. The for-profit world can spend millions on advertising but in the nonprofit world, philanthropists don’t want their donations spent on advertising - they want their money to go directly to the needy. Pallotta noted that charitable giving in the United States has remained stuck at 2 percent of the Gross Domestic Product ever since economists started measuring it in the 1970s.
“In 40 years, the nonprofit sector hasn’t been able to wrestle any market share away from the profit sector,” said Pallotta. “Because you’re not allowed to advertise all the good that you do or the problems that you’ve helped solve.”
Taking risks, having a long-term objectives to build market dominance, and using profit to attract capital rounded out Pallotta’s list of expected private industry practices shunned by the nonprofit world.
“When you put all five together,” said Pallotta, “then you’ve just put the nonprofit sector at an extreme disadvantage on every level.”
He said donors often ask what percentage of a donation goes to the cause versus overhead.
“But what makes us think that overhead is not part of the cause?” asked Pallotta. “It absolutely is, especially it if is being used for growth.”
He said that because people view overhead as the enemy, many charities are forced to forgo what they need to grow in the interest of keeping overhead low.
“In the logical world, investment in fundraising actually raises more funds,” Pallotta told the Hanna audience made up largely of locals from the nonprofit sector. “If that is the case, then in the nonprofit world, we have it backward.”
Summed Pallotta: “We should be investing more money in fundraising because fundraising is the one thing that has the potential to multiply the money available to the cause in which we believe deeply. Change is never going to happen if we force these organizations to keep their overhead low.”
Pallotta closed by challenging the audience to change the way they think about nonprofits and what he called “the scale of dreams.”
What resources are needed, asked Pallotta, to make these dreams a reality, regardless of the overhead, if the social issues are being solved?
That change in thinking is, to Pallotta, the true social innovation.