There is a great new voice in the growing movement towards the convergence of the public, private and nonprofit sectors. Dan Pallotta, author of Uncharitable: How Restraints on Nonprofits Undermine Their Potential, has launched a blog on the Harvard Business site. His first two posts expose the irrational dichotomy under which the American business and nonprofit sectors operate. The private sector enjoys various financial tools, incentives and behaviors that are forbidden to the nonprofit sector. Why do we offer those trying to make a profit every advantage, but make those trying to create a social good suffer hurdle after hurdle?
His first post takes on what he calls the “two rulebooks — one for charity, one for the rest of the economic world.” And he gives various examples of a double standard for charities:
- We let the for-profit sector pay competitive wages based on value, but have a visceral reaction to anyone making a great deal of money in charity.
- We let Coca-Cola pummel us with advertising, but donors don’t want important causes “wasting” money on paid advertising. So the voices of our great causes are muted.
- We let for-profit companies invest in the long-term to identify new sources of revenue, but we want charitable donations spent immediately to help the needy. All results must be measured against expenditures in twelve-month windows, and a 65% return is required.
- We aren’t upset when Paramount makes a $200 million movie that flops, but if a charity experiments with a $5 million fundraising event that fails, we call in the attorneys.
Yes! Nonprofits exist within a system that in effect penalizes them for trying to do good. The result is a sorely undercapitalized sector held together by bandaids, desperate for more talent and resources, bracing themselves against the increasing number of problems they are being called on to solve. It is a horribly broken system, which requires a complete resetting.
In his second post, Pallotta takes on the nonprofit executive salaries debate, again with a view towards the double standard nonprofits face: “We give young people horrible mutually exclusive choices. We tell them that they can pursue their dreams of helping the world’s neediest citizens or they can pursue their dreams for their own economic futures, but they cannot pursue both.” The end result is a nonprofit sector that struggles to attract enough of the top talent our country has to offer.
The problems we are facing are too complex and too deep to allow this continued lack of resources for a sector that is trying to find solutions while the for-profit sector pays enormous salaries to those just trying to make a profit:
We must reject the dysfunction that calls a billionaire who spends all his time building his wealth a “philanthropist” but the three-hundred thousandaire who spends 100% of her time trying to end hunger a parasite for her six-figure salary. The notion that people should be compensated on the basis of the value they produce can no longer be denied to those who save lives while it is given freely to those who sell sodas and bounce basketballs.
Some might argue that despite lower salaries Generation Y is entering the nonprofit sector in higher numbers than previous generations, which is great, but that’s not sustainable. If the system doesn’t change, as they get older, buy houses, raise families, many of the best and the brightest of that generation, too, will be lured away by big paychecks and greater resources with which to do their work.
Dan Pallotta provocatively demonstrates the tremendous inconsistencies that exist in a system that unnecessarily drives a wedge between the nonprofit and private sectors. I look forward to more of his posts.