New Direction for Nonprofits

July, 2009

At a time when Hawaii’s 7,000-plus nonprofits wonder how they will keep providing for the needy, we cannot afford to ignore new thinking on how to meet their challenges. Dan Pallotta’s book “Uncharitable: How Restraints on Nonprofits Undermine Their Potential,” offers those new ideas.

As the economy reels from Wall Street’s lack of restraint, it is easy to understand why some people are alarmed by Pallotta’s argument that society should free nonprofits to use all the tools of capitalism. But nonprofits and those who fund them will find it worthwhile to examine the case he makes for capitalism as the path to survival for nonprofits.

Volunteer Legal Services Hawaii, for example, is a place of last resort for those who cannot afford paid counsel. Without this service, the community would pay dearly in other ways. Yet each year the mission of VLSH and nonprofits like it are at risk as grantors make tough choices about which to support. Central to Pallotta’s book is a deceptively simple question: Why do we admire for-profit companies for their investments in advertising or public relations but attack nonprofits who direct some of their limited funds at anything other than direct program expenditure? He argues that society conditions us to accept that talented executives in the for-profit world deserve high salaries but “a charity should have the luxury of paying people less because they get fulfillment from helping people out.” Having “built our society on the backs of bold gambles, experimentation, mistakes, failures and learning,” we deny nonprofits and their leaders the chance to make investments in bold, new ideas.

All of us who have asked, “What percentage of my donation went to the cause?” will feel a twinge of recognition reading “Uncharitable.” Pallotta makes the persuasive case that, by letting go of the “illogical idea that a dollar we give today can only help the needy if it is used today,” we free nonprofits to dream big. Not to let go is to put nonprofits in a straitjacket that stifles their imagination and exhausts their energy. “A system that creates barriers to visions, not only loses visions. It loses visionaries.” Conformity to a short-term view of charity rather than a commitment to a creative vision that looks to long-term solutions tends to drive how we evaluate and fund nonprofits.

Pallotta’s own for-profit company, Pallotta Teamworks, invented AIDS rides and Breast Cancer 3-Day events that raised over half a billion dollars and netted $305 million for these causes in nine years. Yet, in the face of criticism over the company’s use of free-market tools, Pallotta Teamworks went out of business. “Uncharitable” provides a case study of their success and how their demise hurt the causes they had served. When the same nonprofits reverted to conventional fundraising after splitting with Pallotta Teamworks, they did not yield the same results.

If we heed Pallotta’s advice, nonprofits in Hawai‘i should exploit the tools used by for-profit companies. “Paid advertising campaigns, stunning printed materials, compensation that acknowledged self-interest, cross-promotion of causes, taking a long-term view, taking calculated chances, or placing the value of a dollar over the value of a percentage” delivered results. These tools could help Hawaii’s nonprofits achieve organizational sustainability. But this demands more of us than compassion. It requires a change of heart and mind. Let’s stop asking nonprofits to settle for small change in ideas and our investment in them. The biggest risk to this investment is not making it.

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Dawn Morais Webster