Features Directory
Sophie Elmhirst
Published 15 September 2011

“We were caught in the Puritan stranglehold.” If charities could behave more like businesses by

paying higher salaries and spending more on advertising – they’d do better, says one controversial thinker.

Dan Pallotta has a singular purpose: to change the way people think about charity. His book, Uncharitable, was published in 2008, but three years later it continues to generate reaction and debate across the voluntary sector. Pallotta's thesis is simple: we need to stop treating charities like charities, distinct from every other kind of organisation, bound to a moral and ethical non-profit framework that most corporations sidestep. Charities should be able to behave like businesses: paying higher salaries, spending a large proportion of their revenue on advertising and worrying less about having to account for every penny they spend on administration and instead focusing on long-term investment.

Source: Dan Murrel

Unsurprisingly, the book provoked a strong reaction. To those with a pure conception of charity, Uncharitable was an affront. But to Pallotta, those critics are stuck in an irrelevant, dated era. As he points out early in the book, the Puritans, who arrived in the US in the 17th century, were the first to formalise the idea of charity, which emerged from a Christian philosophy of self negation to serve one's fellow man. Pallotta says that the non-profit sector is "the only sector whose name begins with a negative... it apologises before it begins". This attitude should be abandoned, he says, and the sector should be positive and competitive, unashamed of taking risks and making money.

Pallotta's interest in charity developed while he was an undergraduate at Harvard. Here he organised campus- wide fasts for Oxfam, raising around $5,000 a year; from then on, he was "kind of hooked". He decided to up the scale and after college organised a bike ride across America, raising $80,000. Then, in the early 1990s, he moved to Los Angeles and set up his own organisation, Pallotta TeamWorks, which raised funds mainly for HIV and Aids charities in response to losing many of his friends to the HIV/Aids pandemic. Pallotta's bike rides spread across the US and he soon expanded his brief to include breast cancer, running walkathons for several beneficiaries, including the Avon Foundation, a woman-focused philanthropy organisation. TeamWorks raised more than half a billion dollars in nine years, but by following his own mantra -- building brand awareness, paying good salaries, spending money on advertising and working for profit -- Pallotta attracted heavy criticism.

TeamWorks soon lost its contract with Avon. The foundation said it was worried by the rising costs and apparent loss of focus as TeamWorks expanded its operations. The loss of this major client caused the company to collapse and, in August 2002, Pallotta had to lay off all 350 employees. Legal wrangling ensued, but the catastrophe only emboldened Pallotta.

He recounts the whole saga as a case study in Uncharitable to support his argument that the public's understanding of charity is fundamentally wrong. For trying to use "the tools of the free market", Pallotta was hounded by critics until his company fell apart. As he put it: "We found ourselves caught in the Puritan stranglehold on our contemporary values."

Useless measures
Nearly a decade on from that disaster, and three years on from his book, does Pallotta feel his hoped-for sea change in charity is happening? Speaking on the phone from the US, he is cautiously hopeful: "I think progress has been made -- I think the book is contributing to a conversation that's creating change." He cites the example of the independent, US-based charity watchdog Charity Navigator, which issued a statement supporting Pallotta's view that overhead ratios and executive salaries were a useless way to measure the impact of a non-profit organisation. Pallotta is now setting up the Charity Defense Council -- an organisation that will lobby on behalf of charities in the US and educate the public about charities' need to fundraise. He has hired an advisory board to help him lobby government and media and, once it is up and running, the council will form an anti-defamation league to respond to media attacks on the voluntary sector. It will also focus on litigation, challenging statutes that try to limit the amount that charities can spend on fundraising and salaries.

To boost the launch of the council, Pallotta is writing a follow-up book, which he hopes will help change public attitudes, a vital part of his strategy. While many executives in the sector have welcomed his manifesto for change -- Pallotta says his book has been endorsed by leaders of Save the Children and Oxfam America, among others -- they all agree that the main obstacle they face is public opinion. At the moment, "79 per cent of Americans believe that charities waste either a great deal or a fair amount of money", Pallotta says. His aim is to reverse that statistic within five years, so by 2016 only 21 per cent agree with the statement.

So, how will he do it? "By putting massive resources into it; by putting massive dollars into public faces and advertising campaigns to engage the general public and have conversations we've never had with them before, at least in the US," says Pallotta. "No advertisement has ever run in the history of this country defending the non-profit sector and enlightening the general public about the realities of compensation and overhead." Public conservatism about the way charities operate is not entirely the non-profit sector's fault, he says, but a product of a communication failure. "We haven't spoken to them, not collectively and not very much individually either -- we typically cower to their conventional thinking and shame on us for not having busted the mythology."

Public's perception
That mythology, however, is deeply embedded. Transforming people's expectations of charities' behaviour will not be straightforward. Pallotta is, as ever, upbeat and practical, desperate to show there is another way. "You have to make it about producing results in the world, and not about being true to some ethical value system ... We have to start to ask the public: 'What do you want: low overhead or the end of homelessness? What do you want: low executive compensation or the end of Aids?'" If the choice seems stark, that is Pallotta's intention. His plan is to wrest charity out of the hands of moralists and liberate organisations to actually achieve their goals. The general public, he believes, has mistaken moral purpose for good practice: "They think the ethic is the path to improvement, and not the opposite. So I think once people know that the ethic is actually what's standing in the way, we can change their minds."

But how many people, truly, would respond well to the idea of paying charity managers more at the expense of their donations going directly to the programmes they want to support? Pallotta is insistent: "I see consistently, in room after room after room, within 45 minutes of hearing a thoughtful presentation on the subject people do a 180 ... they've just never thought about it. So when you show them that you know that overhead includes fundraising and you know that fundraising includes marketing and advertising, and you know that only through fundraising and marketing and advertising can these organisations grow, and only if they grow can they ever solve these problems -- there's no argument against that."

The Big Interview

Source: David McNew / Getty Images

He has figures to prove it, comparing Save the Children in the US to Walt Disney. In 2009, Save the Children spent $2.3m on advertising while Disney spent $2bn. Disney is clearly the far bigger company, but its proportion of advertising is vast. Pallotta says: "The question is 'what's a lot?' And what looks like a lot to us in the non-profit sector, where zero is a reference point, isn't a lot in the real world -- billions is the reference point."

Pallotta thinks charities should be trying to compete with companies like Disney for the public's attention. Like any private-sector company, they need to build demand and grow. If charities seriously want to play the "big game" -- solving some of the world's largest and most intractable problems -- it is "going to take a lot of money". At the moment, donation levels are simply not high enough: in the US, charity giving is about two per cent of GDP while in the UK it is just over one per cent. Charities will not increase that proportion unless the public understands what they do and people cannot gain that knowledge without advertising. Pallotta quotes the economist John Kenneth Galbraith whose "big assertion was that the for-profit sector creates want and desires that you didn't really know you had". The same needs to be done for charity: "We have to look at giving as a product. In the same way the iPod advertising stimulates people's inherent passion for music, we have to stimulate people's inherent passion to give to others, and the more we do, the more they'll give."

Comparing charitable giving with an iPod might make some people shudder -- surely charity is about more than selling or possessing "a product"? You would think, hearing this capitalist-friendly, corporate-imitation language that Pallotta was born and bred on the trading floor or in a ruthless top-flight marketing agency. But the truth, as we know, is somewhat different. He is "hooked" on giving, and has been ever since those early days. His drive is born not of corporate ambition, but a youthful idealism. All he ever wanted to do, since he was that college kid organising a fast, "was put a dent in the universe".

CV /Dan Pallotta
Graduates from Harvard with degree in economics
1994 Sets up Pallotta TeamWorks, and launches annual California Aids Ride to raise money for the Los Angeles Gay & Lesbian Community Services Centre
1998 Launches Breast Cancer three-day events with the Avon Foundation
2001 Publishes When Your Moment Comes: A Guide to Fulfilling Your Dreams
2002 Avon Foundation ends relationship with TeamWorks
2002 TeamWorks shuts down, laying off all 350 employees
2008 Publishes Uncharitable: How Restraints on Nonprofits Undermine Their Potential

Dan Pallotta is delivering the closing plenary at the International Fundraising Congress, in the Netherlands, hosted by Resource Alliance between 18 and 21 October


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