The 2013 TED Talk, “Dan Pallotta: The way we think about charity is dead wrong,” has created quite a buzz. Since becoming available on youtube in March, the 18 minute speech has been viewed over 2 million times. I was viewer 2,764,382.
What in the world of nonprofits could create such a frenzy? Money.
Money is an emotional subject. Hollywood is full of stories about who has money, who doesn’t, and who is trying to get it. We also tend to voice strong opinions about who is entitled to have money and what they should do with it. The flip side of this (and often only addressed in hushed voices) is the subject of who should not have money and what they must not do with the money they have.
At first glance, one may wonder what this has to do with charities. Actually, our philosophic views about money significantly impact nonprofit organizations. More precisely, our views about money impact how much money those working with charities should have, what charities should do with the money they obtain, and how they may do this.
Society has different rules and expectations for for-profit and nonprofits. For-profit businesses are expected to mass wealth whenever possible and use whatever tools are necessary to help them achieve this. Actions taken to promote growth and strength within a for-profit business are considered to be responsible actions and are encouraged.
Palotta points out that the public has different expectations for nonprofits. Activities that divert funds away from immediate act of providing services are discouraged or downright forbidden, even when the diversion would ultimately increase the overall funding available for services.
He gives five specific areas in which nonprofit organizations are limited: compensation, advertising and marketing, risks that nonprofits should take in finding new ways to increase revenue, the time in which projects should show returns, and the ability to attract investors. He explains the reasons given for the limitations and the origins for the limitations. He also explains why this reasoning must stop.
According to Palotta, each one of these areas are tools for growth. By placing restrictions on these 5 crucial areas, we are also restricting the ability of nonprofits to grow and achieve the effectiveness and efficiency brought about by scale.
Palotta makes a strong case that is difficult to ignore. He cites specific examples in which large salaries have attracted people who have, in turn, greatly increased funding and services for their organization. He details how the inability to share stories, increase awareness, and inform the public of the impact of nonprofit organizations has restricted the amount of support received by others. He explains how fear of losing credibility forces organizations to repeat fundraising activities that produce only moderate results rather than try new, but riskier activities that could have significantly greater results. He shows how nonprofits feel the pressure to focus on immediate results, rather than establishing programs that take time to build. Finally, he points out how the inability to provide monetary profits to investors impacts the ability of nonprofit organizations to obtain funds needed to grow.
The statistics provided were impressive. For decades, only 2 % of the national GDP is related to charitable giving. Increasing this to 3% would generate another $150 billion- enough, according to many experts, to make significant progress in actually tackling some societal issues.
He also points out how the restrictions placed on nonprofit organizations have kept them from keeping pace with growth within the for-profit sector. During the last 40 years, over 46,000 for-profit businesses increased their annual revenue to the cross the $50 million threshold. During the same time period, only 144 nonprofits accomplished the same. Only 144.
It makes one pause and think. And that, I believe, is his main purpose. His short, 18 minute speech was jam packed with information, examples, and ideas- all designed to promote further discussion and, perhaps, even action. Check it out. Talk about it. Argue.
Most of all, ask yourself, “Does achieving real societal change first require society to change?”