Profit from charity: Is it all that bad?
Executives compensated like sultans. Newfangled investment instruments. Promiscuous spending on overhead. The recipe for corporate America's current financial agony, to be sure. It is also one author's serious recommendation for how charities - charities! - should run. And the idea isn't as bonkers as a subprime mortgage.
"Uncharitable" is the manifesto of an unconventional do-gooder. Dan Pallotta raised impressive sums in the 1990s through Pallotta TeamWorks, a for-profit that pioneered AIDS bicycle rides and "Breast Cancer 3-Day" events. Pallotta says his firm raised $305 million for its good causes in a lightning-fast nine years. Then came charges that high-flying expenses - glitzy advertising, massages and cucumber eye masks for event participants - siphoned too much money from charity. The Los Angeles-based company folded in 2002.
His book fires back at his critics for swallowing what he calls a destructive mythology about charity. Our Puritan ancestors insisted that giving be motivated by love of humanity, not the desire for gain; profit and its attendant risk-taking, they felt, polluted charitable acts. We've inherited that puritanical attitude, denying charities the tools businesses use to succeed - and thereby perpetuating poverty and disease, Pallotta says.
"The great suffering masses of the world would no doubt benefit from the full-time services of the brightest graduates coming out of the nation's top MBA programs. However, society's nonprofit thinking refuses to allow them to earn anywhere near the kinds of salaries they can command in the for-profit sector," he writes. We also should let charities advertise (even during the Super Bowl, if they can) and pay investors in fund-raising events a return from the net take.
"If the charity nets nothing, they get nothing," just as in business. We must allow charities to take risks and try novel fund-raising approaches, some of which will fail. So be it, says Pallotta.
At a time when even Alan Greenspan, haunted by the ghosts of free-market ideology past, has undergone a Scrooge-like reform, why shouldn't we dismiss Pallotta out of hand? For one thing, critics acknowledged Pallotta TeamWorks raised gobs, and he pointedly asks if it's better to deprive charities of such impressive amounts just to keep fund-raising expenses modest. His citations include Paul C. Light, now a philanthropy scholar at New York University, who has called on charities to be innovative risk-takers.
And Paul Schervish, director of Boston College's Center on Wealth and Philanthropy, told me that Pallotta's businesslike strategies make sense - with the crucial proviso that "there has to be fuller knowledge for the donor. Not just the risks - the costs [of fund-raising events], the strategies." Pallotta's critics contended his company fell short on disclosure. The Globe reported that a 1996 AIDS ride promised participants that 60 percent of the take would go to charities, when they actually got only 19 percent.
It may be that disclosure would send donors scurrying to traditional, low-expense charities. It may be that such donors are as foolish as Pallotta claims. Welcome to the marketplace, says Schervish, where consumer demand, however short-sighted, is king. The personal bitterness gassing up Pallotta's passion also makes him verbose, and "Uncharitable" runs too long. But philanthropists and charity execs should read it to ponder, if judiciously, its lessons.
Contact Rich Barlow at barlow81@gmail.com. 