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On the Hot Seat

Former charity executive makes case for a new model

Dan Pallotta is the author of 'Uncharitable.' Dan Pallotta is the author of "Uncharitable." (Kayana Szymczak for The Boston Globe)
By Beth Healy
Globe Staff / April 3, 2011

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Dan Pallotta founded Pallotta TeamWorks, a fund-raising company that started the AIDSRides and Breast Cancer 3-Days events and raised millions of dollars for charity. His book “Uncharitable’’ details how his company went out of business in 2003, under fire for earning profits by raising money for charities. Pallotta challenges the status quo among nonprofits, arguing the sector is capital-starved because society won’t let charities compete the way businesses do in the free market. He recently spoke with Globe reporter Beth Healy.

You strenuously object to people asking charities about overhead and expense ratios. Why?

The overhead question is inhibiting transparency. It’s a bad question — it’s not giving you the information you really want. What if 95 percent of your donation goes to the soup kitchen, and they’re serving rotten soup?

Your perspective on nonprofits is controversial. How did you develop this point of view?

It was in the course of building the breast cancer walk. We were raising more money than had ever been raised. At the same time, some people would criticize us for our fees. In general, people think charities shouldn’t spend money on advertising. Really? Advertising, that’s controversial? To pay an executive $200,000, that’s controversial? There are plumbers out there who make that much.

If you’re against looking at nonprofits’ costs, how should people assess them?

Another context to look at it in is the solving of large social problems. What’s more important, to uphold some kind of an ethic, an ethic that’s more about its own purity than solving a problem? It has to be a bigger conversation. If the conversation is how do we solve breast cancer in the next 10 years, how do we solve homelessness in Boston in the next 10 years, do we want to think big or do we want to think little?

In your book, you talk about attracting top talent to the nonprofit world by being free to pay more. But million-dollar pay packages come under intense scrutiny at some charities. What’s your argument for getting around that?

In nonprofits, you can’t use money to attract talent, you can’t take risks, because everything gets measured in 12-month increments. And then we call the whole system charity, like there’s something really noble and sweet about it. You have no capital, no talent, no advertising. How can you pursue growth if you’re denied all these things?

You are proposing a capitalistic approach to nonprofits, correct?

Why would you have different economic rulebooks — one for trying to sell a pair of sneakers and one for trying to put a plate of food in front of everyone?

Then again, people accumulate wealth on Wall Street or elsewhere and then give back. Isn’t that another capitalistic way to support charity?

Yeah, but wouldn’t it have been great to have Bill Gates involved in hunger from the earliest age? There are billionaires who spend 1 percent of their lives on charity and 99 percent of their time building their business.

So are you a proponent of so-called venture philanthropy? In that model, it seems business people want to address problems they think they can measurably fix. But some societal problems can’t really be eliminated, right?

Venture philanthropy was running the risk of a lot of business people barging into the humanitarian sector and thinking they knew more than people who’d spent their lives on the sector. Business people would walk through the board room and get stupid all of a sudden: They would come and say don’t pay, don’t advertise, and I’m going to teach you to be more efficient — do more for less. They didn’t grow their businesses that way. It’s cruel and disingenuous.

Many people take a more traditional view — that you shouldn’t be driving a BMW if you run a charity. What do you say to that?

My whole motivation for this is that we’re not solving any problems. One billion people are hungry in the world; it was 890 million 10 years ago. We have the same old statistics every year. . . . Who cares if people get BMWs if we solve breast cancer?