Philanthropy: Progress at ‘the pace of molasses’

Real transformation can be a nauseating experience. It probably should be gut-wrenching. And the phrase thinking out of the box has created a new box without actually looking at the nature of the box. The “puritanical” idea that philanthropy assuages guilt holds charities back from transforming the process of mending society’s issues.

Those were a few of the ideas espoused by author and professional fundraiser Dan Pallotta during a keynote address at the Association for Healthcare Philanthropy’s (AHP) annual international conference in Palm Desert, Calif. More than 900 registrants gathered at the JW Marriott Desert Springs Resort & Spa for the 48th annual conference.

The way philanthropy is currently operating is providing progress at the “pace of molasses.” He cited a few statistics as examples of a slow pace:

  • There were 1.1 million AIDS-related deaths in 1992 and 1.6 million in 2012;
  • Giving to charity has been at roughly 2 percent of GDP since it has been tracked;
  •  The illiteracy rates was 14 percent in 1992 and it remained 14 percent during 2013; and,
  •  Breast cancer deaths were 43,538 in 1992 and 39,620 in 2013 – a decline, but a slow one, given all of the advocacy.

Government is not the answer, said Pallotta, whose book “Uncharitable,” was a best seller. There needs to be rapid excellence in social issues but nonprofits are playing into the mindset of the Puritans by denying charities of what is needed to make the sector grow to the level required to truly alleviate problems. There are five elements to making the change: compensation; advertising and marketing; taking risks on new fundraising revenue ideas; time; and attracting risk capital.

Compensation has long been a theme for Pallotta, who has championed higher wages for nonprofit employees and the idea that overhead costs are a necessity to growth and completing missions. For example, he said a Stanford graduate with an MBA makes an average of $400,000 annually while the average CEO of a hunger program makes $84,000. There is no incentive, he said, for good-hearted people to deny their own families security to take a job at that wage differential. A person could underwrite the cost of the CEO, get a tax deduction and still be ahead of the game, he said.

Even on the higher end, he picked five large health charities whose chief executives earn a combined $2.5 million while the CEO at Aetna health insurance earned $47.5 million. “Stop the double standard,” he said.

When it comes to advertising, he cited a major children’s relief charity had spent $623,000 on advertising while McDonald’s spent $957 million. A woman’s breast cancer charity spent $25 million on advertising while cosmetics firm L’Oreal spent $1.5 billion. The fact that the percent of giving versus the GDP has not moved is that without real marketing “in 40 years nonprofits have not been able to wrestle any market share away from donors.”

When it comes to risk, “when you prohibit failure you prevent innovation,” he said. The risk to which he referred was on the fundraising aspect of charity. Charities are also given a smaller window in which to expect positive results. He cited technology companies that still attract investors despite losing money for almost a decade. Charities need to make donors understand that it takes investment in infrastructure to deal with problems over the long term. The sector also needs to find a way for profitability to attract risk capital.

Charities can’t possibly prosper when staff isn’t paid, when there is no advertising, no risk when it comes to raising money or finding capital, and then no time is allowed to make things happen.

The bulk of Pallotta’s fundraising experience has been with special event bike ride and walks. He has launched with Charity Defense Council, based in Boston to take on these issues. The organization plans a three-day walk June 26-28 from Maine to Salem, Mass., where the Puritans landed to advocate for the issues, to raise $2 million. Walkers will wear T-shirts with the words “I’m Overhead” to let donors know that it takes people to make change.