September 22, 2019
 
A Decade Later, the Call for Nonprofits to Think Big Resonates Anew

Nonprofits that spend time justifying their overhead rate to donors, instead of thinking big to solve big problems, thwart their dreams, Dan Pallotta argued a decade ago in Uncharitable, and it is only now that major foundations and other grant makers seem to be coming round to his point.

Pallotta, president of the Charity Defense Council, a Topsfield-based nonprofit that seeks to educate the public to focus on results from nonprofits instead of overhead, gained widespread attention after publishing Uncharitable in 2008.

His point: Focusing on the percentage of donations that goes to the cause vs. overhead "makes you think that overhead is not part of the cause, that overhead steals from the cause.”

"Our system of charity doesn't produce the results we are after because there is a flawed ideology at work," he writes. Among the tenets of that ideology:
  • Charities should not take risks; they should be cautious.
  • Charities should not think about the future; donated moneys should be spent immediately to alleviate the suffering of others.
  • Charities should not make mistakes, since a mistake means a charity is wasting money.
  • Charities should maintain a low overhead percentages, as this is the only way to know that any good is being done.
"It is a dysfunctional mentality based on deprivation," according to Pallotta.

Instead of adhering to that mentality, Pallotta advocates that charities should pay attention to how people learn and behave, and then act accordingly. For example:
  • The more that charities take calculated risks, the more likely they will break new ground.
  • The more that charities invest in their future, instead of focusing on the current fiscal year, the more they "will be able to build the future we all want."
  • The more mistakes a charity makes in good faith, the faster it will learn—what he calls failing upward—and gain the knowledge to solve problems.
  • The amount devoted to overhead doesn't tell you about the good the organization is doing.
Some of the country's largest foundations seem to be starting to agree with Pallotta. A recently issued report found that indirect-cost policies and practices that prevail among major grant makers weaken their nonprofit grantees, which, as a result, "are too often unable to invest enough in their own capacity,"

Uncharitable comprehensively makes the case for a radical change in the way nonprofits and those who fund them think about how charitable organizations ought to operate. The emphasis is to hold them to the same standards that we do for for-profits.

That means, among other things, paying what it takes to get the right people, actively advertising in order to attract more donations, and taking risks with new approaches to fundraising.

It's all about achieving big results. As Pallotta writes: "[If] we want social change to progress at the pace of molasses, then the system works fine as it is. But if we want dramatic improvement on the great social issues of our time, then we need dramatic changes to the paradigm that orders our efforts."

Uncharitable: How Restraints on Nonprofits Undermine Their Potential is available from Amazon.

Reviewed by Peter Lowy
September 2019


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