You may have heard about Dan Palotta’s recent TED Talk about how judging charities on concepts like administrative overhead ratios is hobbling their ability to solve huge problems.
He makes some persuasive points, though some of the concerns I had with his proposals when they appeared on the Harvard Business Review blog three years ago still remain.
Gene Takagi picked up on the talk and addressed legal considerations which would prevent non-profits from operating in the manner Palotta suggests. (Just to be clear, Palotta never suggests charities cleave to non-profit status.)
Takagi notes that charity pay scales are limited by laws governing 501 c 3s and so can’t compete well on salary if supporters show tolerance for doing so to attract the best talent. Expenditures are limited in much the same manner,
“If a for-profit spends 90 cents to make $1, it may be a perfectly acceptable profit margin, but if a charity spends 90 cents to make $1, it would be widely viewed as a terrible waste. As a result, many charities fail to properly report their fundraising expenses, and the IRS has raised the possibility of utilizing the controversial commensurate test, which addresses whether a charity is using its resource in line with its charitable mission…But this can’t be judged strictly on percentages, and charities should be allowed to experiment so if an honest fundraising and mission awareness-raising campaign fails, the charity isn’t slaughtered for it. The problem, however, is not the law, but the misguided public ideology of which Dan spoke.”
Charities are also often limited and discouraged from pursuing new revenue ideas by federal and state laws as well as popular sentiment.
I think the biggest question that this whole discussion raises for me is whether social attitudes are such that a for-profit company raising money for social issues will be tolerated. Given that people will give money to projects via things like Kickstarter without much consideration about whether it is non-profit or not, is the idea that non-profits do things that companies won’t due to lack of profitability and governments can’t/won’t due to lack of political will and expertise, over?
Currently I think there is a capricious element to Kickstarter campaigns that make it an unsuitable model for garnering long term support. However the very existence of such mechanisms may be shifting mindsets to a place where worthiness and overhead ratios are not mutually exclusive.