CHARLESTON, W.Va. -- In a September Wall Street Journal article, Dan Pallotta asks the question, "What if we let philanthropies operate like businesses?" He goes on to state that if charities would pay for talent, advertise aggressively, be more daring in fundraising endeavors, and spend their resources for the long haul, then maybe they could finally save the world.
So why don't charities operate this way?
Even though America leads the world in contributions to philanthropic causes, we cling to a puritan approach to how these donations are spent. Self-deprivation is our strategy for social change.
We are obsessed with restrictions -- nonprofits shouldn't pay executives too much, or spend a lot on overhead, or take risks with donated dollars. Instead of finding ways to restrict the use of donated dollars, we should be asking whether these organizations have what they need to solve our country's most pressing problems.
As Mr. Pallotta states, "we have two separate rule books: one for charity and one for the rest of the economic world." In the for-profit sector, we consider it a good business practice to pay people competitive wages based on their qualifications and responsibilities on the job. But in the non-profit sector the idea of anyone making very much money helping other people is scandalized. Paying someone $5 million to develop a violent video game is perfectly acceptable. Paying someone a half-million dollars to find a cure for pediatric leukemia is not.
Spending money on advertising and marketing is not a suitable business practice in the non-profit arena, while we stress the importance of for-profit businesses developing marketing campaigns. We expect non-profits to spend every penny directly on the disenfranchised, even though money spent on advertising may very well increase the amount of money available for those in need.
Society also expects that all charitable programs must be successful. Consequently, the non-profit sector has become risk averse. We avoid innovation and creative solutions to the systemic problems plaguing our communities for fear of failure. We reason that it's better to continue to do what we have always done and expect a different outcome than to tackle major issues using new methods that may actually result in needed change.
Non-profits are required to produce results immediately. This expectation forces them to circumvent long-term solutions. The charities are monitored by tax forms that measure the amount spent on direct services every 12 months. Any viable undertaking that takes longer than a year is hard to explain to donors and the public. Yet, the challenges facing us today can't be solved by short-term solutions.
Further, this short-term mentality does not prevail in the for-profit sector. According to Mr. Pallotta, Amazon.com went for six years without returning a dime to investors, who stood by the company because they understood its long-term goals.
It seems we have placed our charitable organizations in a no-win situation. We have charged them with the responsibility to deal with complicated social problems, but we continue to deny them the tools they need to be successful.
Some may argue that non-profits receive preferential treatment by not having to pay taxes. So therefore, they must live up to a higher standard. But isn't their exemption all the more reason that they should be able to use best business practices? Don't the donors and the tax paying public deserve the best possible return on their investments?
Some may argue that the for-profit sector will end up solving the world's problems. But there will always be problems that businesses are either unable or unwilling to address. There are just some issues that can only be addressed in the philanthropic sector.
Imagine a non-profit sector equipped with the best business practices available. Imagine a philanthropic arena with the resources necessary to tackle the most complicated social problems. Then it isn't hard to imagine that charity may indeed be able to change the world.
Ceperley, president and CEO of the Greater Kanawha Valley Foundation, is a Gazette contributing columnist.