Dan Pallotta created the Charity Defense Council to counter negative media coverage, run ads promoting nonprofits, and act as a legal defense force when lawmakers or courts took actions that hurt charities.
The small group has big ambitions to change the way donors view nonprofits and just this month announced it had hired its first two staff members so it could become a more effective force.
But now some nonprofit leaders are worried the group’s aggressive efforts to defend Wounded Warrior Project and tangle with Sen. Charles Grassley, a powerful lawmaker examining the veterans charity, is setting back their efforts to help the public understand that charities need to spend significant sums to keep their operations running well.
Mr. Pallotta’s Charity Defense Council inflamed many nonprofit executive when it issued an 11-page report that breaks down what it referred to as “material errors and omissions” in reporting by The New York Times and CBS News in a series of articles accusing the major veterans charity of putting too little of the money it raises into programs and services and instead spending on advertising, lavish retreats, and other efforts unrelated to helping veterans.
The defense council says the reporters didn’t understand how to put fundraising expenses into context or the legitimate ways charities are allowed to calculate spending on fundraising appeals that also include information about a charity’s cause.
Mr. Pallotta’s defense of the group raised even more concerns when he sent a letter to Sen. Grassley. Mr. Grassley had asked Wounded Warrior to answer a series of questions about the $150,000 that the veterans group gave the Charity Defense Council, a sum that represents 85 percent of the council’s budget, according to its informational tax form.
Mr. Grassley is not happy that Wounded Warrior made that grant to the Charity Defense Council and sought its help.
“Most tax-exempt groups seem to be able to explain their work to the public without the assistance of third parties,” Mr. Grassley, an Iowa Republican, said in an email. “Media coverage and public scrutiny come with the territory of being a tax-exempt organization that relies on the donating public. The scrutiny helps a charity hold to its obligation to spend money in furtherance of its stated mission.”
Close Ties
The criticism of the Wounded Warrior project is not the first time the Charity Defense Council has acted as a media watchdog. Last year it issued a four-page document criticizing a ProPublica and NPR investigation into the American Red Cross’s response to the 2010 earthquake in Haiti.
And even though the Charity Defense Council disclosed its ties to Wounded Warrior in the 11-page report, its critics didn’t find that sufficient.
“It’s difficult to mount a spirited defense of a specific organization that is the primary funder of the work that one does,” says Andrew Watt, president of the Association of Fundraising Professionals. “To take this one organization as the basis for a public statement is perhaps a mistake.”
Former chief executive Steve Nardizzi, whom the Wounded Warrior Project board fired in March along with the group’s chief operating officer, Al Giordano, sits on the steering committee of the defense council’s advisory board.
Brian Mittendorf, a professor of accounting at Ohio State University who specializes in nonprofit issues, believes the defense council’s involvement might even backfire by raising more attention to the fact that the Wounded Warrior Project gave it money.
“It’s just a stretch to consider it what donors intended their money to be used for,” he says. “No matter how well written it was, if a donor didn’t realize that money was being used for advertising, explaining why advertising is important isn’t really going to make them feel better.”
A spokeswoman for the Wounded Warrior Project confirmed that no subsequent grants were given to the defense council.
Mr. Pallotta, through a staff member, declined to answer questions from The Chronicle about his critics in an on-the-record interview.
Speaking Out
At the 30,000-foot view, Mr. Pallotta’s crusade against evaluating charities based on overhead has broad appeal.
Robert Tigner, general counsel for the Association of Direct Response Fundraising Counsel, says Mr. Pallotta and his supporters espouse a philosophy held by many other nonprofit leaders.
“I don’t really think they’re outliers,” he says. “They’re just more outspoken.”
He believes the critique of the Wounded Warrior reporting was valid and a useful reminder of the shallow knowledge many journalists have about nonprofit issues.
At last week’s Association of Fundraising Professionals conference in Boston, Seth Perlman, a lawyer who represents charities and is a Charity Defense Council director, shared the report with a room full of fundraisers.
“The sector can’t be beaten up by the press and by reporters without holding them accountable for the truth of what they’re reporting,” he says.
The audience appeared divided, with one fundraiser saying that the mind-set that all nonprofits need to be “charity cases” “won’t take the sector into the next century.”
Debbie Shore, a co-founder of Share Our Strength, was one of the charity executives who pledged to participate in a three-day, 60-mile walk being organized by Mr. Pallotta to raise awareness about why charities need overhead and to raise $1 million for the defense council. The walk was canceled after just 35 people signed up.
“On the whole, we support the notion that results and performance matter in the charitable world and that when we are looking at expenses, we should also be looking at revenues and outcomes,” she said in an email.
But others who say it’s wrong to evaluate charities solely based on their administrative and fundraising costs say Mr. Pallotta’s crusade makes them uncomfortable, going too far in abandoning what donors care about.
Ken Berger, former president of Charity Navigator, one of several groups that started the “overhead myth” campaign to explain legitimate administrative expenses to the public, says the defense council “is the very opposite of what the sector needs.”
“If you follow the counsel of Dan Pallotta, what you get is this sort of myopic hyperdefensive approach that takes no responsibility for questionable decisions and activities,” he says.
Mr. Watt, of the Association of Fundraising Professionals, says “the overhead myth” must be counterbalanced by the recognition that nonprofits aren’t businesses. And that’s where he becomes uneasy with Mr. Pallotta’s rallying cry.
Investment, he says, is completely appropriate for charities when it is targeted and effective. “When we’re acting on behalf of the public and of society, we need to be very, very careful to behave in ways that the public and we feel are appropriate and comfortable,” he says. “It doesn’t give us carte blanche to do whatever we want.”
Changing Minds
Changing donors’ minds will take time, and Mr. Pallotta doesn’t seem to backing down.
In his letter to Mr. Grassley, he writes “This will be a long journey,” likening his fight to changing public perceptions about seat belts, smoking, and gay marriage.
Some are concerned about the staying power of his message.
“When Dan first came on the scene in 2009 with his first book, a lot of us thought people wouldn’t possibly buy into this,” Mr. Berger says. “We were wrong.”
“I no longer say that we can ignore what may come next,” he says, “I think we have to take it very seriously, and we have to speak out against it.”
