Leila de Bruyne, president of Flying Kites, a small charity that provides residential care and other services to orphans in Kenya, is an unabashed fan of Dan Pallotta, a controversial author and marketing consultant.
She says she gained valuable tips about how to speak to donors from his book Uncharitable: How Restraints on Nonprofits Undermine Their Potential, which argues that charities are hobbled by puritan notions from using capitalist tools to defeat poverty, hunger, and disease. “I think I’ve probably given 50 copies of that book to people over the years,” she says.
One of Mr. Pallotta’s key messages is that donors should worry less about how much a charity spends on overhead expenses and more about what it can accomplish, a principle that Ms. de Bruyne says helps her when she talks to people who want all of their money to “go to the children” and not to things like marketing costs.
Now Mr. Pallotta has given her a new weapon: a talk that he delivered last spring at a TED conference, “The Way We Think About Charity Is Dead Wrong.”
Ms. de Bruyne, who started Flying Kites with a college roommate and an old friend in 2007 and worked as a volunteer until last year, created an edited version of the 18-minute video and started sending it around. Her goal: to persuade donors to help pay for overhead, specifically the salaries of four new employees.
Her group has already had one success: It received a $150,000 gift from Paul English, co-founder of Kayak.com, the travel Web site, one of the charity’s advisers, to pay for an executive director.
‘New Rule Books’
Ms. de Bruyne is not alone in finding inspiration from the talk Mr. Pallotta was invited to give by TED, a nonprofit that fosters conversations about ideas.
An online video of his presentation has been viewed more than 2 million times, attracted more than 1,100 comments, sparked a steady stream of recommendations on Twitter (with remarks like “simply mind blowing”), and earned countless favorable and even rave mentions on blogs, newsletters, and Web sites.
“Dan is exactly right,” says a typical comment on the TED site. “‘Tiny’ nonprofits are trying to solve massive problems with a belief system that keeps them tiny. It’s time to reinvigorate nonprofits with new energy, new ideas, and new rule books.”
Polarizing Figure
But Mr. Pallotta’s growing fame has also given fresh steam to his critics, who view him as a flawed messenger for any movement to boost nonprofit power.
Mr. Pallotta has been a polarizing figure since the 1990s, when his for-profit fundraising firm—Pallotta TeamWorks, which organized bike rides and walks to benefit AIDS and breast-cancer causes—became involved in a series of disputes with charities unhappy about the amount of the proceeds it kept for itself.
The company, which also had a run-in with the Pennsylvania Attorney General’s Office, eventually folded, and Mr. Pallotta started a crusade against what he viewed as a double standard that penalizes charities for using the tactics that businesses use to achieve success. Those include hefty executive pay packages, big advertising budgets, and investments that don’t necessarily pay off immediately.
“You want to make $50-million selling violent video games to kids, go for it,” he said in his TED talk. “But you want to make half a million dollars trying to cure kids of malaria and you’re considered a parasite yourself.”
While his detractors often agree that the nonprofit world needs fixing, they reject his notion that the solution is for charities to mimic the values of the corporate world.
“He’s kind of like the Karl Marx of this issue,” says Jan Masaoka, chief executive of the California Association of Nonprofits. “His critique is spot on, but his solutions are dangerous.”
“It’s the struggle for the heart and soul of civil society in America,” says Michael Edwards, a senior fellow at Demos, a public-policy organization.
“He’s offering the illusion of saving the world while enriching yourself, the perfect combination for our times,” he says. “It’s disastrous for civil society and the hard work we have to do together to solve our problems.”
Growing Influence
Such criticism isn’t prompting Mr. Pallotta, president of Advertising for Humanity, a firm that plans marketing campaigns for nonprofits, to go away.
In fact, his influence is set to increase as he bolsters his fledgling Charity Defense Council, a nonprofit he set up to “change the way people think about changing the world.”
The group aims to arm nonprofits with a legal-defense fund, an anti-defamation strategy, and a civil-rights act to buffer them from journalists, regulators, lawmakers, and others who Mr. Pallotta says perpetuate “distortions” about fundraising expenses or executive compensation.
The council, now seeking $150,000 from foundations so it can hire its first two full-time staff members, has recruited a number of prominent nonprofit leaders to its fold, including Milton Little, president of United Way of Greater Atlanta, one of five trustees. Its nine-member advisory board includes H. Art Taylor, president of the BBB Wise Giving Alliance, a charity watchdog; Bill Shore, chief executive of Share Our Strength, an antihunger charity; and Mark Tercek, president of the Nature Conservancy.
In effect, Mr. Pallotta, also the author of a new book, Charity Case: How the Nonprofit Community Can Stand Up for Itself and Really Change the World, is becoming more mainstream.
Message Catching On
No one is more surprised by the buzz created by his TED speech than Mr. Pallotta himself, who says he was worried that a “talk about the economics of the nonprofit sector was going to go over like a lead balloon.”
Instead, he says his speaking engagements have doubled and he gets about 10 e-mails a week from people who say his speech changed their thinking.
Mr. Pallotta also felt vindicated in June when three major charity-information groups—the BBB Wise Giving Alliance, Charity Navigator, and GuideStar—issued a “letter to donors” urging them to look beyond overhead, or fundraising and administrative costs, and evaluate charities based on their impact. “That was a joyful moment in my life,” he says.
His old company, Pallotta TeamWorks, was criticized for spending on things like advertising and six-figure salaries that ate into the net proceeds that went to charities, earning headlines like one in U.S. News & World Report: “Do Some AIDS Events Take Donors for a Ride? Expenses at Dan Pallotta’s bikeathons leave less money for the charities.”
Mr. Pallotta says it’s wrong to judge the effectiveness of a fundraising campaign simply by the percentage of donations that goes to a charitable purpose. He says Pallotta TeamWorks raised $556-million over eight years, and $305-million, or 55 percent, went to breast-cancer and AIDS charities—far more in net dollars than other charities were able to raise in similar events.
Mr. Pallotta has long criticized the BBB Wise Giving Alliance for setting the widely cited rule that charities should devote at least 65 percent of their spending to program costs.
Ironically, now Mr. Taylor, who heads that group, is advising Mr. Pallotta as a member of the Charity Defense Council’s advisory board. He says his group has not discarded the 65-percent standard, it just wants donors to understand that overhead is only one factor to consider when they decide which charities to support.
And he says he plans to “caution” Mr. Pallotta about his ideas as well as support them.
“He gave us a lot of red meat to chew on,” he says. “A lot of charities out there are raising their hands up and saying, Hooray.” But the reasons people give to charity are complicated, Mr. Taylor says, and some view low overhead as “the fruit of values” like hard work, self-sacrifice, honesty, and humility.
“In order to get [those] people to give you money,” Mr. Taylor says, “you have to show them that these attributes exist in the organization and the people running the organization.”
Controversial Stance
Mr. Pallotta seems to have a reflexive distrust of regulation, perhaps influenced by his own brush with the law.
His company paid $110,000 to settle a case with Pennsylvania Attorney General’s Office, which accused it of misleading the public about how much of the money raised by a 2006 Philadelphia bike ride would go to charity. (Mr. Pallotta says the actual amount was 22 percent, a percentage he says was lower than for other races because the event suffered a backlash after organizers were charged with racism.)
Mr. Pallotta says his company did nothing wrong but settled to end a process he calls “intimidating” and “scary.”
The Charity Defense Council, says its Web site, will “challenge counterproductive regulations and laws that violate our First Amendment Rights.”
With that stance, Mr. Pallotta joins the camp of lawyers, charities, and commercial solicitors that, to the chagrin of state regulators, continually challenge efforts to protect consumers from fundraising operations that net little money for charitable causes, backed by a series of U.S. Supreme Court rulings holding that fundraising enjoys free-speech protection. In the absence of fraud, they argue, regulators have no business telling charities how much to spend on fundraising or make them volunteer that percentage to potential contributors.
But critics say that at its extreme, Mr. Pallotta’s anti-overhead stance can give cover to charities that mislead donors about where donations go.
Ken Berger, president of the watchdog group Charity Navigator, says there are “kernels of truth” in Mr. Pallotta’s messages. “But when you look under the surface,” he adds, “he becomes an apologist for anybody doing anything without accountability.”
Mr. Pallotta holds his ground despite the steady drumbeat of criticism. After all, he says, charities as they operate now have not been able to cure breast cancer, end homelessness, or vanquish poverty.
“If you would like to have these social problems stick around for hundreds of years, we have a system that’s going to be very good at doing that,” he says. “If you’d like to see some of these problems get solved in our lifetime, then we have to do something very different.”
