Buchanan: Pallotta’s TEDTalk “Rooted in Fallacy and Distortion”

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September 23, 2013;Huffington Post

NPQ made a number of errors in editing this newswire. First, we would like to make it clear that Brian Mittendorf did not in any way “sling tomatoes” at Dan Pallotta in his excellent piece, “Do Nonprofits Really Limit Advertising Because of Pressure to Cut Overhead?” An editing error originally indicated that he had, but in fact he and Dan engaged in a very respectful dialogue on our site regarding the information advanced in Mr. Mittendorf’s article. Additionally, there was a sentence in the original copy of this newswire that read, “[Pallotta] came under sharp criticism eleven years ago when it became known that his business was keeping as much as 86 percent of the funds raised for events such as AVON Breast Cancer 3-Day walks and AIDSRides-USA.” This should have read, “When it was alleged by some”—and ideally we would have presented the alternate explanation of the situation. We have made these corrections below. We also apologize to the newswire writer, Jennifer Amanda Jones. These editing errors were in no way her responsibility. We deeply apologize for them, and have extended to Dan the opportunity to respond to criticisms in a feature article of his own.

As of this writing, Dan Pallotta’s TEDTalk “The Way We Think About Charity is Dead Wrong” has been viewed approximately 2.5 million times and generated significant discussion on social media. Responses to this talk can be grouped loosely into two camps. There are those that have drunk the “Pallotta Kool-Aid“ and herald him as the savior of nonprofit overhead. Indeed, he argues persuasively (and correctly) that overhead is necessary to the long-term growth of nonprofit organizations.

Then, there are those like Brian Mittendorf who have taken on disproving parts of Pallotta’s argument, and those throwing the social media equivalent of tomatoes at the man who seems to have taken as much from the sector as he has given, if not more. Pallotta’s for-profit fundraising business, Pallotta TeamWorks, describes itself has having “created the multi-day, four-figure pledge minimum charitable fundraising event category.” He came under sharp criticism eleven years ago when it was alleged by some that his business was keeping as much as 86 percent of the funds raised for events such as AVON Breast Cancer 3-Day walks and AIDSRides-USA. According to an article written on Common Dreams in 2002, Wayne Turner, an AIDS activist, went so far as to say, “People are beginning to wake up to the fact these AIDS rides are not about raising money at all. They’re about building Dan Pallotta’s empire, which is now crumbling.”

(For his part, Dan Pallotta says that he has encountered and responded to criticisms like those in the Common Dreams article before. He has a sharply different analysis of the cost structure of Pallotta Teamworks’ fundraising activities and their benefit to the charities he raised money for, including a spreadsheet that shows his firm’s presentation of results fundraising events between 1994 and 2002. The spreadsheet shows donations from or through the participants in the events of $556.1 million, overall charitable dollars raised of $582.4 million, participation support expenses of $115.6 million, marketing/cause awareness/administration expenses of $136.7 million, production fees for Pallotta TeamWorks of $23.4 million, and a total of $305.6 million retained by the charities for possible charitable use—approximately 55 percent of the “donor dollars remaining for the cause after event expenses.”)

A decade later, it seems that Pallotta is building a new empire. His books and TEDTalks are certainly generating hype. His main topic—nonprofit overhead—is an important one. But are his ideas on target? Phil Buchanan has offered one of the few substantive, more-than-just-a-tomato-in-your-face critiques of Pallotta’s argument. Here is a brief summary of Buchanan’s responses to Pallotta’s arguments:

Pallotta’s argument: The nonprofit sector has failed because issues such as breast cancer, homelessness, and poverty still exist. If nonprofits were larger and more robust, these issues could be resolved.

Buchanan’s response: “It’s absurd to cite the fact that social problems persist as evidence of the nonprofit sector’s failings; indeed, it’s fair to ask, how much worse might they be without the work of nonprofits?” And what about the role of government?

Pallotta’s argument: Low pay in the nonprofit sector affects employee performance. Nonprofits should increase employee pay and should look the incentive pay model in the corporate world as an example.

Buchanan’s response: “I agree that nonprofit CEO pay is frequently lower than it should be (and occasionally higher than it should be). But not let’s look to corporate pay as a model when the gap between the highest and lowest paid in corporations has widened so dramatically—and when corporate CEO pay is so often utterly disconnected from actual performance. Moreover, Pallotta either ignores or is oblivious to the increasingly rich body of research that suggests that pay is in fact not a key driver of motivation and performance. (See, for example, Daniel Pink’s Drive.)”

Pallotta’s argument: Giving has remained a relatively flat percentage of GDP in large part because nonprofits are not good at marketing.

Buchanan’s response: “In his history of American philanthropy, Olivier Zunz describes how nonprofits have mobilized mass participation and action for positive effect in the fights against disease. He also describes the successful campaigns to encourage giving that accompanied the birth of the “community chest” and the community foundation, and the “democratization” of philanthropy. Indeed, the country’s high level of charitable giving relative to other countries is the result of savvy marketing by nonprofits.”

Pallotta’s argument: The percentage of an organization’s total budget spent on overhead is not a good measure of effectiveness.

Buchanan’s response: Buchanan agrees that overhead expenses are not necessarily a good measure of overall effectiveness. But, at the same time, argues that overhead is an important measure to pay attention to. “Donors have a legitimate interest in understanding what proportion of their dollars ends up in the hands of for-profit fundraising professionals. A recent, widely discussed investigative report by The Tampa Bay Times and the Center for Investigative Reporting (CIR) identifies “America’s Worst Charities” on the basis of the proportion of funds raised that were paid to for-profit solicitors. (Topping the list is the “Kid’s Wish Network” which raised nearly $128 million over the past 10 years—$110 million of which went straight to the solicitors they hired to raise money!)”

Indeed, the story of Kid’s Wish Network sounds eerily similar to Pallotta’s own checkered past.

So, whether you are a committed Pallotta fan or you are throwing fruit at the online video, it’s way past time to move beyond the hype, beyond the individual, and really consider what this sector needs to do to become more powerful and influential in the future of the country. We can do better.—Jennifer Amanda Jones

This article has been altered from its original form. Additional information has been added to address concerns raised by Mr. Pollotta.

  • Ken Berger

    I wholeheartedly agree with Phil Buchanan’s criticisms of Dan Pallotta. Bob Penna and I have also made our views known on Dan Pallotta on numerous occasions. Most recently, earlier this week we wrote a piece about the “Pied Piper of Zero Accountability” here – http://www.huffingtonpost.com/ken-berger/a-lot-a-pallotta_b_3961517.html and reference an earlier article by Phil.

    Ken Berger
    President & CEO
    Charity Navigator

  • Renee McGivern

    I find Dan Pallotta’s message compelling. I had him on my radio show a couple years ago and my mind returned to that interview many times over subsequent months. What’s everyone getting so touchy about? Why are people threatened by him? Where is the harm or damage, REALLY? “Self-interest, he’s selling books, blah, blah, blah.” There’s something very disturbing about how uptight people are getting about his message and it has something to do with deeply held beliefs about money as good or evil.

    Shall we start pointing fingers at who’s making money off and building their puffed up business/reputation off of discounting Dan Pallotta? Give me someone with original thinking over those who jump at the chance to squash it any day.

  • Mat Despard

    Interesting article. I showed the Pallotta TedTalk to a class on nonprofit financial management and perhaps like others, drank the Kool-Aid, mainly because some donors are too focused on overhead. Buchanan offers sound rebuttals and made me realize the folly of so quickly jumping on Pallotta’s band wagon. In fact, I’m really starting to question the TedTalk paradigm itself. It’s starting to seem a bit, well, gimmicky and used as a platform for at least some super privileged people to sell us snake oil (clear exceptions apply of course). I’d like to see a TedTalk like platform for all of those under-paid, compassionate, and smart nonprofit leaders who so often go unrecognized because they don’t have a TedTalk.

  • Dan Pallotta

    Jennifer Jones’ reporting about Pallotta TeamWorks is grossly inaccurate and defamatory. She writes that, “[I] came under sharp criticism eleven years ago when it became known that his business was keeping as much as 86 percent of the funds raised for events such as AVON Breast Cancer 3-day walks and AIDSRides-USA. ”

    Further, she associates the work of the AIDSRides and Breast Cancer 3-Days — and the hundreds of thousands of people who participated and donated — with the worst charities in America.

    Here are the facts, in numbers that were submitted, in many cases, to various state attorneys general under penalty of perjury:

    – Pallotta TeamWorks fees amounted to 4.01% of the gross dollars we raised over the course of the period from 1994 – 2002.

    – 100% of the funds we raised went directly to the charities, into lock boxes under the charities’ exclusive control. Pallotta TeamWorks never touched the donations.

    – The charities reimbursed us for expenses on a dollar-for-dollar basis, with no mark-up, and paid us our fee.

    – Expenses were agreed upon in advance with the charities in budgets that were attached to each and every agreement. Expenses that were not part of the budget would not be reimbursed to us.

    – We charged a fix production fee for our services, NEVER the commission or percentage that tele-marketers charge. Again, a hindsight calculation puts those fees at just 4.01% of the total we raised. That’s all we charged for producing the events from A to Z. Credit card companies get paid nearly as much for simply processing donations.

    – The media made more profit from our events than we did. A typical paid media budget for one of our events ranged from $350,000 – $500,000 – more than the fees were were charging to produce the event.

    – We were a model of transparency, detailing all expenses and even our fees on our website for all participants. You would be hard-pressed to find another charitable event series that does the same and at that level of detail.

    – All of this data is available even now at http://www.pallottateamworks.com

    Ms. Jones closes her article by stating, “We can do better.” Indeed we can.

  • Justin Pollock

    I do think that the talk is intriguing, not because I agree with Pallotta’s conclusions, but inquiry about tough issues is good. What is interesting is that few people raise the point that Pallotta failed to prove his own point. He claimed that increasing investment in marketing could dramatically scale giving. But if you look at the actual financials for his defunct organization, as he scaled the percentage of charitable return on the dollar dropped significantly.

  • Michael Brand

    The Australians have a term called the ‘Tall Poppy Syndrome ‘whereby anyone who suddenly stands head and shoulders above the crowd gets whacked down like a tall poppy. I suspect some of the backlash to Pallotta is directly related to this type of knee-jerk reaction (as well as the HuffPo notorious tendency to post contrarian stuff just like Buchanan’s for link-bait)

    After all, much of what Pallotta says is nothing that most of us haven’t said before. Heck, I’ve made every one of his arguments over the past decade. Palotta was able to distill it down and articulate it in a compelling way. So he gets the books, the gigs and the spotlight. Kudos to him for that. I have used his TED talk with a couple of dozen Boards and staff over the past six months. It is a fantastic catalyst for getting the conversation going.

    I sum up Pallotta’s message this way: ‘We have all these wonderful business tools and all this talent lying around….let’s use what we have to make a real difference.

  • Keenan Wellar

    Being a founder and leader of a relatively small charity that does not operate on such a grand scale, I can’t speak to all of what Mr. Pallotta has to say, but I have to disagree with Mr. Buchanan’s typically defensive response to questioning of why certain massive investments/approaches don’t seem to be resulting in positive social change. Homeless shelters and food banks are great examples. Obviously things could be worse for the people who are using them. Food and shelter is no joke. But as shelters and food banks continue to expand and expand, don’t we have a responsibility to ask where it is all going? If more of those resources went into permanent affordable housing? If instead of growing food banks we took a look at our social safety net and people could go to the grocery store and buy food, instead of the food taking the roundabout path of coming from the grocery to the food bank?

    It’s not good enough to ask “how much worse” things would be. There is a resource scarcity paired with expansion of need. Desperate times call for desperate measures, but too often in social services it is simply business as usual combined with a cry for “more money to do more of the same please.” Perhaps in some cases that’s appropriate – the charity is going the best they can be doing and they just need the resources to do more of the same. But how many charities even ask that question of themselves?

    In my sector the larger organizations are locked into infrastructure and funding that exists and persists simply because “it always has.” That’s just not good enough. I can easily demonstrate better results from less costly approaches, but it doesn’t matter – the system is not set up to pursue results related to social change, it is set up to reward the establishment of “programs” that report on their own results – what THEY decide is important and useful, which is often not a measurement that is connected to people’s lives of the betterment of the community. I am glad Mr Pallotta is asking these questions, and I daresay Ms. McGivern is onto something – there might be flaws in the arguments, in which case legitimate counter-arguments will balance things out – but there is a lashing out here that seems to indicate there are other motivations at work. And the last thing the sector needs is leaders getting pounded for making a living by challenging the status quo and advocating for transparency.

  • Brian Mittendorf

    A point of clarification. I don’t think it’s fair to characterize anything I’ve written as slinging tomatoes at Dan. I have only advocated further examination of the assertion made by Dan and others that nonprofits are pressured to underinvest in advertising due to accounting. Our interactions have been entirely civil and respectful, and I certainly never suggested he has “taken as much from the sector as he has given.” To the extent that such tomatoes have been lobbed, it was not by me.

  • Mark P Fulop

    Oy Vey! the Strengths of the arguments in favor of Pallotta, are inversely proportional to the number of times his Pallotta’s name is mentioned in the rebuttal. Do we need to discuss the relevancy of Pallotta who oversaw the collapse of a fundraising company? …caused, of course, by his being to far ahead of the curve….

    As is pointed out in this commentary (on Phil’s Huffington Post article) the nonprofit sector has to wrestle with: getting admin costs right, treating employees fairly, collaborating better, and figuring our how to create a collective impact. but we won’t get there by promoting the cult of a charismatic speaker.

    Again, thanx Phil and NPQ for keeping us focused on the right things