The Charity Defense Council & Wounded Warrior Project Connection: Follow the Money

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dan-pallotta

Over the past month, NPQ has been following the situation at the Wounded Warrior Project. In January, reports began to surface in the press about the organization’s spending and other leadership behaviors. The board soon commissioned a study of the organization’s policies and finances, eventually firing both CEO Steve Nardizzi and COO Al Giordano. There was little communication from Nardizzi or the board before the firing. Anthony Odierno, the board chair, has now presented himself as interim CEO and has mounted something of a defense about the details of the spending charges on, for instance, the O’Reilly Factor. Meanwhile, the founder of the organization, who says he was forced out a number of years ago, has presented to the media a relatively comprehensive 10-point program to restore donor trust in the organization.

But today, NPQ did receive some kind of defense—not from the organization, but from the nonprofit Charity Defense Council (CDC), which distributed an 11-page “preliminary media advisory” defending the Wounded Warrior Project (WWP) and its terminated leadership from what CDC calls “material errors and omissions uncovered in media reporting” about WWP. The advisory specifically criticizes CBS’s and the New York Times’ reporting, which questioned WWP’s spending on fundraising and overhead costs as opposed to dedicating more of its budget to the wounded veterans for which the charity was formed. We should say that we are not addressing the points made in that missive here, but rather raising questions about the relationship between the two organizations that caused the Wounded Warrior Project to make a sizable grant to the Charity Defense Council in 2013–2014 when apparently no one else was doing the same. This was first reported by the New York Times in January, but as the situation has evolved it becomes an ever more important question. The advisory did contain a disclosure of significant support in 2014.

It’s no surprise that Dan Pallotta and CDC would feel a kinship with Wounded Warrior Project, because WWP’s fundraising model is precisely the model Pallotta and CDC promote, the theory being that it does not matter how much of the money you raise goes back into fundraising and overhead because the whole point is to grow a bigger footprint which will presumably lead to more and better services. Pallotta, of course is known for his TED talk and other advocacy of this model. But although many in the sector agree with his position of less emphasis on overhead, many do not agree with the idea that donors do not deserve to understand what nonprofits are doing with their money. Palotta, by the way, has his own history of being the focus of fundraising exposés at Pallotta TeamWorks, a for-profit events fundraising company that went under in 2001 after the nonprofits that it contracted with decided the proportion that business took of donations was too high.

As we mentioned above, the relationship between Pallotta’s Charity Defense Council and the Wounded Warrior Project, especially its former CEO, Steve Nardizzi is more than simply a shared view of how nonprofits should fundraise and be held accountable.

NPQ performed a review of the IRS Form 990-EZ returns and other information for the Wounded Warrior Project and Charity Defense Council available on the GuideStar website. The chart shows the CDC’s annual revenues since its inception:

cdc-revenue

Note the large jump in revenues between 2013 and 2014, from $11,189 to $175,273. What happened? Based on the 2014 Form 990 return for the Wounded Warrior Project, WWP gave a $150,000 grant to the Charity Defense Council sometime between October 1st, 2013, and September 30th, 2014. The purpose of the grant, according to WWP’s Form 990, was to support CDC’s mission “[t]o change the way people think about changing the world by responding to and rectifying inaccurate reporting on charities and proactively educate the media.” The $150,000 grant was statistically insignificant to WWP—0.029 percent of its $342 million in 2014 revenues—but it was a transformative 85.58 percent of CDC’s $175,273 revenues in 2014.

Coincidentally (or not), Nardizzi serves as a member of the CDC’s Advisory Board and currently is on the Advisory Board’s four-member steering committee. (NOTE: we know the page is current because it lists Nardizzi as WWP’s “former CEO.” Nardizzi left WWP earlier this month.) He also wrote a “Why I’m Marching” testimonial to CDC on its web site in September 2014.

The 2015 Form 990s for both organizations are not yet available on GuideStar and likely won’t be for several months due to the Form 990 filing deadlines and the time required for the IRS to provide the forms to GuideStar. We are curious about how much money if any was given to CDC by WWP in 2015, and how much of WWP’s grant (using money donated for the well-being of vets) is now being used to support CDC’s defense of its benefactor.

  • Your characterization of Pallotta’s “model” is inaccurate. He does not argue that “donors do not deserve to understand what nonprofits are doing with their money.” That’s absurd. He argues that overhead is an inaccurate measure of nonprofit outcomes or efficiency. Rather, mission impact is the key measure of success. The issues with WWP aside, this article does not help the overwhelming inaccuracy of the public’s comprehension of the nonprofit sector.

  • Peebee

    For all this article purports to say, it really doesn’t come out and say anything, and I really expect better from the authors and Nonprofit Quarterly.

    Dan Pallotta’s views about the Wounded Warrior model are no secret, and even if the personal connection between him and Nardizzi wasn’t disclosed in all that Pallotta’s written about the subject since the scandal broke, it would be pretty obvious to anyone who understands nonprofit funding that WWP couldn’t grow revenues that dramatically in such a short time without investing significant resources in fundraising efforts. (Not to mention their fundraising infomercials are everywhere, and yes, they raise money and awareness, but don’t come cheaply.)

    When Dan Pallotta announced plans to launch the Charity Defense Council, it was clear that advocating for and defending this model was its mission, its raison d’être. Don’t most new nonprofits have an angel or two to provide the seed money to get off the ground? Nonprofits can and do contribute to other nonprofits, especially those who advocate for their professional interests, and who is most likely to contribute than someone who had generated considerable money using the model that the CDC was going to be defending, which was under attack back in 2013-2014 by this very publication and others? (Doesn’t, in fact, Nonprofit Quarterly solicit donations? — I know I received emails at the end of 2015 to donate, and while I don’t know who your donors are (including the ubiquitous anonymous donor who will match funds), it makes sense that they would be people who believe in your mission, and some of them would even come from nonprofits themselves to ensure you keep doing that which they deem helpful to support their own work.)

    Nonprofits also engage in crisis and brand management by hiring communications experts, and that’s what Pallotta does professionally, so why wouldn’t you hire the person that is best known for communicating the merits of your approach? (Not everyone gets to do TED talks, and not all of them go viral the way that Pallotta’s did.)

    It’s pretty much indisputable that WWP was effective at raising money for its cause. Reasonable minds may differ about their effectiveness at allocating the money they raised. But with that much money at stake, not to mention the personal reputations (and now the jobs) of the people involved and the organization’s brand, why wouldn’t you want the architect of the model you’ve employed so successfully on your side to help you defend it? It’s not like anyone thinks Pallotta is neutral on this topic, or he is under any obligation to be so in this situation, which couldn’t be any better suited to prove the point he spends his life trying to make.

    And with that disclosed — either explicitly or through publicly available information or by completely legitimate means, why is that even an issue worthy of a story, unless the intent was to smear? The very kind of smearing that is again, why the Charity Defense Council needs to exist and why Pallotta had the personal experience that propelled him into this arena as a thought leader in the first place?

    [Disclosure: I’m a nonprofit executive director with no connection to Pallotta other than I’ve heard him speak and read his books and blog, and once attended a program. My nonprofit doesn’t raise funds that way, but if we did, I would find it a legitimate way to raise millions of dollars and a national profile.]

  • Good Citizen Media Group

    This article strikes me as an excellent example of what Dan Pallotta has been fighting against – the entrenched suspicion within the Nonprofit community in which people who are trying to elevate the power of Nonprofit work are called out on technicalities which can easily be viewed in a different way. Your final paragraph darkly hints that you expect the organization to be spending money defending its leader against charges which may well be false or unfair. What would you have them do, let him get hung out to dry for lack of funds to defend himself, even if he is not guilty?

  • The link between Wounded Warrior project and Charity Defense Council is not surprising and explains much. One of the many flaws of Wounded Warrior Project is not only that they embraced but financially supported Pallotta’s misguided philosophy (explain that to your donors).

    The “true cost overhead” is not a justification of corporate excess and the ends don’t justify *any* means. As WWP found out, excessive corporate retreats might be justified as a motivational tool and smarmy telemarketing tactics (which Pallotta defended in an Harvard Business Review Blog) may raise money UNTIL they become public. WWP is a perfect case study that demands nonprofit leaders to part ways with Charity Defense Council’s tactical approach to introducing “business thinking” nonprofit performance. There is a cultural connection of excess that underlies the relevancy crisis of WWP and until WWP owns the cultural mess it created, its brand my be beyond repair. Others embracing such tactics also do so at their peril.

    The first comment on this post, that blamed NPQ for exposing the “belly of the beast” as harming the nonprofit sector. You can’t uncouple this article from the “issues of WWP.” Indeed, it is how the WWP mishandled their organization that represents the lowest combination of organizational excess and donor exploitation that is what really damages the reputation of the nonprofit sector.

    • Peebee

      Lots of assumptions of excess being thrown around, but where’s the proof? Explain to your donors what it takes to go from $21 million to $372 million annually in 6 years without heavily investing in a high-profile fundraising infrastructure and rewarding your staff for their contributions to your success.

      Or better yet, show them, because in all of the examples of the overhead *percentages* found in other veterans organizations, there should be a lot of them that have grown that much and that quickly, right?

      No? I’m shocked. How could NPQ have failed to uncover that in its reporting on this issue?

  • Rick J Fritzemeier

    I wholeheartedly concur with the sentiments of the first three responders. NPQ, huh?, innuendo, insinuation, sly suggestions, yet you tell us almost nothing. By standards of most I run a small non-profit, >$1m annual, and absolutely connect with the challenges Pellota suggests is killing today’s non-profits with the cultural mind-set around “overhead”. Do not understand how others don’t get it, or at least want to give it some serious discussion and consideration.

    Has there been wrong doing with WWP or CDC? No clue, not nearly enough unbiased information yet, in part it would seem, because the boat is still rocking from Pellota’s initial suggestions of needed change at the macro level. But we will never get anywhere if we can’t get leaders of the NPO world to take an honest look at this challenge and cease and desist the smear campaign.“Et tu Brute?”

    NPQ, I expect and need so much more of you than this.

  • Absolutely — spend 100% of the money raised on “overhead” for ten years to “build scale.” No problem — so long as your donors consent.

    The problem with “the model” is WWP and Pallotta TeamWorks could not have raised the money they did if donors were informed at the outset what they only discovered to be the case much later to their great disappointment.

    Here in today’s Washington Post is what happens (Trudeau’s visceral reaction) when the likes of WWP attempt to implement “the model”: https://www.washingtonpost.com/news/comic-riffs/wp/2016/03/15/doonesburys-trudeau-on-timely-wounded-warrior-project-scandal-strip-sometimes-i-get-lucky/

    This NPQ article speaks to Pallotta’s CDC inching along on relatively no money since 2011, and suddenly $150K arrives from WWP. Pallotta’s entire for-profit career (and now nonprofit with CDC) exalts his fundraising prowess. Some five years to raise money for his creation and nothing happens (except for this WWP award). What happened to the all the TED Talk magic? Is CDC helping to move that 2% of GDP needle?

    The reason for WWP giving $150K of charitable dollars (intended to help veterans) to CDC remains a legitimate question.

    Should NPQ just play along because WWP is big and Pallotta trendy? NPQ is the media, not a PR firm for our sector.

    The $150K question aside, I am commenting because most comments here defend “the model” (spending what the charity sees fit on overhead). “The model” only works if veterans, breast cancer or AIDS and the like are the cause and only if you are not forthright with your donors. There is no defense.

    Donor Dollars are not earned income. Donors give in trust, and their gifts remain, at least in principle, their money to the end.

    Pallotta attempted to organize a walk for the benefit of CDC, and it failed. How many of you signed-up by pledging to raise support for the privilege of walking? Why not? That very walk was to proclaim prominently “the model” you are fighting for here so valiantly. Have you ever even made a donation of any amount to help advance “the model”? Have you encouraged your colleagues to give to CDC? The DONATE button on the CDC website is impossible to miss. CDC is for YOU and it is definitely about fundraising for itself.

    2011 to 2016 and Pallotta’s “model” gets one major gift. NPQ is most definitely correct in asking why. Is “the model” not viable at least as a cause worthy of support? Is “the model” best left as a “theory of change” pulled out only to defend oneself amid or after the scandal breaks – because “the model” certainly does not “pull” in terms of voluntary financial contributions. CDC’s failed attempts to raise money for its mission proves this point.

    My opinion aside, what matters is the judgment of the general public, let alone the FTC laws enforcing truth-in-advertising. Debate all you want about the “overhead myth,” most inside and outside our sector have an innate sense of True North. They know what deception looks like when they see it. They feel ill when they contemplate what exploitation does to the hearts and souls of the most vulnerable among us.

    Argue all you like for “Pallotta’s model.” No one is listening to you. Look around you. This little debate here is receiving more comments than probably all the NPQ and Chronicle of Philanthropy articles on the WWP scandal taken together. Our sector apparently disowns this outrage. Where is AFP? Where are our CFREs? Where is the Independent Sector? No opinions? Is CDC the only one with defense? Take a look over at the NYT — countless comments and almost all of them hot.

    Parise Nardizzi and Pallotta for daring to defy convention. Celebrate the unsubstantiated glories imagined in the TED Talk and all the AFP speeches since given by Pallotta and Nardizzi.

    But know this: Out there? The real world? One lie tarnishes a thousand truths. WWP just made it harder for you to advance your mission.

    I’m a veteran. I’m also a veteran of humanitarian NGOs that took me around the world to war zones and famines and natural disasters. Yes, there is heat here. This all gets very personal.

    I’m terribly grateful to NPQ for the courage to seek the truth. Seeking the truth wherever the hunt leads them is what THEIR donors and subscribers expect and demand of them. No scandal there.

  • Michael Brand

    The appearance of impropriety is just as deadly as any malfeasance. In this case appearances sunk the CEO. Taking an organization from $11 million to $175 million is impressive. That’s a huge jump in the size of the pie. And as Palotta says what’s the use of having low overhead if it just results in a small pie.

    Rather than infer that there is something corrupt because WWP and CDC are allies, instead let’s keep the focus upon what WWP was providing with the money. Then we can evaluate whether the overhead was worth it.

  • Fred Kaplan

    HUMOR: anyone notice the bio of one of the authors is as long as the article? LOL IT REMAIMS that the BOARD is ultimately responsible for the culture of an organization, based upon whom it hires to lead the organization. I venture that the board members also enjoyed some of the “benefits” of being a WWP board member via free trip etc. It is NOT surprising that WWP “invested” in the Charity Defense Council nor spent MILLIONS on lobbyists. A NFP can operate on most of the principles of a business, however WWP BECAME A business and not a NFP. Management became less advocates and more similar to corporate employees in their spending and culture. What the 990 won’t reveal is the typical free trips etc. that occur in the corporate world. In a start up NFP the ratio of donations to benefits to “clients” is different than a group that has been around for several years. In the first few years office equipment, hiring cost, establishing NR policy and procedures etc.are a cost. I read the 990 in detail and there are many questionable areas of grants and expenses. Anyone that has been in business knows how to cover say a new office chair under marketing or some other category.