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Invest massively in fundraising, Pallotta tells charities

Fundraising | Tania Mason | 5 Nov 2009

Charities need to be liberated to enable them to use the tools of commerce if they are to make any dent in the world’s most intractable problems, Dan Pallotta told delegates at Charity Finance Live last month.

In his address to the flagship event of Professional Fundraising’s sister magazine Charity Finance, Pallotta set the scene by reciting some depressing figures about the lack of progress made worldwide in the last few years on issues like breast cancer, Aids and malnutrition. “If we want change to occur at the rate of molasses we have a very suitable system for that,” he said.

Pallotta said charities needed to invest massively in fundraising – including large-scale advertising – in order to grow, because the scale of the problems facing the world are so huge that they will never be overcome by small organisations. “You have to invest in the fundraising engine this is where revenues will come from to grow organisations into the kind of size that is required to have any real effect,” he said. “Fundraising is the black sheep of the sector but it is the only hope.”

He said the world currently has two rulebooks, one for charity and one for the rest of the economic world, and this prevents charities from fulfilling their potential.

Commercial brands can advertise as much as they wish – and do, because advertising works, he said.  “People say the public is apathetic about charity, but I don’t think so.  I think they are just pummelled with ads from Budweiser and Botox and hardly ever see a charity ad.”

The fact that charities can’t pay their executives the kind of salaries that the private sector can means that the best graduates have two stark choices – “between doing well and doing good”.

He compared the total salaries of the five highest-earning chief executives of healthcare charities in the US - $2.48m - with the salaries of the five biggest-earning health insurance company chief executives - $138m. “It’s an upside-down world that values the management and institutionalisation of disease 74 times greater than its eradication.”

Ridiculous obsession with overheads

Pallotta, who wrote Uncharitable – how restraints on non-profits undermine their potential, also attacked the current focus on overheads and administrative costs, and the reluctance of charities to take risks. “We let Paramount Pictures spend £100m making a movie that flops, and don’t bat an eyelid, because more of their movies succeed than fail.  But if you do a £5m charity fundraising campaign that doesn’t return 70 cents on the dollar in the first 12 months, you get the Attorney-General knocking at your door.

“This ridiculous obsession with overheads regulates all the clever ideas we have heard today.”

In the US in the last 39 years, 46,136 for-profit businesses have crossed the $50m annual income barrier. This compares with just 144 non-profits.

Adam Sampson, former Shelter chief and now chief ombudsman at the Office of Legal Complaints, responded by contending that there is little that prevents the UK sector from adopting the strategies Pallotta mooted, and indeed has grown massively in the last decade.

But he cautioned that the bigger an organisation gets, the greater the erosion of its connection with the people it represents, and the growing danger that it loses touch with its mission in the drive to keep increasing income.

Charity Commission chief executive Andrew Hind said he agreed with Pallotta about wanting to liberate the sector, but added there “no restraints on salaries in the sector except the test of public opinion”.

He said Pallotta was painting a picture of a US sector that is “more draconian and narrow-minded” than here, where “you can do anything as long as you are absolutely transparent with the donating public”.

However, Hind conceded that the UK sector needed some “Googles and Microsofts” to shake up the landscape and inject some dynamism, adding that the trustee structure of charities can act as a brake on innovation.

Charities must educate the public

Pallotta concluded: “Of course we have to maintain public trust, but not if the sector is trusting the wrong thing. We have a responsibility to educate the public, not to tell the public what they want to hear.”

He said the original concept of charity – “an insurance policy against eternal damnation” – is no longer appropriate in today’s world. “People say to me that charity is a balance to capitalism, and that we shouldn’t contaminate it.  But I think it is a betrayal of all those who donate to it.  Charity does not exist as a balance to capitalism, it exists to help people.  If we are more focused on our own sanctimony than on the needs of the children or the poor then it is a morality that I don’t want anything to do with.”

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