If an organization is turning a profit for its owners or shareholders then it's a business, not a charity. That's a definition, not a moral judgment.
There are lots of businesses that do good work for people. The tricky part is when you're soliciting for donations, you just need to be extremely transparent about where the money is going.
What we need is not a rethinking of what a charity can be, but a rethinking of what a business can be.
My first business was designed with two purposes: to earn a profit, and to support artisans in developing countries. Was it a business or a charity? Well, its legal structure was 'business' but its purpose was not only to earn a profit for me. I would consider it a failure if it had only helped myself, because that was not why I started it.
So I don't care whether you call it a charity or business. What is important is clearly understanding your purposes and means and making damn sure you communicate them well to the people who matter for your success.
The important realization I had was that it doesn't matter what traditional expectations are. As long as I stayed within the law, my limits were simply defined by the agreements I could make -- with artisans, with customers, and with all the other players in-between.
Later on I went to university, and that was the first place I was confronted with this inane idea that it was a structural necessity for a business to be driven solely by profit, etc. etc. -- as if this was an immutable law which transcends human nature and society.
I didn't get into business only to live up to expectations that society has created, as though I was a gas waiting to expand to fill whatever chamber I was put into. I got into business as a way to express myself through thought and action in whatever ways might lead to the most impact.
There are problems pretty much inherent in types of organisations. These are a consequence of the forces creating them, growing them & making them thrive.
Businesses as a complex are great at some things & problematic at some things. The defining characteristics are the drive to make money, responsibility towards shareholders, legal obligations etc. The ones that survived, had others modelled on them where those that made money, those that got big, etc. Pg & others talk about vestiges piling up, but that assumes traits being useful at some point. Businesses that go bankrupt, stay small, get sued to pieces... do not have much of a lasting impact. Positive social impacts is only a surviving trait inasmuch as it aids the others.
Governments & government organisations have other issues. A big part of what makes them survive is looking good to electorates/media etc. They're not as scrutinising as shareholders, but they know when a neighbouring country has better roads, lower taxes, or if things have been getting worse.
Charities have issues to do with the fact that 'survival,' growth & such are mostly to do with fund raising ability. Proficiency in whatever they're stated purpose may be helpful for fund raising. But it is not in itself a guarantee of success. At first glance you might think, businesses may make brilliant products & go out of business. But that misses the point a little.
A charity's job could be to help relieve rural poverty in remote P&G. OK, where do we go from here? Well, raise money & run poverty relief programs in P&G. Done. Of the 10 charities, which did a better job?
Similar working out who created the best portable music player, best sneakers, best film. You can argue that 'Alexandra Leaving' is far superior to 'Oops I did it Again'. You could argue the contrary. Not much fun arguing who made more money.
If your goal is make money, we have a clear winner. We can't tell who relieved more poverty per dollar. We can tell who raised more money. We can tell how (on what) they spent it, but we can't tell how well they spent it.
Governents are charged with the opposite. 'Educate Youth'. That is the goal. But since they have responsibility for the entire job, you can gauge their success. You can tell how educated the country is. Better then 20 years ago? Worse? Charities don't even have that. All they have is spending.
I'm sure there are many cases where charities could break through from the constraints of the conditions on their grants, donor public & thrive. But there is also a danger of charities overspending on fund raising or hitting all sorts of tragedies of the commons in spending over chasing an existing amount of money. It's really hard to tell.
Obviously people aren't very aware of how much the CEOs of various not for profits make. The CEO of United Way for instance makes over $500K. All of this can be investigated on Charity Navigator.
I think part of the fear regarding for-profit aid organizations is this: the pursuit of profit will create an incentive for organizations to follow the money.
As a result, more resources would be allocated for the problems in more wealthy nations (ie. cancer), while problems in poorer regions would be neglected (ie. maleria). The same problem would exist even within a nation through existing class divisions.
While this schism already exists today, an increase of for-profit aid organizations/charities will probably exacerbate this divide.
In the end, this discussion opens a whole host of ethical issues and philosophical questions. Life is rarely simple.
In the aftermath of a wave of criticism, his company collapsed.
One breast cancer charity that parted ways with Mr. Pallotta began producing its own fund-raising walks, but the net sum raised by those walks for breast cancer research plummeted from $71 million to $11 million.
But because his company collapsed, the true comparison figure that Mr. Pallotta raised became $0 million. As a business, it didn't succeed. And he's blaming the world. People often give to charities to feel charitable, and having a profit-motive undermines that - even if the result is that less money is raised. This is because people making donations are often fulfilling a need to give and help people - not by what is best for those being helped. The latter requires a kind of ruthless saint, quite different from the human motivation of brotherly love.
In contrast, ordinary businesses helps people, or else no one would give them money. A fantastic example of this is Grameen Bank "microcredit": http://www.grameen-info.org/index.php?option=com_content&... Usury (interest for credit) has got to be pretty much the opposite of charity, yet it seems to do tremendous good.
The problem is that there are many qualified people in charity work who make barely-subsistence wages who would likely do an as-good or better job with far less pay.
So, for the most part, my guess is that $500,000+ salaries are a form of rent seeking, and are not justified in the so-called marketplace.
It'd be nice if someone could crash together the stats and see if this intuition bears out. You know, look at percentage of donations used to actually help their stated cause, and see if having a super-star CEO actually results in a more well-capitalized charity.
I doubt it, but I depend on evidence, not ideology.
Take the case of the breast cancer charity which, from the article, was pulling in $71mm from charity walks using his services. They stopped using his services and continued the walks and are taking in $11mm now.
You might argue that several other variables might have also changed, but a 6.5x factor is hard to ignore.
That's a little harsh. It was a pretty significant anecdote - a 6.5x decrease with the only clear change being Pallotta's company-charity being forcibly stopped from continued involvement. Is there room for other plausible reasons to have caused the drop? Definitely. And of course if, hypothetically, Pallotta's company-charity was involved with sufficiently many causes, you would even expect there to be at least one anecdote with such a substantial drop. But to call it "1/10,000 of a good start" is much more unreasonable and illogical than thinking the anecdote might be of worth.
You might not call it that, but one anecdote is indeed data. A very small amount, to be sure -- but it's all we've got.
Tiny amounts of data can almost never prove a particular theory correct (in sociology, at least), but you're quite simply wrong if you think we can't get anything out of them. This particular data -- datum, I guess -- certainly can't show that charity CEOs in general earn their keep, but it so blatantly contradicts your theory that I think it's safe for us to assume that you're incorrect.
Is it possible that "there are many qualified people in charity work who make barely-subsistence wages who would likely do an as-good or better job with far less pay" and that the story's CEO's departure caused an 85% loss in the charity's income? Yes, of course. But it's unlikely. At the very least it seems like there needs to be some kind of barrier to hiring those people -- maybe it's impossible to determine which of these minimum-wage earners is actually a highly competent manager.
In a public company, and to a large extent a private company, the bottom line is the bottom line. Investors invest, and they want money out of it. As long as it's legal, anything goes to get that profit.
In a charity the bottom line is providing some much less tangible benefit to someone or something. The bottom line is a much fuzzier concept. The benefit is harder to gauge than when you're just looking at a number of currency units.
I don't know -- I think a major portion of the experience is the feeling you get from the donation rather than the experience of seeing an objective indicator of your cause improving. Who the heck cares if Charity CEO A owns a Leer and parties with Paris Hilton every weekend if his charity has triple the ROI on donations as compared to Charity CEO B. (Not hard at all to imagine, incidentally -- private companies have that sort of difference in competence all the time.)
No. That's exactly the point: people don't give money to charities to help a cause, they give money to feel good.
If they gave to help a cause, then they would support whatever (reasonably ethical) methods best helped that cause. The fact that so many donors bitch about frankly miniscule CEO compensation proves that the majority of them are not in it to improve the world -- or at least that there are other things they want out of their donation.
I don't know anyone who actually gives just to feel good. Feeling good is a by-product of giving, but only because you've done something worthwhile (or so you believe).
That people bitch about CEO compensation doesn't mean they don't want to improve the world. They bitch because they want to improve the world, and they believe that high CEO compensation (as they perceive it) is a modern evil that stands in the way of improvement.
Also, they bitch because it's hard to measure performance directly. The best we can do is often look at the % of administration vs programs vs fund raising. Even there you can have a lot of funky accounting.
If you really want to get into it, we can look at the names & brochures of the individual programs. Going all out, we might news search the names of the programs to see what news references we come up with.
We know that charities are inefficient. But we can't work out who or how. Charities don't have ROI or p/e. So we look at things like CEO salary.
It's not that obvious where to draw the line. Executives of charities need to get paid. And because charities deal with large amounts of money, mismanagement can be very costly. By increasing the salary of the executives you can get more qualified people. As a result, the charity becomes more efficient and effective and everybody's happy.
Often charities have billions (?) of capital. If they hire a local private bank to look after the money they will have to pay for it, and the bankers will be driving porches. But if they manage the capital in house they suddenly can't compensate people for it similarly, because they're still a charity?
Charity.
Raise money: OK
Spend money: OK
Save money, use part of savings as bonus: Evil?
I haven't really thought this through, so my logic could be flawed. Still, I think that most charities should become more business-like. (Good) Businesses are, after all, all about creating value.
No, they are paying people to make more money with investments or whatever - that's fine, do what you want - the money comes from the investment income, it doesn't matter if it's inhouse or out.
But if you pay people from donations directly then it's not OK to pay a lot.
Are you paying people to get more donations (no good), or are you paying people to make more money in some other way - including by saving you money (...more efficient and effective....), then it's fine.
Basically if by paying people you will end up needing to collect less donations - or you use those more effectively, then I'm fine with it.
But if you pay people to work on methods of getting more donations in the first place, then I'm not OK with it (if it's excessive, more then a few %) - even if it means you have more money in total.
>But if you pay people from donations directly then it's not OK to pay a lot.
Unless the donator is aware of the fact that you are paying your employees with the donations, and choose to give anyway. In fact, most large charities have employees who get paid, usually out of donations :). But you don't make your decision based on their management process, but based on the service they provide you; namely aiding some cause on your behalf.
You don't decide whether or not to buy a burger at McDonald's based on what percentage of your dollar goes to the CEO, but based on the quality of the service they may provide. Same with charities. If a charity can get away with paying exorbitant amounts to their CEO and still be the best value per dollar, people will donate, and it won't be wrong. Maybe the reason they do so well is that they were able to hire great high level management.
However, to convince people that you were going to spend their money one way and then actually spend it another is fraud. If you paid McDonald's for your burger, and they didn't give it to you, you would be within your rights to sue. At the very least you wouldn't go back. So it is with charities.
It is perfectly fine if you feel that a particular charity spends too much on management, and therefore decide not to donate your money to them. I realize that you may have been stating your personal opinion as to how you decide which charities you donate to, and that's fine. But to then claim in newspapers or other places that because they don't match your standards they are objectively evil and should be shut down/boycotted is a completely different thing. I think that is more what the article is about.
But I do actually make my decisions based on their management process. Personally if they spend more than 5-10% of the money on administrative expenses I don't donate. And BTW that cuts out the vast majority of the charities, I think (wild guess) that most spend around 50%, and some as high as 75% (police fraternities for example (again, wild guess)).
The newspaper example, I think, was more a case of the person not being upfront about it.
Also, I personally think that if the charity money did not go to him, it would go somewhere else. So by him consuming 50% of the donations for his own pocket he is reducing the amount of charity money in the world.
Others might disagree and say that if he didn't get the donation, no one would. So you might as well allow him to exist.
If that's your opinion fine. But I feel that even if the second case is the real one I still am not OK with it (but I think the first one is what actually happens).
So as long as the charity compartmentalizes their income into different groups (depending on source) and pay the Porches from one group you're OK with it?
Your line between OK/!OK seems really arbitrary to me.
No, not their income, their output, i.e. expenses.
I'm OK with them spending money to make (i.e. earn) money, or to save money. I'm not OK with them spending money to collect more donations.
For example if you want to hire an expensive but very very good organizer that will save the charity administrative costs greater than it costs to hire the person - no problem.
On the other hand if you want to hire someone who is really good at drumming up support and getting people to donate, that could be a problem, IF they are getting paid a lot. And I don't care that they will bring in more money than it costs to hire them. I'm still not OK with it.
How much is too much? I'd say a few percent - i.e. if it costs more than a few percent to bring in X number of donations, then don't do it. (Or if you do it let people know upfront that XX% of their money is being used to try to get more money.)
That's why I refuse to donate to pretty much any group that calls me. Paying for those calls usually costs around 50% of the money brought in.
There are some cases where the calls are by volunteers, and then it's OK obviously.
Take a raffle for example: some charities will award as prizes 50-80% of the money brought in. Normally I would not be OK with that, except that they are usually upfront about it.
Mass mailing: I don't know how much that costs, but if it costs more than a few percent of the money brought in, don't do it.
A "for-profit charity". That's where someone starts a charity, for the purpose of paying himself a nice salary. Suppose he pays himself 50% of any money brought in.
You might say: well there is still that 50% of the money that does some good, which otherwise would not have happened.
I don't agree.
I think that last case is the example in the article. He says to himself: at least I'm doing some good in the world, so what if I'm making lots. I (and I guess most other people too since he was forced to shut down) don't agree.
They're aren't giving you something for nothing. They are giving you something so you can help the people that the charity benefits. That's the service he (Pallotta) provides.
Wow. An editorial on the NY that makes significant economic sense and goes against the liberal ideology. This is a first.
On the op-ed itself. I don't understand why anybody considers profit evil if said profit is not gotten through fraud or coercion. Exactly what is so evil about making money? Furthermore, all donations to charity are completely voluntary and private. Whether for-profit charities are evil or not is not something to the public at large to decide. We have no business passing judgment on any charity unless we happen to be one of the donors (and even then, clauses from their contracts apply). Lastly: if I was donating to a charity, I would not be concerned by how much they got in profit or how much their chief manager was paid. I would be interested in what I was giving them money for: how effective they were is helping the people they claimed to help.
Give NYT some credit, in the sense that not all their opinion pieces must adhere to some liberal ideology. As you mentioned, it is an "op-ed", not the NYT editorial board. The very fact that they have William Kristol as a regular columnist says a lot.
Contributions to for profit companies are not tax deductible. This may cause some to give to other charities instead.
Not for profit charities are required to disclose financial information. Sites such as Charity Navigator allow you to investigate such charities. For profit charities are not subject to such regulations.
> I don't understand why anybody considers profit evil if said profit is not gotten through fraud or coercion.
For example, Marx said that more capitalism logically leads to subsistence living conditions for the workers. He gave arguments for this. I think they are mistaken, but if you are wondering why people think profit is evil, that's a reason. Marx said that without fraud or coercion, and just free trade, most people will have very bad lives.
And, yes, obviously one can live in the US for a lot less than minimum wage, and be doing a lot better than the subsistence conditions Marx had in mind from his own time period. So Marxism is blatantly, factually inapplicable to the US (whether that's b/c Marxism is false, or b/c the US has been saved by it's non-pure capitalism with govt intervention is not obvious just from the plain facts). Why people are blind to this is a tough question.
At the time of Karl Marx, the wealth built by Rockefeller and Carnegie is such a big portion of wealth of the U.S. But when you look at Buffet and Gates, they are not as wealthy as Rockefeller and Carnegie were. Besides Gates and Buffet's influence on political power is limited.
There are lots of businesses that do good work for people. The tricky part is when you're soliciting for donations, you just need to be extremely transparent about where the money is going.
What we need is not a rethinking of what a charity can be, but a rethinking of what a business can be.