Staff Writer
Columbus CEO

c.2013 New York Times News Service

To illustrate the Charity Defense Council’s mission — “protect the protectors” — the nonprofit’s website displays a shield pierced by several arrows. Apparently, the organization’s founder and president, Dan Pallotta, got tired of taking barbs unarmed.

Pallotta, one of the most controversial figures in the nonprofit sector, previously ran Pallotta TeamWorks, a producer of fundraising events, including the California AIDS Ride and the Avon Walk for Breast Cancer. Pallotta’s company rose to great heights — more than 300 employees and a sleek 47,000-square-foot office near Los Angeles — then collapsed. He shut his company in 2002 after lawsuits with former clients. The death blow proved to be the loss of Avon, the fundraising firm’s largest client.

“It was like McDonald’s losing the hamburger,” Pallotta wrote in a post-mortem published last year on The Harvard Business Review’s website.

But Pallotta is back. Aside from starting an advertising agency catering to nonprofit clients, he preaches his gospel — charities must act more like corporations to solve intractable problems — in speeches, books and a TED talk that generated more than 2.4 million views. Nonprofit organizations, Pallotta argues, worry too much about keeping overhead low and pay too little to attract the most talented executives; charities are also too risk-averse, he thinks.

In this edited conversation, Pallotta discussed his views.

Q: What practical steps has the Charity Defense Council taken to fulfill its mission?

A: The most important thing is actually establishing this thing.

I can’t lay claim to this directly. About eight weeks ago, the Better Business Bureau, Charity Navigator and Guidestar issued a joint news release called The Overhead Myth. It’s an aggressive campaign to really backtrack on this history of teaching the general public to ask about overhead. And now they are saying, “Charities don’t need low overhead; they need high performance.” That was like hell freezing over. That actually happened the same week that the Supreme Court struck down the Defense of Marriage Act, and I’m gay, so I thought I was living in an alternative universe.

Q: What revenue percentage of a nonprofit should go to overhead?

A: It varies wildly. That’s why it’s such a bad measure. Amazon goes for six years, doesn’t return any profit. Why? Because there’s a long-term game being played here and everybody has patience. You need a lot more of that in the nonprofit sector to generate scale. What should the overhead be? If it’s an organization that’s got some strategy to, say, home in on the cure for Alzheimer’s, then the overhead ought to be 100 percent for whatever period of that strategy is. If, on the other hand, you are running a local scholarship fund and you don’t have any dream of solving some systemic problem, then your overhead ought to be zero.

Q: You recently floated the idea of an “iTunes for choosing charities.” How would it work?

A: We need a large national apparatus that actually has human beings that do annual audits of every nonprofit functioning in America. We update that on an annual basis. We make that information available in an extremely beautiful user interface.

Q: According to the Charity Defense Council’s website, the organization plans to challenge rules that “violate our First Amendment rights.” What restraint on charity is appropriate? And pick a regulation to eliminate.

A: I would get rid of the need to speak about your results in terms of overhead percentages, which all regulators require. That’s where First Amendment issues come up. I don’t want to speak in terms of overhead percentages. I want to speak in plain English. Oregon just passed legislation that will strip tax-deductible status from any charity that does not return at least 30 percent of its revenues to the cause in the course of three years. Now, that sounds legitimate, and I certainly don’t want to be in the business of protecting bad actors, but you’ve got causes that are very difficult to raise money for — especially causes for the urban poor. They may not have an affluent constituency, so they resort to high-cost fundraising mechanisms like telemarketers or casino nights. So you are discriminating against them and making it illegal for a charity that does take on an Amazon-like strategy to pursue that strategy.

Q: Name a charity — not a client of your ad agency or a member of your nonprofit group — that does good by spending freely.

A: The Wounded Warrior Project has made massive investments in fundraising and has had massive increases in their revenue.

Q: You say nonprofits face a number of kinds of discrimination compared with corporations. Rank them by destructiveness.

A: They really form a whole. The lack of capital prevents you from taking risk. The lack of ability to spend on executive compensation prevents you, sometimes, from getting the kind of savvy people that could pull the capital together or do the advertising and marketing. The lack of ability to spend on marketing means you have less capital, so they are all interconnected.

Q: Psychoanalyze nonprofit executives; do many struggle with an unconscious inferiority complex because of their modest salaries?

A: Is there some common psychological thread in people who lead nonprofit organizations? You may not have an inferiority complex, but I can speak for myself. When I was doing major gift fundraising, you are out there with people who are your age or a little bit older, and you see that they are driving a BMW and talking about putting their kids in private school and they just took a trip to Europe. These are things that you are not able to afford. It makes you envious. It makes you wonder, “Do I really want to give up all of those things in the name of helping other people?”

Q: Some ex-corporate chief executives accept an annual salary of one dollar to lead nonprofits. Isn’t the failure of nonprofits that they can’t attract more moguls to work for less than market rates?

A: That sends the absolute wrong message: “I’m willing to work for a dollar.” It’s sanctimonious. If you are going to do that, just do it silently. Don’t be out there promoting the fact that you are doing it, because you are, once again, getting the public to think that this is an all-volunteer sector and it doesn’t cost any money to do any of these things. If you are talking about little charitable efforts — quaint little bake sales for churches — the existing ethos works fine. But if we want to start to solve some of these entrenched social problems — homelessness, cures for major diseases, the end of crime — then we have to start thinking in a really different way.

Q: You note in your book, “Uncharitable: How Restraints on Nonprofits Undermine Their Potential,” that the nonprofit sector is the only part of the economy “whose name begins with a negative.” As an ad man, rebrand “nonprofit.”

A: I’ve been calling it the humanitarian sector. But as an ad man, we’ve been coming up with some really great ads for the Charity Defense Council that we will start running as soon as we get budget money. One has a person looking directly into the camera and the headline says, “I’m overhead.” We’ve dehumanized overhead. Let’s humanize it. This person will say, “My mother died of breast cancer, and I’m fundraising for the breast cancer coalition. Without me, there is no cause. I’m 100 percent committed to the end of breast cancer and I’m overhead.”

Q: How should we measure the effectiveness of charities if not by overhead?

A: We should ask three questions in a systematic way and gather data: What are your goals, what progress are you making toward those goals, and how do you know?

Q: Why is the Charity Defense Council set up as a nonprofit?

A: We thought we could get more institutional funding that way. And I also thought it would be important for us to function as a nonprofit under the same reality that the organizations we want to help are having to function.

Q: What is your salary?

A: Zero. We just don’t have enough money right now. We’ve got about $20,000 in the bank.

Q: You begin your book with a George Bernard Shaw quote: “All great truths begin as blasphemies.” Do you identify with any historical figures who fought charges of blasphemy?

A: Steve Jobs. I don’t want to sound like an egomaniac, but this was a guy who was misunderstood who just fought for excellence. People just didn’t understand what all the fuss was about: Why is it important that that pixel not be there? My friend, David Mixner, a huge leader in the civil rights movement who was willing to talk about gay people running for office and gay people getting married and having kids years before it was anything other than heresy.

Q: Some critics describe you in pretty uncharitable terms. What’s the worst name you’ve been called?

A: The worst thing I’ve been called is the queen of AIDS profiteering. I don’t really mind being called a profiteer, but I really object to being called a queen.

Q: You are the father of 5-year-old triplets. What advice do they give you at home that you take to work with you?

A: Be happy. “Are you mad, Daddy?” “Yeah, kind of.” Be happy.