Sunday, October 17, 2021

Uncharitable: How Restraints on Nonprofits Undermine Their Potential (Civil Society: Historical and Contemporary Perspectives)

The biggest takeaway from Uncharitable is that accountants make us do stupid things. Ok. There is more than that, but accounting mechanisms do seem to play an outsized role in what is good or bad with charities. Dan Pallotta had a successful company that organized major "active" charitable events, such as AIDS bicycle rides, and multi-day breast cancer walks. Then there was backlash and his company lost his contracts and went belly up. Some of his former employees went on to work directly for the charities to put on events. So, yeah. He has an axe to grind. The charities thought they would get more money by doing it on their own. Alas, they netted much less when they tried. Eventually they did ramp up to similar levels. Would they have been even higher if they kept with him?

The book rambles on for a long time about the Puritan ethic and the history of the separation of for-profit and non-profit distinction. 

The primary argument is that charities need to operate more like business. They should hire the best and compensate them appropriately. They should be willing to look to the long term. They should take risks and be willing to fail. Judging a charity merely on the percentage of funds that "go to the cause" encourages short-term behavior and creative accounting. It also penalizes smaller charities. He does give examples of some of the nonsense this behavior encourages. Having a company donate goods or services rather than donate money makes things look better, but is really just an accounting sleight of hand. 

There is some interesting discussion on advertising. Church goers tend to donate more to secular causes because they hear weekly propaganda on the benefits of charity. Similarly, charities receive large donations after a major catastrophe because of all the "free publicity" of the news. Corporations also spend money to advertise their products. Why shouldn't charities also advertise more? Aren't they providing a better service?

There are a number of good points in the book. There is also an underlying hurt that he felt from his past experiences. A lot of it boils down to what we think of a charity. The government provides favorable tax treatment and in return makes rules. We tend to follow through. While a charity does not need to be a non-profit organization, it is harder to convince people to donate. Higher education is its own separate beast. For profit colleges have been piloried and discredited. Yet colleges have been free to pay coaches millions of dollars - amounts that would not be tolerated at other non-profits. Would it be a problem if coach compensation were limited? Probably not. On the other hand, do we need to pay non-profit executives huge amounts? We could argue that for-profit executive compensation has become excessive. A more moderate non-profit salary could allow somebody to live comfortable at the 95% of income, and still earn a small fraction of a for-profit executive. No need to repeat the mistakes of the private sector. Would it be better to let the private sector executives make the big bucks and donate them to charity?

Other handcuffs of charities do need to be looked into. We should let charities focus more on innovation and long term development. It seems silly to require all donations received after a big event to be dedicated to that event. (Would this just encourage more creative accounting? Much of the work responding to the event was started before the donations flowed - using previous donations.) The difficulty remains in evaluating quality of charitable programs. Numbers are easy. 

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