Is the pressure to keep overheads low and avoid failure holding charities back? Watch this TED talk and tell me what you think

Following all the hoohaa about charity boss salaries, including my own small peanutgate contribution, several people sent me links to this intriguing TED talk by Dan Pallotta, which I found partly convincing, but also rather uncomfortable viewing. I’d be really interested in your reactions:

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14 Responses to “Is the pressure to keep overheads low and avoid failure holding charities back? Watch this TED talk and tell me what you think”
  1. Gabe Ferrazzi

    A compelling case on many counts, but standing in the way of accepting “overheads” of 40% as investments are notable examples of “charities” that have had similar or larger overheads and have clearly been parasites on their causes, draining funds away from them (reducing the pie).

  2. Peter

    Like you, I found it partly convincing when I watched it a few weeks back. The thing that I feel has been left out of a lot of these conversations (especially American ones) is class. When MPs pay comes up there is always someone with the defence that you need to ensure pay is enough that it doesn’t exclude poor and working class people. This should be a concern in NGOs as well.

    If we believe diversity of views and perspectives improves decision making (the case has frequently been made for gender and ethnic diversity) then we should be worried about the high concentration of middle-class in the sector. Pay along with London living costs are a huge issue. Oxfam is the most notable exception to the London office problem, but assuming you love in London, even these “fat cat CEOs” can’t afford to buy a house based on their salary alone (mortgage multiples at that £100000 cut off means a mortgage of £300,000, which buys a 2-bed flat, but certainly not a house in London). So low pay in the sector excludes working class people who don’t have trusts, inheritances, etc. This point has been made about the awful unpaid intern culture, but hold equally true for paid staff.

    As much as we hate the market system, NGO staff are trapped in it for their livelihoods. let’s not restrict working in the sector to trustafarians or the spouses of bankers.

  3. Anon

    Exactly. The convincing part is the attractive number of dollar signs for the non-profit sector. The uncomfortable part is the rather undemocratic approach and here’s, I think, why: Firstly, the non-profit sector of course is not a homogenous whole – it contains different aims and approaches –so what he says doesn’t apply across the sector. So secondly, from an international development perspective what’s bitter-tasting about Mr Pallotta’s method, is that it doesn’t take into account that part of the ’cause’ is is not simply about ‘making the poor rich’ it’s about rebalancing inequality in the world – ie challenging the power dynamics. Hence we believe there is a level beyond which it is unjustifiable to invest in ourselves, partly because that would reinforce the power dynamics we aim to overturn. Whereas health research charities – Pallotta’s niche – are more focused on finding cures to diseases – ie maximising the money available to fund research. Thirdly, Pallotta confuses means and ends – he sees the ends as fund-raising, which in development it isn’t. And given our different ends, that influences the way we approach the means,(fundraising), and what we think is an appropriate way to do so. Similarly, we don’t just take any money – we are also concerned about where that money comes from, for exactly the same reason, ie there is a normative value to money and in the development sector we attach a value to what funds we raise and how. An compelling model yes, and he’s got a point about the value of investing in ourselves as organisations – and explaining that to the public – but it certainly is not the whole picture for the international development wing of the ‘charity’ sector.

  4. I think this talk is unconvincing because ultimately he gets to a point that just says ” People think like this but they shouldn’t ” and where does that get you.
    Donors don’t want their charities to spend 40% on investments or overheads , whatever the NGO want to call them. End of. Get a focus group and ask them if you want but you could save your money. NGOs should make a better job of explaining how they work and are funded but that’s a long term project.

  5. One sector conveniently left out of the presentation is government, i.e. regulated democratic public institutions with the resources and mandate to “do good” for everyone. No need to prop up advertising agencies if there is consensus on the social goods we all wish to contribute to. Let NGOs be watchdogs and let “rock star” charity CEOs reinvent themselves as … rock stars.

  6. Simon Halliday

    I’d strongly recommend you go and listen to the longer podcast at EconTalk when Russ Roberts interviews Pallotta. They go into much greater detail and tease out some of the nuances a bit more than you can with a TEDTalk. Having interacted with people in NGOs that have raised significant amounts of money and where people regularly end up with 60-70 hours weeks, it makes sense to me that these people should be suitably rewarded. I’m not talking crazy-high CEO pay, but definitely higher than they’ve historically received. Also, many NGOs I’ve interacted with need to invest in order to become sustainable in the long run, but have not been able to do so because of the concern with overhead and with sponsors/investors worrying about whether the money is yet going directly to beneficiaries. I believe that this kind of discussion ties in well with a more well-rounded discussion of how to evaluate outcomes (not just with RCTs, but with good quality qualitative assessment too). How do we do go about ensuring sustainable NGOs and sustainable high-level outcomes?

  7. Jan

    On remuneration: I wasn’t sure whether he was saying either (a) current staff are not sufficiently competent and if more money was available could be dismissed and replaced with more capable people currently from the private sector, or (b) current staff are just worth more, and we should divert more money from below-$1-per-day beneficiaries in order that staff can earn the same as their MBA peer groups.

  8. cathy shutt

    Pros: he encourages us to reflect on our assumptions about terms like ‘overheads’ and alerts us to the sociology of accounting and money, which we probably don’t consider enough (I suspect partly because economics has tended to be the dominant discipline in development). Debates about value for money and ‘whose values’ should be encouraging far more discussion of social constructions like ‘overheads’ and ‘efficiency’. Why do we assume ‘overheads’ are bad and ‘efficiency’ is good, when arguably the latter contributes to inequality? Why do people buy arguments about ‘efficiency’ improvements that are really only a pass on of transaction costs or overheads, e.g. DFID’ downsizing and contracting out management functions to the big 4 accounting firms?

    Different organisations use different definitions of ‘overheads’ and if you investigate accounting practices within international organisations you will find very different posting and reporting practices, some of which relate to different cultural practices. Interestingly, I have spent a bit of time with management accountants over the past few weeks talking VFM and they seem sceptical about the integrity of VFM comparative analysis I suspect because they are only too aware of the sociology and politics of accounting and resulting apples and oranges problems.

    Cons: He doesn’t go far enough and his argument seems to be embedded in a small (or no) state ideological model in which the market knows best and there is always a need for charity. Bigger is better – a charity’s growth and scaling up is necessarily a good thing. His central problem seems to be ‘charities need more money’ than the need for charities. It is power blind and I see this as contradictory to a normative right based model in which charities are meant to be doing themselves out of a job. Admittedly his model may be a more realistic one, especially in the States where the culture of philanthropy and public opinions tend to differ from those in the UK. I think David Hulme co-authored a paper on this, but the argument was that more of the US public see poverty as the fault of individuals whom if they work hard enough can earn themselves out of poverty, i.e. theory of social change is an individualistic, rational actor one.

    Incidentally, are ‘smart individuals’ and CEO’s more motivated by absolute sums they earn or about how they feel they are valued when they compare themselves with peers? I am certainly affected more by the latter and on several occasions have been very happy with my salary before finding out what others around me earned. It is the social aspect, the comparison with peers that has either made me feel under or overvalued.
    Michael Watts did some interesting research on volunteers that explores this and relates to comments on the earlier blog:
    ” Expatriate volunteers in Phnom Penh, Cambodia, work in a country where many of their fellow expatriates are paid considerably more than they are. Such volunteers often find that the financial disparities affect the perceptions that people have of them. This paper explores the self-perceptions of volunteers working with Voluntary Service Overseas in Phnom Penh, and sets these perceptions within current theories of motivation and commitment. Two issues are then raised: whether these volunteers are willing and able to deliver quality assistance; and how perceptions of their status can affect their ability to deliver such assistance.” http://academic.udayton.edu/richardghere/NGO%20Man/Watts.pdf

  9. Pallotta is back. Check his background and find where he comes from. In 2002 the Washington Post published an article whereby they noticed that 14 percent of the money raised by Palotta Teamworks went to the Aids research it was meant for. Pallotta teamwork went belly up. And now he is back (just because he is a good speaker).

    He stands for everything the financial industry wants to get rid of and rightly so.

    If it is (also) about money, start your own business not a charity.

  10. kieran

    Do background checks on him and you will see his work does seem a bit “dodgy”. I guess we all have a different gut feeling re how much is enough, but my sense is his approach very rooted in N American free market Capitalism, people only motivated by profit etc. In final analysis suspect it is up to those who give to charities to decide what they will tolerate, personally I would be put off by a charity fundraiser on an already decent salary working on commission.

  11. Lori Heise

    I don’t totally buy his analysis, but I think he does the sector a service by focusing our gaze on questioning the assumptions of current donor practices in assessing what is a reasonable proportion of revenue that can go to build and sustain the institution in addition to any specific project work

    One of the largest problems I see in the current funding model for NGOs is the short-sighted fallacy that organisations can efficiently achieve their mission using project funds alone, with a 10% to 20% indirect rate. Fifteen to twenty years ago there was much more stomach in the donor community to giving core support, rather than linking every dollar to a particular project-defined outcome. The strategy here was in addition to achieving discrete outputs and outcomes, donors were investing in institutions to ensure civil society engagement on key issues. This is almost unheard of now –a fact that has led organisations and foundation project officers to collude in what I call the “Grand Lie” — the idea that organisations can grow and thrive based on 10 or 15% overheads. Instead, most NGOs “hide” their indirect in one way or another — building it into their daily fee rates, inserting direct line items for things like IT and library services, contract’s support, etc. Everyone seems to understand that such things go on, but nobody challenges it because it helps support the convenient fiction that both the donor and the NGO are super efficient.

  12. James

    *Do we have a hypocritical approach to “overhead” at non-profit charities vs for-profits?* Yes.

    *Do leaders of charitable organizations deserve more credit and more compensation?* Probably yes.

    *Will Boards and Donors recognize the value of building organizations for the sake of “building capacity” that contribute to society?* Probably not, and this reflects the market conditions where non-profits are relatively easy to create and, people who want to work in charities are willing to take less pay for working on something that they believe in.

    Is this a good situation? It depends on who is asking.

    As society values markets more than collective action, the debate is good to have. I applaud Dan and what he’s trying to spark.

  13. Laura Roper

    The NGO sector is in real danger of losing the debate about its effectiveness and legitimate role. Just look at any issue of the Standford Social Innovation Review – the template of practically every article is “Look at these fabulous social entrepreneurs…if only NGOs could be more like them, and here is one that its and isn’t it great!…and government does have its role, although government is pretty hopeless, but new technology helps!” So, I welcome Pelotta’s full-throated defense and would argue we need much more of that. At the same time, the sector needs much more consistency and rigor in examining if NGO rhetoric actually is consistent with what they deliver and much more thought on how to make NGOs, especially the big INGOs, more nimble.

    I watch with great unease the development models being promoted by tech entrepreneurs and pretty uncritically extolled in both social media (of which they are masters) and mainstream media. A case in point, despite a rather snarky headline (“A Save-The-World FieldTrip for Tech Moguls), is the NYTimes Magazine’s (August 8) largely uncritical article on charity: water’s development model, leaving it for a subsequent opinion piece (“The Real Future of Clean Water” NYTimes, Aug. 21) to offer a critique, nearly 2 weeks later.

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