The Sin in Doing Good Deeds?

If a businessman rakes in a hefty profit while doing good works, is that charity or greed? Do we applaud or hiss?  

A new book, “Uncharitable,” seethes with indignation at public expectations that charities be prudent, nonprofit and saintly. The author, Dan Pallotta, argues that those expectations make them less effective, and he has a point.

Mr. Pallotta’s frustration is intertwined with his own history as the inventor of fund-raisers like AIDSRides and Breast Cancer 3-Days – events that, he says, netted $305 million over nine years for unrestricted use by charities. In the aid world, that’s a breathtaking sum.

But Mr. Pallotta’s company wasn’t a charity, but rather a for-profit company that created charitable events. Critics railed at his $394,500 salary – low for a corporate chief executive, but stratospheric in the aid world – and at the millions of dollars spent on advertising and marketing and other expenses.

Taken from New York Times, thanks to Karen for sending on

“Shame on Pallotta,” declared one critic at the time, accusing him of “greed and unabashed profiteering.” 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, he says.

Mr. Pallotta argues powerfully that the aid world is stunted because groups are discouraged from using such standard business tools as advertising, risk-taking, competitive salaries and profits to lure capital.

“We allow people to make huge profits doing any number of things that will hurt the poor, but we want to crucify anyone who wants to make money helping them,” Mr. Pallotta says. “Want to make a million selling violent video games to kids? Go for it. Want to make a million helping cure kids of cancer? You’re labeled a parasite.”

I confess to ambivalence. I deeply admire the other kind of aid workers, those whose passion for their work is evident by the fact that they’ve gone broke doing it. I’m filled with awe when I go to a place like Darfur and see unpaid or underpaid aid workers in groups like Doctors Without Borders, risking their lives to patch up the victims of genocide.

I also worry that if aid groups paid executives as lavishly as Citigroup, they would be managed as badly as Citigroup.

Yet there’s a broad recognition in much of the aid community that a major rethink is necessary, that groups would be more effective if they borrowed more tools from the business world, and that there is too much “gotcha” scrutiny on overhead rather than on what they actually accomplish. It’s notable that leaders of Oxfam and Save the Children have publicly endorsed the book, and it’s certainly becoming more socially acceptable to note that businesses can also play a powerful role in fighting poverty.

“Howard Schultz has done more for coffee-growing regions of Africa than anybody I can think of,” Michael Fairbanks, a development expert, said of the chief executive of Starbucks. By helping countries improve their coffee-growing practices and brand their coffees, Starbucks has probably helped impoverished African coffee farmers more than any aid group has.

Mr. Fairbanks himself demonstrates that a businessman can do good even as he does well. Rwanda’s president, Paul Kagame, hired Mr. Fairbanks’s consulting company and paid it millions of dollars between 2000 and 2007.

In turn, Mr. Fairbanks helped Rwanda market its coffee, tea and gorillas. Rwandan coffee now retails for up to $55 a pound in Manhattan, wages in the Rwandan coffee sector have soared up to eight-fold, and zillionaires stumble through the Rwandan jungle to admire the wildlife. President Kagame thanked Mr. Fairbanks by granting him Rwandan citizenship.

There are lots of saintly aid workers in Rwanda, including the heroic Dr. Paul Farmer of Partners in Health, and they do extraordinary work. But sometimes, so do the suits. Isaac Durojaiye, a Nigerian businessman, is an example of the way the line is beginning to blur between businesses and charities. He runs a for-profit franchise business that provides fee-for-use public toilets in Nigeria. When he started, there was one public toilet in Nigeria for every 200,000 people, but by charging, he has been able to provide basic sanitation to far more people than any aid group.

In the war on poverty, there is room for all kinds of organizations. Mr. Pallotta may be right that by frowning on aid groups that pay high salaries, advertise extensively and even turn a profit, we end up hurting the world’s neediest.

“People continue to die as a result,” he says bluntly. “This we call morality.”

12 thoughts on “The Sin in Doing Good Deeds?

  1. WOW! I am just finishing up a book by Muhammad Yunus called Banker for the Poor. It is about micro credit used to erradicate poverty. (Grameen Bank) In the book there are some interesting arguments for challenging the public and private sectors to do business differently. To make money yes but also to measure success by the number of people helped. Social measures of success.

    A short quote from Chapter 27 called: Discovering Economics: The Social-Consciousness- Driven Free Market

    “I profoundly believe, as Grameen’s experience over twenty years has shown, that greed is not the only fuel for free enterprise. Social goals can replace greed as a powerful motivational force. Social-consciousness-driven enterprises can be formidable competitors for the greed-based enterprises. I believe that if we play our cards right, social-consciousness-driven enterprises can do very well in the market-place.”

    Just imagine what would happen if the private sector really started to measure the social outcomes as well as the profit!

    Is it possible that idea leaves “purist” fundraisers feeling threatened a bit? Corporations are starting to creap into our territority AND MAKE MONEY TOO! How is that possible?

    Perhaps, we are so used to living hand to mouth operating on shoestring budgets that it is impossible for us to imagine such a thing. Are we limiting our own success by being too “prudent, non profit and saintly”?

    I believe charities can and should operate much more like the private sector. Good solid business practices but with more heart and focussing on people more than the spreadsheets! – delivering great returns in social and environmental impact to our beneficiaries and to our donors. I’m not ambivalent Connor – if I found a corporation (like Grameen Bank) that was truly doing good work, inspired me to show up everyday because I believed in my work AND I received a good salary with benefits I’d work there! I think that is why I got into this business in the first place.

    Great blog Connor. Thanks.
    Kimberley

  2. hi Conor, I see no problem with charities making a profit. Agree completely with Kimberley that they should behave more like private sector. As long as they are transparent, I think this is fine. How can any company expect effective change if they are not willing to pay for good people?

  3. There are certain aggressive charities here at home who would be labelled as highly successful in their fundraising, Conor. They have a job and they’re doing it. I’ve been too long in the advertising business to see any differential between companies when the end objective is pretty much the same. Those same successful (but nameless!) charities here are known to be good payers as well. Why shouldn’t they game the system? Their endgame has idealism in spades, so what about how they raise their capital? As long as it’s ethical and they’re not investing in the arms trade or some other hideous irony. No disrespect to the people laying their lives on the line either. But in any successful organisation surely you need a wide skills base, and fundraising must be of immense importance. I hope Pallotta makes a mint off his book.

    • I agree with you all. I posted a good while back about the Suddes Group who believe that we should be called For Impact Organisations instead of non profit. I think once people hear those words their perspective on how things should operate changes.

  4. Well….I guess if we all agree we should just have a group hug and move on! Is there anyone brave enough to offer an opposing view point? I must be bored today. hmmm.
    k

  5. To all – I would recommend reading “Philanthrocapitalism.” I believe it greatly compliments “Uncharitable” in the sense that it addresses how the world’s wealthiest “invest” instead of simply give money to tackle the world’s greatest issues and how a savvy business mindset can create more aggressive and successful solution.

    One interesting point: I recently read a review of “Philanthrocapitalism” in the “Chronicle of Philanthropy” where the concept of running non profits more like corporations was denounced. Does anyone else believe that corporations need to look to non profits for guidance? I think the non profit sector can learn a lot from the corporate sector. What’s wrong with wanting to improve our bottom line?

    I believe we will see a lot more established non profits incorporating more corporate ideas and strategies into their strategic and fundraising plans because non profits have been increasingly placed under the microscope by the public to prove that money is being used appropriately and smartly.

    Thanks for starting the conversation…”Uncharitable” in sitting on my shelf, waiting for me to finish “Philanthrocapitalism.”

  6. Nonprofit organizations are operated as they are for a reason. This does not preclude NPO’s from acquiring talented individuals to go after funding, hiring out an agency to do promotional work for them, or keeping their budgets in order. On the surface, it may appear to be a bad move for the nonprofit in question to cut ties with a for-profit event planning business, but I’m sure they were feeling pressure from current major donors to break that tie. The wrong decision there was to try to handle event planning in-house. I’m sure changes have been made since then.

    Sure, corporations can do good things for the less fortunate, but the fact is, it only gets done *if it is in the corporation’s financial interest to do so*. Privately held companies are somewhat different, but the final decision rests in the hands of investors, not the managers of the company (who are eminently replaceable). These entities are motivated solely by financial incentive, and as Joel Bakan went through a great deal to explain in “The Corporation,” it is literally illegal for managers to deliberately do something that is detrimental to shareholders. This includes unpublicized, and therefore uncapitalized, philanthropy (i.e. goodwill).

    Philanthropies should not be managed in this fashion, because it runs precisely counter to the fundamental mission of many of these organizations – helping out the less fortunate, not padding the fortunes of the privileged. When personnel are motivated by financial incentive, not because they care about the work being accomplished, it opens the door for cutting corners and corruption. Just because the majority of their operating revenues (rightfully) go to the cause they are supporting, as opposed to their employees, it does not mean that the managers of nonprofits cannot make sound business decisions, and there are plenty of examples in which this is the case.

  7. Consultant and author Jim Collins (www.jimcollins.com) published a booklet a couple of years ago called “Good to Great and the Social Sectors”- based on the premise that we in the non-profit / for-impact sector need to reject the idea that the primary path to greatness for us is “to be more businesslike”. He argued that most businesses fall between mediocre and good; the critical distinction is not between business and social (or non-profit) but between great and good practices.

  8. Hi Conor, really interesting must take a look at that book myself!! Like all NGO’s in these R-word times we face a challenge to become more creative in how we fundraise to stay in business…business being the key word here! I agree that NGO’s must take a more business approach to developing their sustainability to ensure that the good work & passion they grew from can be continued into the future and to do this we must grow beyond the “hand to mouth” operational plan that sees us work literally year to year not really knowing whats ahead but for this approach to work good, qualified professionals are required & should be paid as such…

    Happy New Year by the way – hope you’re well🙂
    Joanna

  9. Thanks for all the comments. Some thoughts:
    @jp, I dont agree with your contention that it opens the door to cutting corners.
    @ Richard, I havent read that booklet so I cant comment on that, but would it be fair to suggest that there are also a lot of charities also fall between mediocre and good and as businesses they would have failed by now. Would it be fair to say that becuase they are charities people are more accepting?
    I do take your point that its about have great practice. I think the issue is a lot of non profits, for various reasons, dont achieve this.

    We are of course held accountable in different ways to the for profit sector, but is that right? In some ways yes, in some ways no. Is the charity that nets 4 million spending 1 million better/more effective than the charity that nets 7 million spending 3 ? The ratios will tell you now and sites that rate charities will rate you lower. But surely you are having a greater impact with the 7 million than the 4?

    Thoughts

  10. WOW! I’m starting to feel like we are on our fourth round at the bar, that I’m way over my head and some one needs to give us a break by referencing their favourite episode of the the Mighty Boosh! My vote is legend of Old Greg. \

    This is so simple really and the Collins reference reminded me of it. Haven’t read the booklet but have practically memorized “Built To Last” in which there is a small reference to NGO’s but essentially says all the principles cross sectors.

    I don’t think the issue is whether it is okay to make money and do good work at the same time or whether we all need to wear hemp, work for nothing and feel good about being poor because we are changing the world and operating at a higher level. (I’ve done this it isn’t comfortable)

    This is about being a values driven organization, with a clear vision, working hard, staying focussed, being more successful than your competitors and doing the very best possible job you can to fulfill your mission. This is about excellence and applies across all sectors. Even my ten year old has figured it out – and I blogged about it so it it must be true. http://kimberleymackenzie.blogspot.com/2008/11/seven-key-ingredients-to-building.html (not sure if that will work – just go to my blog and search for a November post on the seven key ingredients to building a organization.)

    Anything less and you won’t survive in either marketplace.

    And speaking of values – there are orgs that will decline donations for xyz reason. Orgs need to decide is it better to make money and help more people and have a bigger impact or is it better to do with less but feeling superior like somehow you are serving the greater good. Tough decision….

    Next round is on me.

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