Thursday Keynote Uncharitable: The Double Standard for Nonprofits and For-Profits

“There are two different rulebooks – one for nonprofits and one for the rest of the world,” said Pallotta. While the for-profit rulebook encourages innovation, attracts top talent and invests in long-term strategies, the not-for-profit rulebook stifles new ideas and produces results that do little to move beyond the status quo.

How do the rulebooks differ? Here are three ways:

1.  Reward talent for value

For-profit organizations attract top talent with salaries and opportunities that reward the best and brightest for new ideas that bring value to the company. “Why would an MBA give up a potential $400,000 salary to work at a nonprofit for $84,000?,” asked Pallotta. Instead of taking the position at the nonprofit, the business leader takes the higher paying position, serves as a board member at the nonprofit, writes a check and gets the psychic benefit and recognition for giving back to the community. While this support benefits the charity, the effect is not as meaningful as finding people with that level of talent to lead the charity day-to-day, he added.

Nonprofits cannot offer high dollar salaries without attracting negative attention and calling their fiscal responsibility into question, pointed out Pallota. “College football coaches at nonprofit, taxpayer supported schools are paid millions of dollars based on their performance – winning record, ticket revenue and top talent recruitment – so there is no reason charitable organizations shouldn’t do the same,” he added.

2. Advertising and marketing

For every one message from a health and human service charity that is heard, there are 479 messages from businesses telling people about products and services they need to buy, said Pallotta. “We don’t like nonprofits to advertise but the reality is that people have to be asked to donate or participate in a fundraising event,” he said.

Rather than a pure expense that detracts from a charity’s ability to provide services, advertising and marketing enhances fundraising, explained Pallotta. As an example, he described the success of fundraising walks for Aids and Breast Cancer. Over $581 million has been raised in nine years from these two ongoing events following an initial advertising investment of $182,000. “However, people see a charity spend money and advertising, and they criticize the organization for diverting funds from research or services.”

3. Risk in pursuit of revenue

Failures are common in the for-profit world – just look at the number of movies that flop each year. The difference between the rulebook for businesses and charities is that the for-profit world understands that risk in pursuit of revenue is acceptable.

Nonprofits are publicly criticized if an effort fails, so nonprofit leaders are reluctant to innovate and risk negative attention that might reduce donations.

Pallotta said that for charities to become effective at fundraising to support their missions – and grow their ability to provide services or fund research – they must be able to become empowered to reach their dreams. He added, “We want nonprofits to say that they are changing the world, not that they are keeping overhead costs low.”