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Selling and Evaluating Charities Better

October 1, 2012

The Wall Street Journal ran an article a couple of weeks ago (September 15-16, 2012) entitled, "Why Can't We Sell Charity Like We Sell Perfume?" Written by Dan Pallotta, a fundraiser and author of the book, Charity Case: How the Nonprofit Community Can Stand Up for Itself and Really Change the World, the article advocates for a change in the way that society thinks about charity and social reform.

Pallotta argues that the "donating public" is obsessed with restrictions on how much nonprofits should pay for overhead or senior managers when they should be obsessed with whether these organizations are being effective at accomplishing their missions and objectives. He also argues that by having one set of rules for nonprofits and another for businesses, we discriminate against nonprofits in five ways:

  • We allow the for-profit sector to pay people competitive wages based on the value they produce, but we have a visceral reaction to the idea of anyone making very much money helping other people.
  • We tell the for-profit sector to spend on advertising until the last dollar no longer produces a penny of value, but we don't like to see charitable donations spend on advertising.
  • We expect nonprofits to hit a home run at every fundraising at-bat instead of allowing nonprofit leaders to take risks.
  • We expect nonprofits to produce results immediately rather than measuring impact over the long-term.
  • We allow the for-profit sector to pay investors a financial return to attract capital, but the nonprofit sector, by definition, cannot.

Pallotta suggests that if we free the nonprofit sector to hire the best talent, take fundraising risks, use marketing to build demand and invest capital for new revenue-generating efforts, we could bring private ingenuity to bear on the social problems of our time, and we would not need to look to government to fill the gaps.

He also suggests that we should evaluate nonprofit organizations not by how much they spend on overhead, but with three simple questions: What are their goals? What progress are they making toward them? And, how do they know?

While I could quibble with Mr. Pallotta on the extent to which many nonprofit organizations are already operating much like for-profit businesses, and on the extent to which some watchdog groups are already changing the way that charities are evaluated, the fact remains that many donors (individuals and institutions alike) are focused on percentages of overhead costs rather than on results.

At American Express, we do not evaluate the effectiveness of an organization on its overhead costs. Instead, we focus on building the capacity of organizations by focusing our funding on things like leadership development, effectively managing volunteers, and preserving historic buildings. Instead of discouraging organizations from spending money on building these capacities, we encourage it with our funding for specific projects where often our money is not the only skin in the game.

We also ask very simple questions on our application and final reporting forms – trying to encourage organizations to set goals, figure out how to track their progress toward these goals, and knowing whether they have succeeded or not. For example, in our Leadership program, which supports the development of emerging leaders in the nonprofit sector, we ask:

  • Who are you defining as an emerging leader?
  • As a result of the leadership project (for which you are requesting funding), what are the specific, quantifiable changes that will affect the program participants, the organization or the nonprofit sector?
  • How will you measure the extent of the expected changes? Do you have tracking opportunities to measure the impact of the training programs (e.g., post-program participant survey, six-month follow-up interview, human resources data regarding promotion and position tenure)?
  • In what geography will the impact of this project be felt?
  • How many people do you expect to participate?

At the end of the grant period, we ask:

  • Please describe the project's specific quantifiable goals and measures of success. These should be consistent with the goals and measures of success described in your grant application.
  • Were the above-stated goals and objectives achieved? If so, how? If not, why not?
  • What other successes related to the project, if any, have occurred that were not part of the initial project plan?

It's not perfect, but it's a start.

If you would like additional information on the approach that we use to building the capacity of nonprofit organizations, explore our Corporate Social Responsibility web site.

If you have a question or concern, send me a message here.

P.S. Did you know that according to the Center on Philanthropy at Indiana University, 65% of all American households with an income of less than $100,000 donate to charity as does nearly every household with income greater than $100,000? These contributions average out to about $732 a year for every man, woman and child in America.


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