Some people never change or fade away: Dan Pallotta is back, seeking to profit by preaching his flawed management gospel to the nonprofit world through a new organization, the Charity Defense Council. Local nonprofit executives should run for the hills – quick!
Pallotta, a gay man, made his name in the 1990s through the California AIDS Ride and other massive fundraising treks like the Avon Walk for Breast Cancer. Eventually it became obvious over the years that the AIDS Ride in particular began to line Pallotta's pockets with increasing fees at the expense of the charities. In fact, Pallotta TeamWorks, the producing company behind the events, was known for its exorbitant fees, with smaller and smaller precentages of the revenue from the AIDS Ride going to the San Francisco AIDS Foundation and the Los Angeles Gay and Lesbian Center. (And let's not forget, riders themselves were required to raise thousands of dollars to participate.) Finally, even the bloated SFAF saw the light and in 2002 cut ties with Pallotta TeamWorks; but it took aggressive reporting from this newspaper, countless editorials, and a deepening realization by SFAF and the LA center that it was in their best interest to end their contract. The foundation and the LA center went on to create the very successful AIDS/LifeCycle, without the high overhead, retaining more of the money for themselves. The loss of the Avon walk was the death knell for Pallotta and his company collapsed.
Now, a decade later he's back. In a recent interview in the New York Times, Pallotta hasn't changed one iota. He founded the Charity Defense Council, an advertising agency catering to nonprofits. He also wrote a book and gave a TED talk and remains committed to his misguided belief that nonprofits should be run like corporations – they "worry too much about keeping overhead low and pay too little to attract the most talented executives," in the words of the Times article.
He created this new entity to enrich himself by doing what he knows best: priming charities to believe in his flawed fundraising model in order to sign them up as future clients. Nonprofits shouldn't give him $1 to support his outdated, inefficient, ineffective, and failed organizational philosophy.
That's not to say that nonprofits shouldn't spend some money to make money. There are successful fundraisers who operate on lower budgets, returning more money to their agencies. Our problem with Pallotta's position is that he takes it to the extreme – and San Francisco's HIV/AIDS community suffered as a result. In the Times interview, he cited a news release by watchdog groups like Guidestar and Charity Navigator called the Overhead Myth, the point being that charities don't need low overhead, they need high performance. We would argue that they need both low overhead and high performance. If it's costing a group $50 to raise $100, that is ineffective. High performance is compromised when an agency is not spending money efficiently, whether that is in terms of executive salaries or raising funds. Pallotta talks about how when he was doing major fundraising his ego was bruised because other wealthier people his age were driving BMWs and taking European vacations. "There are things you are not able to afford," he said. "It makes you envious. It makes you wonder, 'Do I really want to give up all of those things in the name of helping other people?'"
Um, yes, Dan, you do.
Are there a lot of nonprofits that pay their leaders modest salaries? You bet there are. Most people don't go into the field to make a million bucks and if they do, they should reconsider their career path. Yet that is what we continue to see in the HIV/AIDS field, as well as plenty of other organizations that cater to the LGBT community and nonprofits in general. In our view, six-figure salaries are rarely warranted for nonprofits that don't have multimillion-dollar budgets.
When a nonprofit can serve all of its clients, expand services to help more people, and have an effective fundraising strategy to sustain its programs at that higher level, then we can talk about Pallotta's premise that six-figure salaries are justified, along with lofty and self-serving titles like CEO. Right now, from what we see in San Francisco and the rest of the Bay Area, those goals have not been met. Some AIDS organizations have reduced client services in recent years yet salaries have stayed the same or increased in the executive suite. Other groups struggle to maintain services or have shut down entirely, so to use Pallotta's benchmark, they are hardly high performing.
This World AIDS Day, the 25th annual observance of an epidemic that wiped out a generation of gay men and continues to ravage communities around the globe, let's think about that.
Oh, and what's Pallotta's salary these days? Zero, he said in the interview. "We just don't have the money right now. We've got about $20,000 in the bank."