Finding The Balance

 

Source:  INC.com

Can or Should Service Be Profitable?

There is a pervasive problem in the nonprofit and non-governmental organization (NGO) sector.  It is acceptable, and even desirable, for upper management and executives in for-profit business to be paid highly for their skills and knowledge.  These positions are highly competitive, and career-minded people strive to gain one of these sought-after positions for employment and financial security.  By contrast, on the social problem side of things, if an organization pays its leadership too highly it is viewed as not truly charitable, not serving the public, and perhaps even dishonest. 

Why should two people with equal skills and experience have such a wide disparity in salary simply because one chooses to work solving social problems instead of producing revenue for a huge for-profit corporation?  Of course this seems unfair and a bit ridiculous when you look at it, but stakeholders pore over financial reports and if not enough dollars are going directly to social problems, the nonprofit or NGO suffers the consequences.  This comes in the form of coalitions being dissolved, funding being reduced or pulled entirely, negative press and perceptions within the community, and possibly the entire organization shutting down. 

To be successful, nonprofits need strong leadership.  They need highly qualified people to spearhead innovative programs and implement effective interventions.  To attract high quality leaders, compensation must be at a competitive level with the for-profit sector. 

“We have a visceral reaction to the idea that anyone would make very much money helping other people. Interestingly, we don't have a visceral reaction to the notion that people would make a lot of money not helping other people.” - Dan Pallotta, "The Way We Think About Charity is Dead Wrong”  

Pallotta goes on to explain that it is less costly for an MBA to donate to charity than to be employed by one.  There is a pool of talent out there who could really make a difference in major social problems like hunger and homelessness, but nonprofits/NGOs are unable to tap that resource because of preconceived notions that nonprofit means free labor.  Additionally, nonprofits are expected to spend as little as possible advertising and promoting their organization, preferably using donated time, labor and resources rather than investing funds in advertising.  Compare that with for-profit companies who are encouraged to spend billions to get their product featured during the Superbowl.   

Another disparity between nonprofits and for-profits is in development.  A for-profit company can invest heavily in a new experimental product and be praised for being fearless and innovative, even if the product ultimately fails.  If a nonprofit tries a new intervention that does not achieve the desired results, they are ridiculed and lose support.  If they spend money on a fundraiser that does not immediately show high returns, they are accused of dishonesty or fraud. 

Two other disparities are time and profit.  For-profit businesses are expected to take several years before they see a profit; it is understood that developing a business and customer base takes time and investment.  They often see losses during their first few years as they invest in talent, production and materials, and advertising.  This is all acceptable in the commercial sector.  But nonprofits are not given these considerations.  They are expected to operate on the lowest budget possible, see immediate profit from fundraising efforts, and return those profits to the cause they are working on. 

It is clear why nonprofits and NGOs struggle mightily to survive, they are set up to fail from the outset by prejudices, policies and regulations, and expectations of stakeholders.

In the past, when I have reviewed charities considering whether to support them, I have often fallen prey to this misconception.  I look at the salaries and advertising budgets, and what percentage of my donation goes directly to the cause as opposed to the operation of the nonprofit.  This week’s lesson has been an important lesson in why I need to reconsider my charitable donation criteria, and support those who budget fairly to pay the talent needed to ensure sustainable progress for the organization.