Philanthropy Urged to Invest $500 Million to Track Results

The nonprofit world must make a major investment in tracking charities’ results — to the tune of a half-billion dollars — if donors are to stop judging nonprofits based on their overhead spending.

So said Dan Pallotta, the controversial author and marketing consultant at an event on Tuesday hosted by the American Enterprise Institute, a conservative think tank.

Mr. Pallotta repeated many of the points made in his popular 2013 TED Talk, arguing that the nonprofit world is at a huge disadvantage to the rest of the economy. He advocates for removing restrictions on charities to allow them to operate more like businesses, paying competitive salaries for top talent, spending more on fundraising and advertising, and in general taking more risks.

“Dreaming is a liability in the nonprofit sector,” he complained.

If constraints were removed, he argued, charities would be able to grow and have more power to solve the world’s biggest social problems.

Mr. Pallotta said that watchdog groups and donors continue to focus on overhead ratios (comparing spending on salaries and other administrative costs to program expenses) even though many believe such statistics are poor indicators of a charity’s success. “That’s like saying I’m going to take my kid’s temperature with a broken thermometer because it’s the only thermometer I have in the house,” he said

New Measurements Touted

Some watchdog groups have made similar pleas “to end the overhead myth” and are in the process of developing new ways to evaluate the impact of charity programs. But while organizations like BBB Wise Giving Alliance, CharityWatch, and Charity Navigator are “well-intentioned,” Mr. Pallotta said, with their small budgets, they’re not up to the task.

As an alternative, Mr. Pallotta called for a “user-friendly, iTunes-like” database to display charity results “on a massive scale,” accessible for every American who wants to give.

“We need something robust,” he said, estimating such a system would cost about $500 million to gather and maintain the data.

Acknowledging that some people may balk at such a high cost, he cited the more than $373 billion Americans gave to charity in the last year.

“What’s ridiculous is for America to give away [more than] $300 billion a year and not have any idea what impact it’s having,” he said. “That’s decadence.”

Some foundations are showing more willingness to cover administrative costs, but Mr. Pallotta is urging donors to take that a step further. He recently argued that grant makers should also support more fundraising expenses to help charities increase their capacity to carry out their missions.

Some nonprofit experts worry Mr. Pallotta and his Charity Defense Council, which works to combat what it considers unfair attacks on nonprofits’ spending, are fighting the wrong battles, defending groups like the embattled Wounded Warrior Project to take pressure off overhead spending.

Despite the criticism, Mr. Pallotta has stood by his cause, expanding the Defense Council’s “I’m Overhead” campaign into Canada. He has declined several interview requests from The Chronicle.