Should Nonprofits Be Held to a Business Standard?

Last week on eJewish Philanthropy, Yehudit Sidikman published an article entitled: “What We Should Learn from Moses- the First Jewish Fundraiser” (http://ejewishphilanthropy.com/what-we-should-learn-from-moses-the-first-jewish-fundraiser/?utm_source=Mar+2+Mon&utm_campaign=Mon+Mar+2&utm_medium=email).

Her main premise was that For nonprofits to compete for the talented and professional employees they need to maintain the high business standards demanded of them, we need to allow them the room to offer competitive salaries.”

This reminds me of Ted Pallota’s famous Ted Talk, “The Way We Think about Charity is Dead Wrong”

(http://www.ted.com/talks/dan_pallotta_the_way_we_think_about_charity_is_dead_wrong?source=facebook&language=he#.UUgVUSeiOi1.facebook).

Sidikman agrees with Pallota that “Nonprofits today are being held up to a business standard. This is a good thing. They are being asked to have a plan, a detailed plan, complete with measures and metrics. They are being asked to strategize and to report not only outputs but outcomes. This is progress. Part of this is because philanthropists and foundations are tired of seeing money wasted. They demand accountability.”

However, as Sidikman points out, there is a “dissonance between holding nonprofits up to a business standard and begrudging them the resources needed to maintain such standards.” An example of this is the idea that nonprofits do not need money, based on the salaries of top-level employees. As Sidikin writes, “had this CEO been managing a bank, or coffee chain or any other ‘real business’ of that size no one would have batted an eyelash at the salary.”

Sidikin agrees with Dan Pallota (and me! J ), writing “For nonprofits to compete for the talented and professional employees they need to maintain the high business standards demanded of them, we need to allow them the room to offer competitive salaries. “

This reminds me of when Dan Pallota says in his Ted Talk that there is a general attitude (and I agree with him) that “people should not make money helping people”. I say, WHY NOT? What could be a better/more noble thing to do? The same argument can apply to why teachers should receive good salaries … they are educating our future generations. Dan points out that the prevalent attitude is that one must choose between “doing good for yourself and your family” (i.e. going into the for-profit sector and getting a higher salary) or “doing good for the world” (i.e. going into the non-profit sector knowing that you will earn a lower salary than you would if you worked in the for-profit sector). Dan then says something that makes me sad: every year, tens of thousands of the best and brightest minds are marching straight from university into the for-profit sector, because they are “not willing to make that lifelong economic sacrifice”. It is a shame, and it makes me feel sad for the future of the non-profit industry (and I guess a little proud that I decided to become part of it, because I consider myself to be among the “best and brightest minds ;)).

Dan brings an example from a Business Week survey, which did a study of compensation packages of MBA graduates 10 years out of business school. The median compensation of a Stanford MBA at age 38 was $400,000. In the same year, the average salary for the CEO of a medical charity was $232,000, and $84,000 for the CEO of a hunger charity. Essentially, the non-profit world is “hoping” for someone with a $400,000 talent to take a $316,000 (for example) pay cut EVERY YEAR, to work for their organizations. Dan says that there is also an idea out there that MBA graduates go to work in the for-profit sector because they are “greedy”. But he is quick to contradict this idea by saying that they might not be greedy, but rather smart. He explains that it would be cheaper for the person earning annually $400,000 to donate $100,000 every year (to the hunger charity, for example), which would enable him/her to save $50,000 on his/her taxes. S/he would also then become a “philanthropist”, most likely sit on the board of the charity, supervise the person who decided to become the CEO, and have a lifetime of power, influence, and praise.

So, what is my opinion about this? Honestly, it makes me nervous that perhaps the non-profit sector really is losing its best talent to the for-profit sector, for the reasons that Dan explained. I have seen some good (even great) leaders in the non-profit world, but I have also seen my share of mediocre and even (dare I say?) incompetent leaders in the non-profit world. Perhaps this is the core issue and root of where this problem comes from?

OK, I’ve said enough. What do you think?

Chava

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3 Responses to Should Nonprofits Be Held to a Business Standard?

  1. Jan Vento says:

    Well done!

  2. Andreea Borcea says:

    Great article! Personally, this is why I thing the Benefit Corporations are starting to become more popular. Being a successful company and providing meaningful service to the world are not mutually exclusive and it may be the best way to attract the “best and the brightest” http://benefitcorp.net/ http://www.forbes.com/sites/evangelinegomez/2012/01/13/the-rise-of-the-charitable-for-profit-entity/

  3. chavaleh1127 says:

    Thanks Andreea! This could definitely be the next big thing!

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