Turning Away From Profit and thus Performance

Another interesting piece by Nicholas Kristof which discusses the self-inflicting wounds that charitable organizations place on themselves when they eschew such standard business tools as advertising, risk-taking, competitive salaries and profits to lure capital. I can sympathize with Dan Pallotta's angst and frustration with what he sees as a ludicrous self-limiting policy which hamstrings organizations with the most important missions to wallow in what he sees as mediocrity at the expense of the end goal.

But what is the "end goal"? In some of the examples given in the article, fundraising amounts seemed to be the solitary metric. If it's clear that a firm was producing fundraisers that did a phenomenal job of bringing donations into the coffers of a client organization, it seems reasonable enough that a firm and its employees would be rewarded accordingly for that good work. It's a matter of aligning objectives and incentives.

However, such an "end goal" is not always clear. As a church, we keep an eye on our finances, which help fund our general operations, discipleship programs, overseas missions work, and charitable donations to those outside the church, but it would be wildly inaccurate to categorize our balance sheet as the singular metric for the health of our church. I would shudder to consider making attendance a primary variable for incentive compensation for a pastor of a church. Why? Because the danger of incentive compensation, when misaligned, might trigger negative behaviors which may adversely contribute to the overall health of the church. Using an absurd example, a pastor could project illegal recently-released movies and NFL games during on a huge screen and sell beers and snacks while charging a nominal fee as a proxy for Sunday Service. Membership and revenue may increase, but surely you wouldn't say that the pastor is doing a good job.

I do think that charitable organizations and churches can learn a great deal from corporate best practices and disciplines. As for Mr. Pallotta's argument, I tend to agree that there's no harm in making a profit while helping people as long as there's clear line between organizations which profess to be non-profits and those that are not. If you run an organization that primarily aspires to make a profit to the benefit of the employees and stakeholders, go for it and play by the same tax rules and employee churn that other for-profits experience - plus I'm probably not going to cut you a check to help support you. In other words, your reward has already been paid in full. For a non-profit which is primarily focused on the need of the mercy recipient, I consider my donations to be my way of rewarding the selflessness of the company and employees who have opted to put others first. I think there's a place for both models.

Mr. Pallotta also makes this point which I wholeheartedly agree with:

“We allow people to make huge profits doing any number of things that will hurt the poor, but we want to crucify anyone who wants to make money helping them,” Mr. Pallotta says. “Want to make a million selling violent video games to kids? Go for it. Want to make a million helping cure kids of cancer? You’re labeled a parasite.”

I know this all too well. Work for an investment bank, and you're allowed to make as much as you want because you're smart and you've earned it. Work for a pharmaceutical and suddenly you're preying off the misery of other people. Why the double standard? A bank isn't expected to give away money or free loans to people in the third world - but drug companies are presently doing this. Automobile manufacturers aren't expected to give cars away to people who can't afford them - but drug companies are presently doing this. As I mentioned earlier, non-profits and for-profits should be held a different standards. I'm less convinced that there should be a different standard for companies within those bands.