When frugality is not always morally superior.

In a hectic search for a beneficiary of choice for Rag & Flag 2014, for a mock pitch to be exact, I’ve gotten down to the business of charities. The spirit of procrastination brought me to a talk on TED, a website where I wish I could frequent more often in the midst of school assignments.

Dan Pallotta: The way we think about charity is dead wrong.

Remember the golden tap scandal in National Kidney Foundation (NKF) of Singapore, where T. T. Durai came under intense public scrutiny for his bathroom extravagance? Following that incident, Singaporeans have become more sensitive to employee remuneration and flashy fund-raising events in the non-profit sector. There was a huge fuss about Durai’s $600,000-odd annual remuneration in whole, and people started asking “where are my donations going to?”

In no way I am defending Durai, for his crime comprised more than a high salary and a gold tap. However, we need to rethink the whole notion that for charities, frugality is morally superior. Pallotta detailed how public perception holds separate rulebooks for the for-profit sector and non-profit sector, and how this distinction discriminates the non-profit sector, especially when we’re trying to build a more inclusive and equal society.

First, we have two different mind-sets on compensation of human capital in both sectors. In the for-profit sector, we pay more money to someone who can produce more value. On the other hand, regardless of how much value one can generate, we make sure that we don’t pay a lot of money to that person. In 2011, the salaries of CEOs of companies in Singapore averaged about $2.35 million. If NKF still paid $600,000 to its current CEO, that amount is nowhere near the average. To use Pallotta’s example, the average CEO can donate $500,000, get some tax redemption if there is any, be branded as a philanthropist, get a director’s seat at the charity, and still make more money than the poor CEO of the charity. That’s why everyone flocks to the MBAs, MBAs flock to the for-profit sector, and no one aspires to be the CEO of a charity organization.

Second, as I’ve recently learnt in my marketing module, advertising is important (for some if not most products). We make no qualms about for-profit companies spending millions in advertising, convincing how good their products are, but eyebrows rise over donations going to advertisements by charities. It seems that it’s wrong for charities to advertise the good that they do.

Third, we’re much more adverse to risk in the non-profit sector than in the for-profit sector. Imagine you have two choices to invest in the stock market, first: a 100% chance of earning $1,000; second: a 50% chance of earning $2,000. To use “Business Analytics” jargon, both options are viable based on the expected monetary value (E.M.V). Maybe some of us who are risk-adverse will choose the first option, but others will choose the latter. What if $2,000 became $4,000 or $6,000, or $10,000? More of us will jump over the fence. When we examine the same situation in the non-profit sector, would you pick the option to have a 100% chance for the underprivileged to receive $1,000, or a 50% chance for them to receive $2,000? Following this logic, you might not identify the difference in perception, but the truth is that when risk is involved in how donations are used, donors become more reluctant to give and question the charity’s risk-taking measures. We express our discontent at this thought: “I donated $1000, and there’s a 50% chance it might not go to the needy?” We fail to see the congruent, if not greater, benefit, that there’s a 50% chance that the needy get twice of what we donated.

Fourth, investors often allow more time for investments in the for-profit sectors to turn into profits, but donors always want their money to get to the needy right now.

Last but not least, profit! The for-profit sector attract capital with profitable returns. The non-profit sector cannot attract funding with profitable returns. Where will the money go to?

When we change our perceptions in these aspects, in other words, when we allow charities to attract talent with sufficient (but not unchecked) compensation, to advertise for their cause, to take risk for better returns to beneficiaries, to have more time to convert present donations into more money, and to attract funding with returns, wouldn’t we have more money for better causes, than to simply rely on the better nature of Man?

When I looked up ComChest’s website, such perceptions are glaringly obvious.

“Your every dollar goes to the needy.”

“Fund-raising costs kept to a minimum.”

Why do we attach such a negative connotation to charities “growing the pie” – getting more people to donate using donations?  As a donor, such reassurances are counter-productive. If the receiving charity can use my dollar to convince ten other donors to donate $1, I should be happier that the needy receives ten times more. Do I really need to ask if my dollar is going to reach the needy, or, in Pallotta’s words, “ask about the scale of [the charities’] dreams?”

I’m not sure if I’ve lost you there, but I’m pretty sure the original speaker does it better. I wished I had more time to explore and evaluate this proposition, about social enterprise, feasibility too, but writing this thus far has killed/weakened the beast of procrastination in me. Back to work!

P. S. I don’t claim these ideas of my own, but I concur with the speaker.

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