There are a lot of organizations and individuals that have gotten very good at this type of marketing. One of my favorites is charity: water, a nonprofit that brings clean, safe drinking water to people in developing countries. Its founder, Scott Harrison, a former NYC party promoter, has built an organization that regularly produces powerful marketing pieces, such as this video with Jennifer Connelly:

charity: water and many other nonprofits have gotten good at telling stories and crafting images that convince potential donors to open their wallets and potential volunteers to commit their time.

But that is only one half of the nonprofit marketing equation. That is how you get the money in the door.

Nonprofits also need marketing on the delivery side. The intended beneficiaries of the nonprofit’s products or programs (i.e., the clients) need to be made aware that they exist and convinced that they should invest the time and effort to take advantage of these offerings.

On the face, this may seem a bit silly: how much marketing is needed to convince a woman in a rural African village to only drink the water from a new well or to take her free HIV medication? How sophisticated does the messaging need to be to convince a person on welfare to take advantage of a free job training program?

And yet, how a product or service is presented—when, where, and how frequently a person is made aware of it—these things can make a big difference in whether they get used and how a person experiences that use, both of which can play a major role in how effective the nonprofit is in achieving its goal.

Obviously, with the way nonprofits are constantly resource-constrained, it makes sense that a lot of effort would be put into the marketing to bring in the funds that allow them to pursue their missions.  From an executive perspective (or any perspective, really), it is a no-brainer. However, it is a mistake to ignore the importance of developing strong marketing strategies and tactics on the consumption side. What is the point of a nonprofit generating resources in the first place, if not to make sure those resources are directed as effectively as possible to meeting the needs of the people the organization serves?

Part of the problem is rooted in the fact that while marketing tactics on the resource production side are being targeted at people who more or less come from similar cultural and socio-economic backgrounds as the people designing and selecting those tactics, the same is not the case on the client-serving side. Especially for the nonprofit organizations dealing with issues of poverty, the people designing and marketing interventions are unlikely to be from similar backgrounds as the people they are serving. Truly effective marketing is hard to develop under any circumstances, but when the marketing is being designed by people who have never experienced the reality of the people they are trying to reach, the task becomes exponentially more difficult.

Where are the rock stars that are going to innovate and coach and lead our sector into a new age of client-focused marketing? In recent years, social media has become a trendy component of the marketing strategies of many nonprofits. Talented bloggers, strategists, and executives like Beth Kanter, Allison Fine, and Katya Anderson have come to the forefront, showing the way toward new, more meaningful ways to connect with constituents. But for the most part, these efforts are still focused on that resource production side, not the program/mission side.

What will the client-focused marketing equivalent of social media look like and who will create it, develop it, and disseminate it? I believe the answer will emerge in little flashes and sparks from program staff who have a million-and-one other things on their plates, because those are the people who are most likely to know the clients and know what it takes to reach them. Capturing the inspiration behind those wisps will be difficult, but it must be done. If the nonprofit sector only innovates its ability to market to the people who fund its work but does not find better ways to reach the people it serves, it risks drifting further and further from fulfilling its reason for being. Let us strive to create marketing that matters for all constituents who matter, not just the ones who sign the checks.

(Photo by Matt Hamm)

The gang studied by Venkatesh has a more symbiotic relationship with the wider community than one might assume. For a community which is starved of outside investment the gang plays a dual role of public predator and social benefactor. The gang is active in local philanthropy, donating significant sums of money to non-profits who are otherwise left to raise funds from an impoverished donor base.

A gang that is active in donating to churches and Boys and Girls Clubs might seem perplexing, but I would argue it is no more jarring than the corporate double speak of British Petroleum’s engagement with several environmental organizations in the lead up to the worst oil spill in history. A piece in the Economist early last month rightly pointed out that “the scrutiny of these ties to BP is intensifying the perennial debate about how long a spoon NGOs should use when supping with corporate devils.”

The Economist goes on to quote Walter Massey, the chair of McDonald’s corporate social responsibility program, who

…has also been on the board of BP, which he believes benefited from its work with NGOs after a deadly accident at a refinery in Texas in 2002. “The company’s reservoir of goodwill, built up over years of committed corporate stewardship, was of critical aid in helping us to weather the storm,” he said in March. The latest crisis suggests that the reservoir is not bottomless, however.

Setting aside our prejudice against street gangs, on face, one might argue that although gangs terrorize the communities they are in, their philanthropic pursuits might exonerate them as socially responsible. Of course, a socially responsible street gang is oxymoronic, or perhaps just plainly moronic. While a gang might be responsible for propping up youth and anti-gang violence non-profit organizations in a poor area, it is the gang that creates the social harms the non-profits are intended to combat. It is the equivalent of a virus donating to a hospital, or Pepsi promoting healthy lifestyles.

Years ago the federal government cracked down on tobacco agencies incessant advertising of chronic smokers as fit, healthy people. The government was right to intercede. Carcinogens cause cancer. Excess amounts of sugar causes diabetes. And leaking oil in the ocean destroys eco-systems.

Whereas unethical corporations once worked solely with savvy marketing executives to manipulate public opinion regarding the harms their goods cause, today those same corporations turn to non-profit organizations who have their hands out and eyes closed, all too eager to blanket the sins of business thugs in the Trojan Horse of corporate social responsibility.

I am not arguing that non-profit organizations should not have relationships with corporations. However, we need to be clear headed about such partnerships, recognizing not only what is to be gained for our own organizations, but what the potential costs are, and where our corporate partners’ true ambitions lie. The short-term capital infusions of ill-conceived partnerships are not worth the longer-term harm to our sector’s reputation and the causes we care deeply about.

Like street gangs that use philanthropic donations to make communities reliant on their continuance and therefore tolerant of their deviance, corporate social responsibility, in the absence of actual responsibility, is nothing more than a cynical marketing gimmick better understood as socially responsible thuggery.

(Photo by LU5H.bunny)

Outputs: These are the activities done by the nonprofit. The meals served by a soup kitchen are outputs.

Outcomes: These are the observed effects of the outputs on the beneficiaries of the nonprofit. The degree to which the meals served by the soup kitchen reduce hunger in the population served by the soup kitchen.

Impact: This is the degree to which the outcomes observed by a nonprofit are attributable to its activities. The impact of the soup kitchen is the degree to which a reduction of hunger in the population they serve is attributable to its efforts. While a soup kitchen might serve a lot of meals and correctly observe that hunger is subsequently less prevalent in the population it serves, the reduction in hunger might simply be attributable to an improving economy, or a new school lunch program or some other activities that are not part of the soup kitchen’s efforts.

Sean’s post made me realize that when I write about outcomes on this blog I am actually referring to impact. By conflating outcomes with impact I hope that I have not been misleading in the past, and I appreciate Sean’s clarification on the terminology. In his piece, Sean went on to argue that outputs are inferior to outcomes as units of measurement, with impact being the gold standard objective. I certainly agree with this final point that impact, the change created as a result of a particular intervention, is the sole, truly meaningful metric.

However, I was more iffy on the assertion that outcomes, as defined by Sean, are clearly superior to outputs. In the comment section on the Tactical Philanthropy blog, I wrote:

Outputs and impact are more pure metrics in that they both isolate an effect of the intervention. The output obviously tells us very little (such as in your example a client receiving food aid) and the impact telling us a lot (the degree to which hunger decreased, nutrition increased, etc., as a result of that aid). While it might seem that outcomes are superior to outputs, there is serious risk that outcomes are misleading, as you get to a bit.

Most damaging, the outcomes metric can mask harms from an output. You allude to a scenario where there are multiple factors at play toward a positive end of an intervention, but an intervention can actually have a negative effect, which might be offset by other environmental factors, not only masking the harm of the intervention but wrapping it in a cloak of success.

Sean responded to my comment by saying:

David,

I would argue that Outcomes are objectively more important (better) than Outputs, but admit freely that they are harder to measure. I guess like any powerful tool, they can become dangerous if used incorrectly (miscalculated).

In hindsight, I believe I overstated my point when I suggested that outcomes are not more telling than outputs. Sean was right to hold his ground. However, I am still troubled by a hierarchical mental framework that holds outcomes over outputs, when outcomes are inherently riddled with extraneous factors outside the control of a particular intervention.

An output does not say anything about a change in a service recipient’s life, therefore making it an indicator of little use for assessing social value of an intervention. However, an output is a pure metric in that the output is clearly the result of the organization administering the intervention. In this way, although an output does not say anything about what happened in an individual’s life, it accurately indicates what a particular agency did.

This may seem like a non-point, but let’s look at the clarity of the output metric versus an outcomes metric. An outcome is a ratio in which the numerator is impacted by any number of variables which are not controlled for. For example, we can look at the change in hunger levels amongst a population that accesses a food pantry. One might find that incidences of hunger have gone down amongst that population over a period of time. In this sense, there is a positive outcome indicator (lower incidences of hunger) which might correlate with a higher level of food distribution by the food pantry.

The problem, of course, is that the lower incidences of hunger could be the result of any number of factors, like lower food prices, better wages, etc. Worse yet, what if the food pantry’s activities actually had a negative impact on food insecurity, or produced some other harms? Outcomes is a metric that risks both masking the negative effect of an intervention and crediting an intervention with factors outside the control of said intervention. This effect works the other way too, a population might do worse over time in a particular indicator due to forces outside the control of that intervention, even though the intervention might have a hidden, positive causal effect. In this way, a focus on outcomes might create incentives for service providers to focus on populations that will do better in certain indicators despite their interventions, thus achieving an outcomes windfall.

My point here is not to continue a debate about whether outcomes or outputs are better metrics. I agree with Sean and the others who blasted my comment, a focus on outcomes is more meaningful than outputs. I think my objection is more rooted in the fear that one might believe that if one has outcomes data, than output data is not relevant. In the absence of impact, both metrics are important. Outputs tell us what a service provider did, outcomes tell us what happened to service recipients over a period of time.

Of course, this debate would be rendered moot if we were better able to assess impact. As many have pointed out though the social sector struggles to reliably collect output or outcomes data, let alone make any serious attempt at impact analysis. While I concede that outcomes are a more important metric than outputs, I believe the path forward is through fostering an appreciation and deep understanding of what specific indicators can, and cannot, tell us about the work we do. Ultimately, we need to collect a number of indicators. More importantly, we need to know what these indicators are actually telling us, and the various ways in which our indicators, especially composite indicators that are impacted by a large number of variables, actually mean.

(Photo by Darren Hester)

The first step in becoming better consumers of visual media in the social sector is to create a framework for sorting out types of stories. Was this story or this video created for fundraising or social marketing purposes? Is it designed to mobilize a constituency to action? Is it part of a body of systematic qualitative research? At the end of last month, we hosted a conference, inVision 2010, using these three topical strands to organize presenters’ sessions. Within the “visual media as research and evaluation” track, here are some of the key questions that social sector practitioners should keep in mind when presented with visual stories as evidence of change:

• The Anecdote Test: Is this story representative of outcomes frequently and reliably attained by the intervention, or is it an outlier? For example, if it’s the story of one individual whose life is better because of a program (a very common visual storytelling arc), what information, if any, is also available about other people in the program? How sustainable is the change depicted? Is this one positive moment in a longer story of ups and downs? What is the context surrounding this story of change?

• The Special Sauce Test: Does the visual story simply document one or a few examples of positive outcomes, and/or does it also delve into how that change was created? Documenting the existence of positive outcomes at a meaningful scale is usually accomplished more efficiently through counting – either through surveys or interviews – than visual storytelling. However, uncovering the best practices or special sauce of an initiative or program model – or the reasons why it did not create outcomes – is very effectively done by capturing stories directly from participants and having them explain the change in their own words.

• The Theory of Change Test: How was the storyboard for this piece of visual media created? Visual stories don’t come out of nowhere; they are carefully produced. Who authored the storyboard? What decision-making process was employed to select this story for telling? What other stories were available, but not selected, and why? Was the storyboarding process guided by a theory of change for the overall program or initiative? Does this story support or challenge that theory of change? Does it explore the theory of change fully enough? What other stories also need to be told?

There is both art and science involved in good storytelling in the social sector. I have no doubt about the ability of talented media makers to create compelling audiovisual art, nor about our capacity as human beings to be moved by powerful stories. We should welcome and celebrate those capacities in the social sector – emotion and empathy are valid drivers of our work. But I urge us all to get better at our “story science” as we journey toward social impact. Metrics alone are not enough.

(Photo by Carbon Arc)

We tell stories because historically – ancestrally – this is how we learned. Stories were passed from generation to generation and tribe to tribe to teach about how to stay safe, how to find food and shelter, and how to care for one another. Stories emanated from and were received in a blanket of trust. As a result, our brains are wired for narrative.

Pictures – whether we take them with a camera, draw them, or carve them on walls – are actually our oldest system of checks and balances, reflecting the value we place on truth. As much as we’ve relied on storytelling and storytellers, they did always seem to be the ones hanging out around the most peyote, so perhaps some of our other ancestors sought a little independent confirmation of events. We value pictures because we hold that seeing is believing.

But is it? Fast forward to today – the world of Flip cameras, picture mail, digital storytelling, You Tube, and user-generated everything. We have the capability to see more than ever before, and visual media is everywhere around us. Do we still believe it? I would argue that we do… And we don’t.

The power of a compelling image is undeniable. Regardless of our left brain attempts to rationalize or make sense of what we’re seeing, we usually feel the effects of visual media first. And most scholars of human behavior will tell us that our decisions and actions are very much determined by how we feel. Images move us, whether we “believe” them or not.

But we are also skeptical of emotional manipulation, and these days, technological manipulation. And we are INUNDATED with images, in a way that we have never quite been before. We have become skeptics about the value and veracity of images because we have to have a way to sort them. Doubt is a defense mechanism in an ultra-connected world.

In the social sector, we sit squarely on the horns of this dilemma – belief and doubt – when presented with a visual story about a social change effort.

Don’t Throw The Baby Out With The Bathwater

For a long time, much mainstream philanthropy in this country was – many would say still is – motivated by emotional appeals, often including an image of someone less fortunate than the target audience. Donors and nonprofit leaders alike did their work in part for the satisfaction of changing the story implied in that sad image.

Indeed, much individual giving in this country, and even that of organized philanthropy, still follows this basic pattern: Image. Story. Emotion. Action. This causal chain is seared into our DNA. It is a force to be reckoned with.

But the social sector is growing more sophisticated, analytical, and strategic everyday. As much as we live in a world of images, we also live in a world of metrics and measurement, and that is a good thing. We need to know more than we have historically known about the results of our social investments. The stakes are too high, the opportunity cost too precious to tolerate waste or inefficiency. We don’t believe stories alone anymore. We seek more data, more evidence that change is needed, or that change is happening.

But synaptic pathways die hard. In Hope Consulting’s just-released Money for Good study, over 60% of high net worth families – potential impact investors – reported that they do not use any data to guide their charitable giving. Image – story – emotion – is still the most common pathway to philanthropic “action.” Instead of fighting human nature, how can the metrics movement better leverage it to promote strategic philanthropy? If we train ourselves away from acting on our emotions, do we miss critical opportunities to act? Like all great investors, we need to be as good at using our intuition as we are at reading the numbers. The ability to utilize well-told and credible stories is one of our most powerful capacities, and we need to train up. In my next post, I’ll offer a framework for sorting and understanding visual media in the social sector.

(Photo by !borghetti)

Editor’s note

The barriers to development in Uganda are manifold. Charities need to work smarter. Democracy has to work better. But at the end of the day, it is a thriving private sector that will enable Uganda to realize its potential.

Private investment in Africa has focused mainly on microfinance and commercial scale capital. Small to medium size enterprises (SMEs), often the engines of economic growth and job creation, have been mostly overlooked, creating what is now known as “the missing middle.”

These businesses are starved for growth capital in the range of 5,000 USD – 100,000 USD, the respective ceiling and floor of microfinance and commercial banks. Loans in this range are hard to access, have prohibitive collateral requirements, are expensive (average 20% APR), and impatient, often strangling cash flows with immediate repayment requirements. Though an SME can have a competitive business model and stable revenues, they may not have years of audited financial statements or formalized business processes, and thus fall outside of the financial system.

SMEs are not only underserved, but are critical for development beyond dependency. Uganda is the youngest country in the world and youth unemployment hovers around 83 percent – thousands of jobs must be created to fill this gap. In the United States, small firms account for 64 percent of all new jobs, and employ approximately 51 percent of the nation’s workforce. In Uganda, the data is even more striking: small businesses account for 75% of GDP output and 66% of non-farm private sector employment. According to a recent report by the Summit Development Group, a dollar invested in an SME creates three times as many jobs as a dollar invested in a microenterprise.

Uganda is also a promising frontier market for investment. GDP growth has averaged 8 percent over the past five years and is projected to continue in the future. Economic liberalization, regional integration, a stable currency, the recent discovery of oil, rapid urbanization, and a growing middle class create the conditions for sustained economic progress in Uganda. The Ugandan businesses that will drive this economic growth are just now being born, only now being discovered. Who will invest in them, who will accelerate the growth of their enterprises?

This is why we are building Flow Equity – to create thousands of jobs in Uganda, participate in the renewal of a region, and capture significant economic growth for investors. Flow Equity is a new social investment fund making growth stage equity investments in promising SMEs in East Africa. We look for entrepreneurs in competitive sectors who have a blended value proposition, that is, they pay fair wages, protect the environment, and realize above market-rate returns. Beyond capital, we work with entrepreneurs to formalize processes, build brands, develop long-term strategies, and find markets for their products, making them more sustainable, credit-worthy, and competitive in the long-term.

Flow Equity is trying to help the world think differently about Africa. Though partially true, we cannot carry on thinking that Africa is suffering and needs our help. This perspective is not only degrading, but dishonest. If we want Africa to be more than a second-class global citizen, a recipient of our charity, we must invest more than annual donations and volunteer stints. We must invest in its entrepreneurs and believe in its economic future.

(Photo by weesam2010)

Editor’s note:

The current movement to make philanthropy more accountable for lasting social change is critical and must take deep root in our sector. Calls for an impact-oriented social capital marketplace have switched on a bright light in a dark room, urging us to look at all sides of our philanthropic activity – far beyond the honeymoon stage of the initial grant or investment all the way to the “so what” stage, when we may learn what difference any of our actions have made. Of course, philanthropists have used evaluation to examine “so what” questions for a long time, but a new vanguard – consisting of both next-gen social entrepreneurs and social sector veterans – are reconsidering and reframing them.

Our sector is buzzing with efforts to define and implement metrics systems that will support strategic philanthropy and impact investing. Getting better at using metrics is a vital evolution of our social change efforts. And yet, I worry when the conversation about metrics leaves out an essential piece of the puzzle – qualitative methods.

“What?!” you say. “Qualitative methods? I thought this was a serious post about measurement and accountability!” Indeed it is, and I’m grateful that David, who deals more in numbers himself, has invited me to contribute my thoughts on the use of qualitative methodologies. Please read on.

Social Change is Complex

For over 15 years I’ve designed and implemented mixed-method studies of increasingly complex social sector research questions. It used to be that funders wanted to know whether or not a program was producing positive outcomes in participants. Many still want to know this, but in addition, they want to understand more systemic issues. Here are a few examples of questions my team is currently examining:

• How does the collective capacity of many community-based organizations form a nationwide social justice infrastructure?
• To address the achievement gap between white children and children of color, do we need to look for solutions not just inside, but alongside the public education system?
• How can international development programs be sustained by local leaders once aid dollars have stopped flowing?

The field’s growing awareness of interdependencies has led to more meaningful inquiries into the impact of philanthropy and social investing. And the more complex the research questions, the more of a role there is for high quality, systematic qualitative research in addition to measurement of those things we can quantify.

Anecdotes are Not Qualitative Research

High quality, systematic qualitative research is not the same thing as collecting a few anecdotes and photos to put in the sidebar of a report. It is also not the same thing as fielding a written survey asking respondents about attitude or behavior change. I recently listened to a webinar that billed itself as being about “qualitative methods,” and the central discussion was about quantitative techniques for analyzing survey data (for example, running a statistical regression on data collected using 5-point Likert scales). Both definitions of qualitative research would make any self-respecting ethnographer cringe. In my book, both of these approaches – anecdote or self-report survey – reflect a very limited understanding of the range and power of systematic qualitative research.

In future posts, I’ll delve into qualitative methods increasingly used in the field for both data collection and reporting, including visual storytelling, social network analysis, discourse analysis, and visual arrays of massive data sets. I look forward to generating a dialogue with all of you about the productive uses of qualitative methods to advance our commonly held goal of making the world a better place.

(Photo by luz)

I wonder however if the same logic doesn’t extend to the social sector. I work with non-profits big and small, all who claim they offer critical services. They make these claims to solicit donations, but in the aftermath of Too Big to Fail, the idea that certain social sector institutions are absolutely essential might be more unsettling than moving.

In the social sector we defend agencies’ rights to create monopolies, veiled in an avoidance of duplication of services. Social sector agencies argue that there are limited funds to produce social value with. Therefore, in order to maximize social output we should avoid situations where one agency’s service offering overlaps with another. The result is regional monopolies whereby a few organizations are granted full control over a range of social services, thus manufacturing an environment where agencies can claim to be critical backbones of the social sector.

Their claims of being too big, too critical to society, to fail, are legitimated by the dogmatic adherence to avoiding duplication of services. All the praise heaped on these organizations amazingly echoes the same complaints we now have about unwieldy financial institutions. Anti-competitive social sector collusion is the backdrop for the social sector version of Too Big to Fail.

The idea of social sector organizations being too big to fail is even more disturbing considering we don’t have much reason to believe they are effective, even though their entire hegemonic reign is predicated on the assumption of maximum social impact.

Organizations that successfully convince the public they provide essential services might very well be producing more marketing miracles than Hallmark moments. In fact, I have serious doubts about most organizations’ capacities to measure changes in client indicators period, let alone asses the extent to which those changes are the result of program activities.

I recently read a report about program measurement released by the Gates Foundation titled A Guide to Actionable Measurement (non-profit consultant Gayle Gifford has a nice write up about the report on her blog). While the report provides a comprehensive evaluation strategy, I was struck by the simple advice the report offers to not always focus on measuring social impact by relating program outputs to client outcomes.

I often drink the social outcomes measurement Koolaid, but this Gates report got me thinking that  simply understanding whether clients who receive a particular service are better off or not is a logical evaluative starting point. However, the extent of our evaluation woes is so deep that even such a simple, summary data type assessment of client indicators is more elusive than it ought to be, a problem that is compounded by a social sector culture that favors non-profit monopolies.

Through monopolization a handful of organizations, rightly or wrongly, are allowed to claim credit for a community’s status quo. The anti-competitive nature of the social sector creates an atmosphere whereby every organization can claim that reduced funding or closure of their programs will lead to social disarray.

I view the problems of anti-competitiveness and poor evaluation in the social sector to be linked. Anti-competitiveness, and adherence to avoiding duplication of services, supersedes the need for serious evaluation. Evaluation is not only a tool for evaluating client progress, it is a lens through which comparison between interventions, and agencies, can be drawn.

So long as the social sector continues to espouse anti-competitiveness cloaked in the flag of collaboration, we will continue to have a sector that is not necessarily too big to fail, but is certainly too small-minded to succeed.

(Photo by jeffisageek)

At their core, Pallotta’s arguments in Uncharitable come down to the idea that the activities of nonprofit organizations have been governed by social norms tracing back to the Puritans that hinder the ability of charitable groups to effectively address the problems they are tasked to solve. The antidote to these damaging social constructs is rational application of market norms to our expectations of charitable organizations, allowing groups and individuals free reign within these broader confines to take the most expedient approaches to achieving their missions. Not allowing such groups access to these tools is irrational.

While I agree with the logic behind almost all of Pallotta’s individual recommendations, I’ve come to recognize that most people who aren’t social sector professionals aren’t willing to make the effort to intellectually understand how philanthropy “should” work. Even among professionals within the sector, there is little consensus over what constitutes good philanthropy and whether Pallotta’s ideas are a step in the right direction. How can we expect those who are not living and breathing this work to reach conclusions that go against their gut instincts about acceptable ways for charities to operate? It’s not that they don’t care about poverty and climate change and human trafficking; it’s that their lives don’t rotate around these issues. Although they want to help, they don’t have time or energy to dedicate to understanding why it’s a good thing that the charity they just gave $20 of their hard-earned money to is going to spend part of it to pay more competitive salaries for its staff, rent a billboard to raise awareness about its cause, or experiment with an unproven but potentially lucrative fundraising event. Their involvement in philanthropy is based around social norms, which are governed by our desire for community, altruism, and interactions without explicit expectations of reciprocity. It is difficult to reconcile that goals arising from a set of social norms may be best advanced by adopting practices that are based around costs and benefits, individual merit, and financial transactions.

What if we do succeed in creating a broad shift in public sentiment towards the acceptability of applying market norms and market thinking to aspects of philanthropy? At what point does our encouragement of donors and professionals within the sector to apply market norms begin to seep into other areas and overwhelm our social motivations? Market norms and social norms do not mix well together. In Predictably Irrational, behavioral economist Dan Ariely relates the story of how a few years ago, the AARP was rebuffed in their request for lawyers who would be willing to offer their services at reduced rates of around $30 an hour to retirees. But when the AARP went back and asked the lawyers to volunteer their time, they received an overwhelmingly positive response. In both cases, the AARP was attempting to appeal to the lawyers’ sense of social obligation, but the involvement of even a hint of a market transaction overwhelmed the social instincts to assist the elderly. This is a trend that shows up again and again in behavioral economics: when money or market norms are introduced, social norms tend to go out the window.

I don’t mean to suggest either that the approaches Pallotta advocates in Uncharitable exclude the role of social norms or that it is impossible to introduce aspects of market functioning into the social sector. Yet, the combination will not be easy, and those who attempt to navigate the grey area where social and market norms may overlap will have to be cognizant of the trade-offs involved. When investors (social or not) begin to question whether an organization may be shifting away from the “rules” that were implicitly or explicitly understood when their investment was first made, their willingness to make future investments is likely to diminish.

Pallotta has established himself as a leading voice of reason within the social sector and I consider him to be one of the most consistently insightful writers in this space. That said, his views on how charitable goals can be met most effectively are still far from commonly accepted even within the social sector. I see a future where more widespread acceptance of the application of market norms to various aspects of social sector behaviors will result in more resources for the sector and better outcomes for the populations it seeks to serve.

At the same time, it is important that we do not discount how deeply embedded, powerful, and valid the presence of social norms is in the decisions of the people we hope to enlist to our causes. We need to find ways to tap into those “irrational” forces and direct them to more effectively create social impact. After all, these forces are responsible for countless hours of volunteering, in-kind contributions, and $300 billion in donations that flow into US charities each year.

The concepts of market and social norms and more broadly the study of how emotions and perception can trump logic in decision-making are the subject of an emerging field known as behavioral economics. A fantastic primer for those interested in behavioral economics and how to apply some of its core findings to social sector work can be found in the creatively titled, Homer Simpson for Nonprofits: The Truth About How People Really Think and What It Means for Promoting Your Cause, available as a free download from Network for Good.

The debate over nonprofit executive compensation has little to do with increasing social impact. Rather, such arguments underscore the antiquated view still held by some that charity is about personal sacrifice rather than public benefit. Moreover, the controversy surrounding appropriate levels of executive compensation cannot be satisfactorily resolved until we establish metrics that allow us to meaningfully measure executive output against the only standard that matters, social outcomes.

Until recently, charity has been almost exclusively viewed as a personal sacrafice, a gift to the public realized as an economic loss rather than an investment in the greater good. In this misconcieving of charity, charity workers themselves are also assumed to be in the social sector with an expectation of personal sacrifice, generally viewed as paid volunteers rather than seasoned, well trained professionals.

Charity as sacrifice is a deprecated concept for a reason, it is a model that yields no discernible social impact. In the new era of social investing, and professional social entrepreneurs, working in the social sector is not about self-sacrifice, it is about professionalizing and innovating on the ways we help hurting people.

Debating executive compensation, in and of itself, is a pointless exercise. Compensation in any sector should be commensurate with performance. The problem is that as a sector we lack any real ability to measure social progress. So long as we fail to measure social outcomes, we will lack the sole, bottom-line metric we need to evaluate executive compensation.

Outrage over executive compensation is simply an extension of the same line of illogic used in evaluating charities by their overhead ratios (in fact, executive compensation is an overhead expense). Like overhead ratios, the brouhaha over executive compensation in the social sector underscores our inability to measure social progress, recently illustrated in a post on the Chronicle of Philanthropy by non-profit consultant Rosetta Thurman.

Rosetta, commenting on a recent controversy over the total annual compensation package of the Boys and Girls Club Chief Executive Officer (about $900,000) writes

I absolutely believe that nonprofit CEO’s should earn good pay. But there’s a big difference between good pay and excessive pay. While an organization can use any number of formulas to set compensation, it’s clear that many a reasonable person would deem Ms. Spillett’s salary excessive. I’m certainly not saying that nonprofit CEO’s should take a vow of poverty but that it may be problematic to have leaders in our sector who could be deemed “rich.”

Indeed, if we sent the message to the general public that helping poor people as a career choice was not only morally righteous, but economically rewarding, where would we be? Perhaps we would have attracted the talent we need to establish proper outcomes metrics so we would not feel the need to assess executive compensation packages by the same standard the Supreme Court uses to differentiate art from porn.

Executive compensation should be based on social outcomes. Just as for-profit executives are evaluated on their performance relative to profits, and are compensated accordingly, so too should we in the social sector reward our executives based on their creation of social profit.

Until we establish better social outcomes metrics, and mechanisms for regularly, and rigorously, evaluating organizational output, we cannot have an honest discussion about executive compensation.

(Photo by Robert Couse-Baker)