Michael Williams

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Why do we allow Non-Profits to Profit?

Why do we allow Non-Profits / charities to Profit? What is the incentive to ever achieve a non-profit's/charities goal?

The American cancer society, has been a charity for around 100 years, has made around 1 billion in donations in 2012 alone, and a CEO makes 2.5 million as a salary, with such a track record, why would a company want to find a cure when that would end their funding and therefor salary.

This is only one of many charities and non profits, how can such a practice go unregulated and even applauded?

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    Jun 1 2013: Hi MIcheal! I think the answer to your interesting question lies in the words of Dan Pallotta's TED talk. Give a look to it, i'm sure you'll fix some doubts:

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    Jun 16 2013: So you are fine with people profiting in not-so-noble ventures, but not in noble ones?
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      Jun 16 2013: Perhaps he is concerned with the amount of the funds NOT going to the cause. Several have a record of high saleries and perks to administrators with only a few cents on the dollar going to the cause.

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        Jun 16 2013: That is certainly true for several, but the original question was a blanket statement about ANY non-profit. If a non-profit contributes great value and it's CEO makes a million dollar profit, is that bad?

        As Guido Gambetti mentioned, I would suggest looking at the TED talk by Dan Pallotta. http://www.ted.com/talks/dan_pallotta_the_way_we_think_about_charity_is_dead_wrong.html
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          Jun 17 2013: Drew, Yeah he gave a great speech to TED. Before I buy into all anyone says I like to look them up. Have you read up on Dan Pallotta. I suggest reading up on the many lawsuits Dan is involved in. His company took 79% of the 19 million raised for charity. He pocketed 15,010,000 of the 19 million. All of his sponsors bailed on him and the company is gone. Call me old fashioned ... but Dan may have been a little greedy .... naw ... a lot greedy ... the word obscene comes to mind.

          "If a non-profit contributes great value and it's CEO makes a million dollar profit, is that bad?" Yeah Drew it is bad ... The rules of the IRS is that no profits are made .... so it is not only bad it is illegal.

          Drew, I understand what your saying. I am not against a CEO getting compensated. However, I do think it should be reasonable and in line with the contributions he makes to the effort. When debits exceed the income the executive should be fired. When there is no growth he should be fired. Non-profit or for profit it is still a business. When the charity brings in 5 million and the CEO takes half is that really fair?

          You made a valid point that blanket statements and generalizations are not a good thing and exceptions can be found.

          Thanks for the reply. I wish you well. Bob.
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        Jun 17 2013: In reply to your earlier comment "When the charity brings in 5 million and the CEO takes half is that really fair?"

        Is it better if the charity only makes $100,000 and the CEO makes $20,000?

        Your assumption is that the charity would somehow get the $10 million with or without the CEO. There is a saying with entrepreneurs, "I would rather own 10% of a $10 million company than 100% of a $10 thousand dollar company."
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          Jun 17 2013: The ratio would be 100,000 to the CEOs 50,000 to remain at 50%. I still have the same problem.

          I have heard the statement; The reply was which direction are the two companies going? What is the potential? Etc...

          Did you read up on Dan Pottela? Do you think it was ok that he took 79% as payment for his efforts?

          Again I am not against a CEO making a paycheck ... Somewhere in this the term "Charity" should be considered.

          How much would I be willing to give if I know the firm my charity hired will take 79% and that the operating costs of the charity itself has not even taken its cut from the 21% remaining. Drew I don't know about you but I am concerned that there may be a management problem and the "intent" of the charity has been violated.

          We are seperated at what point greed and earned income stop and start. Some charity CEOs get houses, cars, perks, and BIG salaries and the cause gets pennies on the dollar and that is my concern. However, as you have pointed out that is what the market bears / allows .... does that make it right?

          Enjoyed the discussion. Bob.
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    Jun 16 2013: Michael, An NPO is an organization that uses surplus revenues to achieve its goals rather than distributing them as profit or dividends. States in the United States defer to the IRS designation conferred under United States Internal Revenue Code Section 501(c), when the IRS deems an organization eligible. The IRS looks at the org and asks did you declare a profit or pay dividends? No well your good. There is no moral or ethical question ... lawyers are such a wonderful thing to have. Take all of the profit and devise a plan for the future and say that the 20 billion is for more centers in other places ... later. Or we plan to expand and will hire 200 more executives at $500, 000 a year to plan for the future ... but we did not pay dividends. We are proud to say that we spend 23 cents per dollar on the cause and three kids were helped just this month.

    The letter of the law has been met .... the heck with the intent. The IRS has been a target since its inception during the civil war. It is very much in the news today and adding this to the fire will not be appreciated. The IRS is under the Treasury but they have distanced themselves and say the IRS Director is the ultimate power. Good ole Washington two step. No one in Washington knew anything ... the dog just went rabid .... IRS needs looked at .... not me / us.

    Every govt agency guards the rice bowl with fierce micro management, whistle blowing, backstabing, and going to war for a position. Dirty little secrets are power in DC. Plausible deniability is a lawyer term for "kill the messenger".

    The problem is the 501 (c) is also the code that covers political PACTS and contributions, etc (a wide range) so it is a sacred cow. To make charities clean up you would also have to make politicians clean up ... LOL good luck with that.

  • Jun 6 2013: The people who have the power to do something about it are probably profiting from these organizations.
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    Jun 3 2013: good point.
  • Jun 1 2013: Lol,there is an old proverb in chinese:If people don't do for profit,why do they want to get up early?If you do something not for any profit,people said you sound like an idiot:).

    Infact I have been thinking another question for some time:When people in the positions they are,why extra profit can motivate them more active than any position's responsibility does?
    For an example:being a waiter,serving customers well is definitly waiter's resposibility,But if you can give waiters extra money,you can sense the better waiter's resposibility.Why?Lol
  • Jun 1 2013: The best reason I think is that it allows business ventures to be tried which have no precedent. This way if you have an idea--like I have one--that seriously adds new dimension to the art and science of journalism--I can in large part seek funding as a non-profit which others can write off which allows me to prove that my invention does make for a potential significant benefit to society where I don't have to fund it with advertising and follow the path of other journalism which is for profit from its inception. Just because I start as a non-profit does not mean I can't profit. It just means that I'm gaining a privilege from the government for blazing a trail that delivers novelty and new understanding to society. The fact that it also constitutes a product that people will pay for is irrelevant. It is only when I make it a for profit company and take venture capital money or advertising dollars that I change the nature and lose the privilege. Some folks prefer to not go for the greed directly but they don't protest it if it just happens to come anyway. It's hard to start as a non-profit through without a name, a well known sponsor whose endorsement is golden, or friends in high places who believe you trustworthy enough to make "donations" to. I have tried that route and found out that grants do not go to people no matter how smart they are--they go to PHd's with mentors of note who vouch for them. I believed all that "grant" stuff when I tried to get my thing off the ground in my early 30's. It's all packaged like they care about what the philanthropist left their money to and you can nail it better than anyone but if you aren't blessed by the executors with their respect of your associates, they won't part with anything but a stamp and a piece of paper saying sorry, try again next year. And next year their money will be just as allocated to the same types. Frustrating when you know you first to the well on something big that won't fail.
  • Jun 1 2013: It depnds Salaries can have consequences I haven't seen the American Cancer Society as a problem, but there are some nonprofits that are sold as businesses and the money comes out as salaries.