This past weekend, a local sports talk radio station discussed a recent charity event in which every single dollar raised went to support need children.  This proclamation is clearly a response to the growing trend for accountability from nonprofits. Surely, accountability is a good thing, a necessary thing.  Nobody wants to give money to a charity only have "their" dollar spent on things which don't help the cause. But what does accountability mean?  Often, accountability takes some form of cost per dollar raised.  In response, nonprofits are incentivized to drive down costs and advertise their efficiency.  But what does cost per dollar raised tell us about how much social change that dollar helped create?  Not much.

In his recently released book Uncharitable, Dan Pallotta makes the case that society has placed unfair and unproductive expectations on nonprofits which "undermines (their) ability to eradicate great problems, and, ironically, puts charity at a severe disadvantage to the for-profit sector at every level."

Yes, nonprofits, like for profits, must produce their product (change) at the lowest possible cost such that the market will deem them worthy of investment.  But I must agree with Mr. Pallotta; as a society, we've misapplied this calculus.  In a for profit business, efficiency is essentially the end product; how much money can be generated for how little of an investment?  But solving our society's great problems is not an exercise in efficiency.  Efficiency is merely a measure of the means, not the ends.  Rather than incentivizing nonprofit leaders to reduce costs and increase efficiency, we must hold them accountable for the change they claim to create.  That's the magic ratio: how much change for how much money.

Management salaries, advertising, etc. are all acceptable uses of money in the for profit world.  We must shift our focus in the nonprofit sector to the outcomes we expect our investments to generate and allow nonprofits to make the necessary internal investments to grow their ability to create change.