Getting What We Give: Understanding the Fallacies Behind Charitable Work

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Charities should be poor.

I sit on the board of a local non-profit and I happen to have a Masters in Business Administration.  Yet only until very recently have I realized that how wrong this idea is.  Up until this point, the mention of charitable or nonprofit work would conjure up in my mind humble mendicants in tattered frocks scrounging up donations to serve some underserved segment of society.  It seemed natural to me that those do-gooders in the non-profit world would forego the material trappings of the world-at-large.  After all, the term “non-profit” almost expressly says as much.  However, I recently saw a video clip which completely changed my thinking on this issue, and I wanted to share it with you.

If you have clicked on the link above, you can stop reading as the remainder of this article will basically be a summary of its contents.  However, I wanted to pass this idea along as I think it is an important one.

The way that we think about charity in America is influenced in large degree by Puritanical beliefs.  The Puritans came to America in search of religious freedom, but also in search of economic profits.  In comparison to other colonists, the Puritans were extremely capitalistic.  The Puritans were also Calvinists, and one of their core beliefs was that acting in self-interest was a one-way ticket to eternal damnation.  One way the Puritans strove to reconcile these conflicting beliefs was through charitable work.  They used charity as a method of doing penance for all of their profit-making.  Necessarily, the charity could not make money as it was done specifically to counteract the spiritual effects of other profitable activities.  Over time, the idea took root that charitable work should not or cannot result in financial gain.  This idea has not changed in four centuries.

One significant offshoot to this idea is that it is improper for charities to utilize their operating budget for overhead.  The funds donated should be used to buy soup for the kitchen, shelter for the homeless, mosquito nets for the sick, not advertising time for the cancer center or computers for the head start program.  It’s natural to feel this way, as many people who give their hard-earned money to causes want to ensure that the money is used to further the mission, as opposed to lining the pocket of a greedy CEO.  While this thinking is understandable, it is somewhat misguided.  We should look at overhead as a necessary part of the investment required to further the cause.  The cancer center can use the advertising time to grow their donor list and the head start program can operate more efficiently with the proper infrastructure, which means more money for the cause.  Investing in overhead boosts the charities’ capabilities and allows them to increase the amount of good they can do.  Which charity does more societal good?  The bake sale that raises $100 and donates 90% to its mission or the fundraising organization that raises $1,000,000 and donates 50%?

This thinking is also applied to the hiring of employees and executives.  Executives of charitable organizations often make a pittance compared with their counterparts in the for-profit world.  Much of this is a function of the idea that charitable endeavors should not result in personal profit, as such profit would besmirch the purity of any altruistic motives.  In reality, allowing charities to spend more on hiring quality people will result in more smart, motivated and innovative people to enter the non-profit realm.  Many of today’s best and brightest students disproportionately end up graduating to jobs in places like Wall Street, where the money is great but the work may not necessarily be socially fulfilling.  Allowing charities to attract top talent will give many of these people the opportunity to utilize their talents in the furtherance of social good without foregoing the promise of a stable financial future.

In closing, I wanted to leave you with one thought.  Non-profits are businesses.  The main difference between a non-profit company and a for-profit company is that a non-profit must reinvest its profits in furtherance of its mission, where a for-profit company uses its profit for the benefit of its owners and shareholders.  By freeing non-profits from the restraint of keeping overhead low, we allow them to operate like true businesses and maximize the amount of money they can apply to their cause, resulting in a profit to society.

Brian Y. Chou is an estate planning attorney based in Southern California at the Law Firm of Barth Calderon, LLP.

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About brianychou

Brian Y. Chou is an Associate Attorney at the firm of Barth Calderon LLP and his practice focuses on asset protection, estate planning, and business succession planning. Mr. Chou assists clients in all stages of life, from the young professional couple that is concerned about estate planning for their minor children, to the wealthy real estate investor who wants to insulate himself and his properties from lawsuits, to the successful business owner who is agonizing about how to transition his company to the next generation. Mr. Chou understands that coming to grips with an impending lawsuit and confronting one’s mortality are typically not high on most clients’ list of things to do and his goal is to make the planning as accessible, digestible and (dare we say it?) enjoyable as possible. Mr. Chou seeks to build lifelong relationships with his clients to ensure that as their personal lives and legal situations evolve, their planning continues to accurately reflect their wishes. In addition to working with clients to protect and transition their assets, Mr. Chou actively seeks to be a resource to his clients in all aspects of their lives. He encourages his clients to contact him with all manner of needs, whether it be a plumber to fix a clogged drain, or a qualified accountant to contest an aggressive property tax reassessment or anything in between. An avid public speaker, Mr. Chou has presented to numerous groups all over Southern California, including University of California Irvine, Cal State Long Beach, the Planned Giving Roundtable of Orange County, and the California Society of Tax Consultants. He is also especially proud of passing the California State Bar Certified Specialists Exam for Estate Planning, Trust & Probate Law. Mr. Chou has also obtained his Series 7 & Series 63 Securities licenses and is also a licensed life & health insurance agent. For Mr. Chou, establishing a connection with the community is paramount. To this end, he is active in a number of organizations, including the Estate Planning & Trust Council of Long Beach, Provisors, Business Networking International, and Comprehensive Child Development, a non-profit providing early childhood educational programs for low income families in Long Beach. Brian Y. Chou is a native of New Jersey and the son of Chinese immigrants. After high school, he moved out to the west coast to attend the University of California, Los Angeles, where he received a degree in economics. Upon the completion of his degree, Brian earned a JD/MBA degree from Pepperdine University. During his time at Pepperdine, he participated in a number of activities. Notably, Brian was a literary citations editor for the Dispute Resolution Law Journal, the President of the Asian Pacific American Law Student Association, the Vice Magister of Phi Delta Phi Honors Fraternity, and a member of the Moot Court Board. He also worked in the Career Development Office at the Pepperdine School of Law and remains involved with the community there. Before establishing his estate planning practice, Brian worked for a law firm in the Inland Empire specializing in insurance defense and construction defect litigation. Prior to that, he clerked at law firms in West Los Angeles where he participated in the practice of Workers Compensation litigation and general corporate law. He is committed to using his broad range of experiences to build relationships and effectively represent his clients in a way that is thoughtful and pleasant for all parties involved. In addition to his professional achievements, Brian can speak Mandarin Chinese and can understand Cantonese. His interests include: surfing, basketball, tennis, jogging, drawing and cooking.
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One Response to Getting What We Give: Understanding the Fallacies Behind Charitable Work

  1. Hema says:

    Nice job Brian!

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