Is Our View of Charities Wrong?
Is our view of charities wrong?
By Wayne Hendry, Client Experience Manager,
Lexicon Financial Group of Raymond James Investment Counsel
American entrepreneur, author, and humanitarian activist, Dan Pallotta, argues that our view of charities is wrong. Pallotta is best known for his involvement with multi-day charitable events, which raised over US$582 million. He argues that the people and communities served by charities do not need low overhead, they need high impact.
And, according to Pallotta, the impact of a charity is not necessarily related to their overhead costs.
He asks us to imagine two soup kitchens. Kitchen A uses 90% of the funds received to feed the needy. It serves soup from nearly expired cans, has unmotivated staff that do not engage donors or the people they are serving, and feed 50 people per week.
Kitchen B, on the other hand, spends 70% of its funds on soup and 30% on overhead and administration. It serves nutritious soup made from fresh ingredients sourced from local farmers, has an enthusiastic staff that engages the people they are helping, and feeds 100 people each day.
Kitchen A might have lower overhead, but Kitchen B is clearly making a bigger impact in the community.
Consequently, anyone making a decision between Kitchen A or Kitchen B or a cause they care deeply about should consider:
Prioritizing impact over overhead ratios.
Take the example of American virologist and medical researcher, Jonas Salk, creator of the first successful polio vaccine, which provides lifelong protection from the disease after only one dose. Does anybody question how much it cost to develop the vaccine, or are they more concerned with the number of people helped by its discovery?
Charities that boast about low overhead without talking about the impact they are having on their community may be like Kitchen A. Donors should ask to see impact reports. How much is invested in training staff, marketing, and innovation to grow their impact? Because achieving the greatest impact probably requires offering competitive salaries to attract and retain top talent. It also means investing in the systems, tools, training and technology necessary to complete the tasks required to succeed.
Here are some resources that can help you learn more about the charity sector in Canada: Charity Intelligence Canada, CharityData Blumbergs, Canada Revenue Agency (CRA).
The same argument holds true for executive compensation. A January 2024 analysis by The Canadian Press identified 17 charities in the environment, conservation, and animal protection sectors whose top executive drew annual compensation that was in the $200,000 to $250,000 range or higher, according to filings with the federal government made in 2022 and 2023. This group of 17 charities represents just over one per cent of all charities in their sector.
One of the charities singled out is Ducks Unlimited Canada (DUC). Founded in 1938, it conserves, restores, and manages wetlands to benefit North American waterfowl. That said, its 2023 declaration indicates that two people earned more than $350,000, three others received between $250,000 and $300,000, and four received compensations between $200,000 and $250,000. The organisation has 565 full- and part-time employees.
In the private sector, what would a CEO earn if they were the head of an organisation with over 500 employees and an annual budget in the millions of dollars?
Importantly, what impact has DUC achieved over time? Since its inception in 1938, it has conserved more than 6.6 million acres of natural habitat and influenced 195.2 million acres more. It also reported, in 2024, that for the first time since 2015, waterfowl populations are increasing in Canada. That’s real impact made by motivated professionals.
Learning about the charitable sector and the challenges it faces.
Below are some interesting facts about the charitable sector, gleaned from the 2025 CanadaHelps Giving Report:
There are about 86,000 registered charities in Canada.
90 per cent employ 10 or less full-time staff while 59 per cent have no full-time staff.
Charities represented about eight per cent of Canada’s GDP in 2022.
Charities employed approximately 10.7 per cent of the full-time workforce in Canada in 2022.
It is interesting to note that CanadaHelps revealed that overall charities in Canada spend about 1 per cent on fundraising, 8 per cent on administration, 86 per cent on charitable activities, and 5 per cent on other expenses.
By Dan Pallotta’s estimation, this is too low and won’t bring about increased impact needed. The old adage, “to make money, you need to spend money” applies to charities just as much as it does for for-profit businesses. This is why he encourages a more for-profit-like approach for the charitable sector, including:
Paying competitive wages to draw in top talent.
Spending more on marketing to tell charities’ stories to get donor buy-in.
Investing long-term in identifying new sources of revenue.
Not being afraid to fail with a new service or marketing campaign but continue to innovate and learn.
Have you been looking at charitable donations the wrong way? If so, you are not alone. We have all been conditioned to view charities that have a low overhead as more worthy of our donation because a higher percentage of donations is going to the cause. But, as donors, our view needs to change. Especially if we want to maximize the impact that we want these organisations to have on our community and the causes we support.
Lastly, it is important to remember that you, as a donor, should never feel pressured to give in support of any charitable cause. It is your money that you are donating. And you have to be comfortable with your donation decision. If you’re not comfortable, start asking for support from your professional advisors (financial advisor, accountant, etc.) or the causes you want to donate to.
References
The Everyday Philanthropist – A Better Way to Make a Better World, Dan Pallotta, 2023
Salaries of top executives at some Canadian charities in $200K-250K range: analysis, Pierre Saint-Arnaud, The Canadian Press, January 4, 2024
CanadaHelps – The Giving Report 2025
Wayne Hendry is Client Experience Manager with Lexicon Financial Group Raymond James Investment Management. Craig Swistun is Portfolio Manager with Lexicon Financial Group (www.lexiconfinancialgroup.com) at Raymond James Investment Counsel.
The opinions expressed are those of Craig Swistun and not necessarily those of Raymond James Investment Counsel which is a subsidiary of Raymond James Ltd. Statistics and factual data and other information presented are from sources believed to be reliable but their accuracy cannot be guaranteed. It is furnished on the basis and understanding that Raymond James is to be under no liability whatsoever in respect thereof. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Raymond James advisors are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters.