Table of Contents
Table of Contents
Praise for Charity Case
“Charity Case is an Apollo program for American philanthropy and the nonprofit sector. Pallotta’s understanding of the hamstrung nonprofit sector is poetic and therapeutic. His prescription is sensible and profound. Charity Case will inspire its readers with an expansive sense of possibility.”
— Robert F. Kennedy Jr.
“Charity Case is visionary in its empathy. It sympathizes with the donating public’s confusion about how charity really works and with the nonprofit sector’s plea to be held to standards that engender trust and grow support. At that intersection lies the promise of a new era of enlightenment about charity and social change.”
— Art Taylor, president, Better Business Bureau Wise Giving Alliance
“Charity Case takes innovative thinking about the social sector to an entirely new level. Dan Pallotta raises the radical prospect that we can change cultural conventions about charity, making a cause of causes themselves. A powerful call to action.”
— Jane Wei-Skillern, adjunct associate professor, Haas School, University of California, Berkeley; lecturer, Stanford Graduate School of Business
“It doesn’t occur to Dan Pallotta that standing on the sidelines is an option. And he makes it impossible for the rest of us to stand back. Charity Case is a wakeup call for every fundraiser around the world. We are the public champions of philanthropy—it’s just that not all of us have been aware of that until now.”
— Andrew Watt, president and CEO, Association of Fundraising Professionals
Copyright © 2012 by Dan Pallotta. All rights reserved.
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Library of Congress Cataloging-in-Publication Data
Pallotta, Dan.
Charity case : how the nonprofit community can stand up for itself and really change the world / Dan Pallotta.
p. cm.
Includes bibliographical references and index.
ISBN 978-1-118-11752-1 (cloth); ISBN 978-1-118-22448-9 (ebk); ISBN 978-1-118-23768-7 (ebk); ISBN 978-1-118-26257-3 (ebk)
1. Charity organization. 2. Nonprofit organizations. I. Title.
HV40.P254 2012
361.7'63–dc23
2012011791
To Annalisa, Sage, and Rider.
May you live in a world that
thinks different about making a difference.
This crime called blasphemy was invented by priests for the purpose of defending doctrines not able to take care of themselves.
—ROBERT GREEN INGERSOLL
Preface
My previous book, Uncharitable, was about how our system of charity undermines the causes we love. This book is about how we can undermine that system. Uncharitable was about a problem. This book is about a solution. Uncharitable was about our plight. This book is about deliverance. For those of you who haven’t read Uncharitable, a synopsis is included in Chapter One.
It was right for the problem to occupy center stage in Uncharitable so that we could meditate on just how damaging the problem is. I didn’t want to propose a bunch of solutions. I’ll make an analogy to mourning: when you’ve lost someone you love, you don’t want people trying to cheer you up with platitudes. You just want to grieve and be present to the gravity of what’s happened to you. In Uncharitable, I wanted to be present to the dysfunction that arises out of our rigid and religious ideas about charity.
In Uncharitable I described how the system of values and ethics governing the conduct of charity today is actually a religion that was formalized some four hundred years ago by the early Puritan settlers in New England. I discussed how that system was designed to secure the Puritans’ salvation in heaven and avoid eternal damnation in a hell hereafter.
This book is about designing a system that can solve social problems. If we can solve some of the great social problems that have plagued and vexed humankind since the beginning of time, that will be heaven enough. And it will rescue billions of human beings from a hell all too present for them in the here and now.
The Puritans believed that problems like poverty were ordained by God and that they would and should be with us forever. This book is about designing a system of charity that responds to our real capacity to eradicate these problems once and for all—and in our lifetime.
In his 2007 keynote address at the MacWorld Conference, Steve Jobs claimed boldly, “Today, Apple re-invents the phone,” and he proceeded to unveil the iPhone. If we can do it with the phone, we can do it with charity.
Let us begin the reinvention of charity. How? By creating a national leadership movement specifically for that purpose.
Unlike many other books written about the sector, this one is not academic. It’s not a new theory, and it’s not about a new way of thinking about giving. It’s an immediately actionable plan to get the public to adopt a new way of thinking about giving. That’s a big difference. That Zen monks may have found the key to enlightenment is of no consequence if there’s no plan to get everyone enlightened.
Why focus on changing the way the public thinks about charity? Why that lever? Because it’s the only lever that really matters. Because the general public donates 75 percent of the $300 billion given to charity every year. Because elected officials and regulators create public policy and contract guidelines based on what they think the public wants. Because board members are also part of the general public. Because charities base their business strategies on what they think the public wants. And because what the public wants is still based on what the Puritans told them they should want four hundred years ago. The way the public thinks about these things gives rise to the system that obstructs us, so it is appropriate to transform the way the public thinks about these things.
It will not happen by accident. It will happen by the power of our own will and commitment. This book is not about a solution that someone else will put in place. It’s not about what I’m going to do. It’s not written for “them”—the power brokers, the heads of the gigantic institutional funders, the senators and congressmen and congresswomen, although it is for them too. This book is written for all of us: the executive directors, development directors, executive assistants, program directors, fundraisers, communications staff, medical researchers, clinicians, event coordinators, social workers, finance staff, human resource staff, volunteers, donors—all of us who work, day in and day out, to make this world more human within a system that fundamentally works against us. It’s about a solution we will have to put in place and about the things we will need to do to put it in place.
It’s a road map for how we will organize the transformation of charity.
“Transformation” is one of those words that has lost all equity and meaning through overuse. It gets conflated and interchanged with the word “change.” But change and transformation are not the same. “Transformation” means to transcend form. It requires the surrender of all previous forms and all previous reference points.
Change is a faster caterpillar. Transformation is a butterfly. The purpose of this book is to encourage us to take flight and to show us how.
Dan Pallotta
Cambridge, Massachusetts
June 2012
Special Note
The word profit derives from the Latin proficere, which means progress. Thus, the term nonprofit means, literally, nonprogress. Beyond that, it has the distinction of being the only sector whose name begins with a negative. It apologizes for itself before it starts.
The sector could not have a worse name. It sends the public all of the wrong signals, and it is time we changed it. Therefore, with a few exceptions, like in quoted passages or where it serves legal accuracy, I don’t use it. (You may ask why it appears on the cover. It’s because that’s the word in common use today, and my publisher and I wanted to make sure everyone will know what the book is about.)
I instead refer to the sector throughout the book as the humanitarian sector. Others call it the social profit sector, the third sector, the independent sector, or a number of other things. Any one of them is better than nonprofit. Hearing it described repeatedly as something other than “the nonprofit sector” might feel annoying—like it’s work just to read it. It feels annoying to me. But that’s the way it always feels when you’re correcting a bad habit. Next time you think about using the word nonprofit, liken it to a really bad habit like using chewing tobacco. That might help break it.
Note
I first heard this description used by Allen Grossman, a professor at Harvard Business School.
1
And You Thought Public Perception of Congress Was Bad
Public opinion is a permeating influence, and it exacts obedience to itself; it requires us to drink other men’s thoughts, to speak other men’s words, to follow other men’s habits.
—WALTER BAGEHOT, “THE CHARACTER OF SIR ROBERT PEEL”
The money never gets to the people who need it.” That’s the familiar refrain we hear whenever the subject of charity comes up in casual conversation.
A Google search for “charities waste money” generates 3.6 million results—about twenty-five times more results than a search for the phrase, “charities use money wisely.” It hardly constitutes a scientific inquiry, but it probably means we can conclude that people who don’t trust charities outnumber people who do.
Similarly, people’s comments in the blogs, articles, and forums picked up on a simple Internet search reveal a pervasive public distrust of how charities conduct their business. One person wrote about not understanding why charities waste money on pens and note pads when they could be using that money to help the cause. Another devised a whole new (and very problematic) approach to giving—circumventing charities entirely—to avoid “charity waste”: “I never donate a dime to a huge charity. … What I like to do is direct donations into what I call ‘micro-causes.’ … For instance, if the NY Post writes about a house burning down in Brooklyn and [about] a now-homeless family—put [the family] up in a hotel. … [That way] you know that every dollar is being put to work exactly the way you want it to be.”
Other comments, like this one from a watchdog blog, were critical of specific charities: “ spends 9.6% of its revenue on administrative expenses and another 21.8% on raising more money. Thirty cents out of every dollar you donate won’t go towards anything cancer-related.” Really? Raising money to make cancer research possible isn’t cancer related? Although targeted toward a single charity, the assertion exemplifies the illogical yet widely held view that money not spent directly on what is perceived as “the cause” is money not spent on the cause at all.
Sentiments like these are available prefabricated for anyone in the market for an impassioned opinion on the subject, and they get distributed free of charge by the media and the masses. De Tocqueville said, “In the United States, the majority undertakes to supply a multitude of ready-made opinions for the use of individuals, who are thus relieved from the necessity of forming opinions of their own,” or, as a good friend of mine says, people are all too prone to mistake certainty for knowledge. He’s right. And because the demand for cheap, prepackaged oversimplifications of complicated subjects is very high and because, in some cases, people are looking for a quick excuse not to give, these off-the-shelf positions proliferate and quickly harden into stereotypes.
As a result, Americans are convinced, in large numbers, that charities waste money—they spend too much on “overhead” (never mind what that word actually means) and too much on executive salaries, offices, hotels, meals, trips, fundraisers, conferences, and staff. In the end, most people believe that the money donated doesn’t really go to “the cause.” Of course, “the cause” is defined extremely narrowly: if hunger, then soup—but not the spoon, the bowl, the stove, the fundraiser that got the money for the stove, or the postage on the thank-you note sent to the donor who donated the money for the stove. Just the soup molecules themselves.
Studies and history consistently confirm this public sentiment. Documented public distrust of charities dates back to the mid-1800s. People were suspicious then that philanthropy was just a way for the wealthy to “atone” for their success and evade taxes. A few decades later, “charity organization” societies began to develop, not to provide services but to “monitor the aid that was being given and to uncover fraud.”
In the 1970s, public concern about fundraising and administrative costs in charities grew. Historian Robert Bremner notes that by the end of the 1970s, “twenty states and numerous county and local governments had adopted laws or ordinances limiting charity solicitations to organizations that could prove a sizable proportion of the collection went for charitable purposes rather than for salaries and administrative costs.” (Many of these were subsequently rendered unconstitutional by U.S. Supreme Court rulings.)
Paul C. Light, a professor at New York University’s Wagner School of Public Service and an expert on public opinion on the sector, notes that things deteriorated further for charities after the attacks of September 11, 2001, when the media and others jumped all over the Red Cross for the speed and manner with which it disbursed donations to victims. The criticism, predictably, had a huge effect, even though it was unfounded. The Chronicle of Philanthropy reported in 2002 that a whopping “forty-two percent of Americans said they had less confidence in charities now than they did before the attacks because of the way charities handled donations.”
Six years later, things hadn’t improved. In 2008, Ellison Research surveyed 1,007 Americans and found that “sixty-two percent believe the typical non-profit spends more than what is reasonable on overhead expenses such as fundraising and administration.” A March 2008 survey by the Organizational Performance Initiative at the Wagner School of Public Service also found that “Americans remain skeptical of charitable performance” and that “estimates of charitable waste remain disturbingly high.” Only 17 percent felt charities did a “very good job” running programs and services. The study also showed that an astounding 70 percent of Americans believed that charities waste “a great deal” or “fair amount” of money. Just 10 percent of Americans interviewed thought that charities did a “very good job” spending money wisely. To put that in perspective, even Congress, at its worst, fares better. In November 2011, Gallup reported congressional approval at an all-time historic low of 13 percent.
It’s a sad state of affairs when you wish you had the approval ratings of Congress.
Despite the abundant evidence that the public believes charities waste a great deal of money, I know of no study—and certainly not one that has ever been distributed to the public—showing that charities actually do waste money. I’m not aware of any research showing that charities are ineffective at running programs or that they spend more than is reasonable on fundraising and administration, systemically or otherwise. Indeed no logical standard exists for what is reasonable.
I come from this sector. I have worked very closely with many dozens of humanitarian organizations for over three decades. I have worked with hundreds of leaders and professionals inside the sector. And I can tell you that there is no legitimate reason for so many people to have such a low opinion of charities. Robert Kennedy once said, “One fifth of the people are against everything all of the time.” If one-fifth of the people said they thought charities waste a lot of money, I wouldn’t be concerned. But 70 percent?
At the heart of this low public opinion is the power of suggestion. The word we hear most often when it comes to assessing charities is “overhead”: low overhead, high overhead, “ask about overhead,” overhead ratings, and everything-else-overhead. Now, if I tell you not to think of an elephant in a cocktail dress, you won’t be able to get the image out of your head. Similarly, if the first word that comes to mind when you think about charity is “overhead,” and if you are programmed to associate overhead with waste, it follows that waste and charity will become synonymous to you and the rest of the culture.
How do we change this?
Actually it’s not clear that public opinion is what we should be trying to change. Low public opinion is a reflection of deeper problems: the sector’s apparent inability to move the needle on huge social problems. So asking how we change public opinion is a little like looking at an X-ray that shows you have a tumor and asking how you fix the X-ray. But that’s not a perfect analogy because in the case of charity, low public opinion means lower contribution levels, which further inhibits our ability to address huge social problems. To continue the analogy, in the case of charity, the X-ray actually has the ability to make the tumor worse.
When we peel back the layers to examine how public opinion influences charities’ behavior, we see that it’s a circular mess:
These conditions are not new. For hundreds of years, charities have been forced to follow a rule book that doesn’t allow them to spend money on the things they need to achieve real change. Both despite this frugality and because of it, they are then accused of being wasteful. The humanitarian sector is not innocent in this. It has allowed itself to be victimized. In fact, it can be relied on to allow itself to be victimized.
The sector must reject the role of victim. We must work to improve the sector’s public image while simultaneously having the courage to spend money on the things we need to create real change. This will, ironically, have the effect of improving public opinion. Positive public opinion and effecting real change are inexorably linked—and they are at the heart of our dreams for humanity.
This book is about finding the way forward to make our dreams for humanity a reality. It’s about confronting the four-hundred-year-old rule book by which all organizations fighting for worthy causes—from disease to poverty to injustice—are forced to play. It’s about retiring it—putting it in a museum alongside fossils of the earliest known vertebrates and diagrams of the sun revolving around the earth.
We need a civil rights movement for charity—and this book is about how we start one.
Forensic investigation of structural dysfunction in social change wasn’t what I originally intended to do with my life. I wanted to be a goalie in the National Hockey League. Then I wanted to be the next Bruce Springsteen. But I had neither the reflexes for the former nor the melodic prowess for the latter. And in any event, I got distracted from both pursuits during my first year in college, when I began to learn for the first time about the numbers of people dying of hunger. I can still remember the 1980 statistics: 15 million human beings dying every year of hunger and hunger-related disease, two-thirds of them children. Millions of kids dying every year of diarrhea? For a kid used to contemplating hockey pucks, it was a staggering figure. A staggering thought.
This was around the time the Hunger Project was launched by Werner Erhard, the creator of the est Training. The project’s goal was audacious: to end hunger by the year 2000. Now, I was eight years old when Neil Armstrong walked on the moon. The idea that we could get to the moon by saying we were going to do it—the sheer power of declaration—was and remains the most exciting thing in the world to me. So when Erhard said we could end world hunger by saying that we were going to do it, I was hooked.
The Hunger Project did not meet its goal of ending hunger and starvation within twenty years. But it started the conversation that no one else was having: the conversation that will eventually end hunger in our lifetime. It said, “We can do this—we can end this.” The conversation until then had been limited to, “Eat your food because there are people starving in the world,” or, “We have to help people in whatever little way we can.” It was a timeless conversation resigned to the persistence of the problem, summarized four hundred years ago by Puritan leader John Winthrop in his famous sermon, “A Model of Christian Charity”: “God Almightie in his most holy and wise providence hath soe disposed of the Condicion of mankinde, as in all times some must be rich some poore, some highe and eminent in power and dignitie; others meane and in [submission].” The Hunger Project said, Screw that. Hunger is unacceptable. It’s time to talk about eradication.
Today, as a result of changing that conversation, we see initiatives like the United Nations’ Millennium Development Goals, which call for achieving a series of benchmarks for tackling extreme poverty by 2015. We see Share Our Strength, calling for the end of child hunger in five years; Bono’s ONE Campaign calling on us to save 4 million children’s lives within five years; and many other similar examples.
Ralph Waldo Emerson once wrote that “our age is retrospective. … It writes biographies, histories and criticism. The foregoing generations beheld God and nature face to face; we, through their eyes. Why should not we also enjoy an original relation to the universe?” The Hunger Project transformed our thinking about hunger from being retrospective to being original. It could be our own.
This was a bigger idea to me than being a goalie in the NHL.
In 1980 I became the chair of the undergraduate Harvard Hunger Action Committee. The committee organized two campuswide fasts each year. That meant we’d ask every kid at school to give up dinner on a specific night, and for every kid who said yes, the University Food Services would give about two dollars to Oxfam America. Each fast raised about two thousand dollars.
We weren’t going to end hunger in twenty years that way. I wanted to do something bigger. Two years later, a big idea came to me: get a large group of students to bicycle across the entire continental United States to raise money and awareness for the end of hunger. That was big. It was terrifying. Terrifying was what I was looking for.
By the summer of 1983, my co-chair, Mark Takano, and I had recruited thirty-eight people for our Ride for Life journey across America. Thirty-nine of us took a six-hour flight from Boston to Seattle and spent the next sixty-nine days bicycling 4,256 miles from Seattle to Boston. We met amazing people and experienced the true generosity of Americans. We raised about eighty thousand dollars for Oxfam America, appeared on TV and radio stations all over the country, and arrived home physically, spiritually, and emotionally spent. We had given the most we could for a cause that we cared about deeply.
I remember thinking, Wow! Would I love to do this kind of thing for a living. But then that familiar little voice of cynicism that haunts us all from time to time immediately chimed in to tell me that that was a stupid idea. I listened to it, went to work in the Massachusetts State Senate, and hated it. It seemed to me to be an institution committed to doing nothing.
This was also a time of personal turmoil for me. I was coming to terms with the fact that I am gay. I had been interested in a career in politics but figured then, that because I am gay, that was never going to happen.
So I headed to Los Angeles, in part to escape myself, in part to see if songwriting and music could be an outlet for my desire to make a difference. But then the AIDS epidemic hit with full force. Back then it was like a smart bomb aimed at two generations of gay men. And if I’d been born a year earlier, I probably wouldn’t be alive today. I had the advantage of learning about AIDS from the media, which was beginning to report on it right before I became sexually active. People born a year earlier weren’t so lucky. I can count on one hand the number of gay friends I have in their sixties and seventies. Those two decades of men were wiped out.
Tragedy without modern precedent was all around us, and yet it felt as if there was nothing big anyone could do about it except wear a red ribbon or go to an AIDS gala dinner. I didn’t feel like sitting in a hotel banquet room or dabbling in symbolism. I found myself feeling that same helplessness I’d felt in college in the face of hunger. For a while, I thought about organizing another journey—a seven-day pilgrimage on bicycles from San Francisco to Los Angeles. But I just sat on it. I was too depressed and demoralized to do anything about it.
Then I saw the movie Alive about the Uruguayan rugby team whose plane went down in the Andes and who, after ninety days, with the world having given them up for dead, breached those terrifying mountains and got themselves rescued. Something in me was awakened. I left the movie theater and a voice not my own said to my friend, Ritch, “That’s it. We’re going to do the AIDS Ride.”
The rest, as they say, is history.
The first event we organized, California AIDS Ride, was a seven-day, six-hundred-mile ride from San Francisco to Los Angeles. Four hundred seventy-eight people rode, and we netted $1,013,000—much more than we’d anticipated—for AIDS services at the Los Angeles Gay & Lesbian Community Services Center. We began organizing AIDS Rides all over the nation. Soon after, we created a three-day pilgrimage for breast cancer: sixty miles from Santa Barbara to Malibu. This time participants walked. That first breast cancer event was four times as successful as the first AIDS Ride, netting over $4 million. We began organizing those all over the country. Then we created journeys for AIDS vaccine research, called the AIDS Vaccine Rides, and then for suicide prevention, called the Out of the Darkness walk. We started doing events in more distant locations—Alaska, Canada, Europe, and Africa. In the process, I founded a company called Pallotta TeamWorks, and we created a whole new category of civic engagement—the long-distance fundraiser and the long-distance life changer—which to date has raised in excess of $1.1 billion for important causes and given new meaning to the hundreds of thousands of people who have participated in them.
In the first eight years, 182,000 people walked or rode in one of our events, over 3 million people donated, and $581 million was raised—more money raised more quickly for these causes than any other events in history. In 2002 we netted $81 million after all expenses—an amount equal to half of the annual giving of the Rockefeller Foundation at the time.
So, it turned out, you could make a living taking people on the journey of their lives.
Our company grew to about 350 full-time people in sixteen U.S. offices. Harvard Business School conducted a case study on us. We developed unique capacities for organizing large-scale, multi-day civic events:
We did this all for a fixed fee that averaged just 4.01 percent of donations—about the same amount banks and credit card companies charge just to process the donations. One hundred percent of every donation went directly to charities, which then reimbursed us for expenses.
We challenged convention on many levels—not for the sake of being unconventional but because convention, to us, clearly didn’t work. In fact, it screwed things up. It minimized potential at every turn. We did what we believed would work: we advertised our events the way Apple advertises iPads. We hired great executives and paid them well—not millions, but $300,000 or $400,000 annually. We provided an exceptionally high level of customer service both before the events and during them. Our literature and materials were gorgeous. We did things about which someone could say, “Well, you could have saved more money for the cause by not doing that” but that we felt contributed to greater participation and more contributions in the long run.
And we integrated all of this into one public-facing brand that challenged the notion that you should not be able to do good and do well at the same time. But there was no vernacular for that back then. Phrases like social innovation, social entrepreneurship, and social enterprise either hadn’t been coined or were not yet widely used. There was no Stanford Social Innovation Review, no Social Enterprise Program at Harvard Business School.
When you’re very successful and you’re challenging convention, you attract critics. A few people with loud voices can be counted on by the media to hurl insults and accusations at you with tremendous consistency and conviction. Despite the fact that fifty thousand participants think you’re doing everything right, one person who has no direct experience of the events but writes for a big newspaper calls you “controversial,” and it becomes a self-fulfilling prophecy. Our experience followed the pattern, and we became “controversial.”
The ultimate result was that in 2002, our largest partner, the Avon Products Foundation, appropriated our Breast Cancer 3-Day idea and model and set out to produce long breast cancer walks on its own. Avon’s intention to compete with the 3-Days head-on spooked the new charitable partner we had lined up to be the beneficiary of the events for 2003. That new partner backed out at the last minute, after four months of preparations, and we went out of business overnight. We subsequently sued Avon for breach of contract and won—but the arbitration took three years, and our victory came far too late to put the company back together again. Avon’s 2003 experiment was tragic in terms of its ability to make breast cancer research grants. Its net revenues available for making grants plummeted from $70.9 million with us in 2002 to $11.1 million when it tried the events on its own in 2003—a $59.8 million negative variance in one year. In an apples-to-apples comparison, costs actually rose as a percentage of revenues.
Over the years of producing these events and successes and then enduring all of the criticism and watching our dedicated staff endure it, I began realizing that there was something fundamentally wrong about the context in which people were trying to create social change. Critics were attacking this charitable endeavor for doing things that businesses are encouraged to do every second of the day and for “causes” that are far less urgent. It struck me not only as illogical but as unjust and, ultimately, destructive. I began cataloguing everything I was observing—storing it away in my head. Over time I began to see a holistic web of illogic that was fundamentally undermining society’s ability to achieve social change. And I could see that people were literally religious about it. I decided to write a book about it.
The result was Uncharitable. In it I codified everything I had been observing over the previous decade. I described the two rule books that exist, one for charity and one for the rest of the economic world.
At first it was a hard sell. After probably forty rejections from various publishers, Tufts University Press agreed to publish it in 2008.
This separate rule book by which the humanitarian sector must abide discriminates against the sector—and all those it seeks to help—in five big areas:
If you put these five things together—you can’t use money to attract talent, you can’t advertise, you can’t take risks, you can’t invest in long-term results, and you don’t have a stock market—then we have just put the humanitarian sector at the most extreme disadvantage to the for-profit sector on every level, and then we call the whole system charity, as if there is something incredibly sweet about it. Charity could not be undermined with more reverence paid to the notion of something noble.
The catastrophic effects of this separate rule book are sobering. Since 1970, the number of nonprofit organizations that have crossed the $50 million annual revenue barrier is 144. The number of for-profits that have crossed it is 46,136. Eighty-eight percent of the nonprofit organizations in the United States have budgets under $500,000, and only 1 percent have budgets greater than $1 million. This is the crux of the matter. These organizations are dealing with problems of massive proportions, and our rule book prevents them from achieving anywhere near commensurate scale. All the scale goes to Coca-Cola and Burger King.