Honoring Donor Intent

This seems like such a basic, "Fundraising Ethics 101" topic that I'd never have to write a post explicitly about it, but it seems that even high profile nonprofit organizations need to be reminded: Donor Intent is King!

This month started with the news that country star Garth Brooks had won his million dollar lawsuit against a regional hospital. The issue was over a donation Brooks had made with the understanding that a building would be named for the singer's late mother.

A week later came headlines that the Ray Charles Foundation was demanding the return of several million dollars the late singer had donated to Albany State University in Georgia for a performing arts center that was never built.

Now, today we learn that Johns Hopkins University is being sued over the alleged misuse of millions of dollars from the estate of Elizabeth Beall Banks. This dispute revolves around farmland given on the condition that it be used for agricultural research and development, but now will be home to nearly five-million-square-feet of construction.

These are obviously high profile cases involving millions of dollars and well known organizations and donors, but the principles involved are the same for $25 donations to local nonprofit groups. You must follow through on your promises to donors. If funds are designated for a particular purpose, it is your legal and ethical obligation to use it for that purpose and that purpose only.

Raising funds with a pitch for one program or project, and then using them for another is a bait-and-switch con that will come back to haunt you. You may think you did well in the short run, but in the long-term you will lose donors, you will lose honest staff and board members, and you will risk your organization's reputation and future.

When dealing with large donations, do your best to set clear expectations with your donor, write out exactly what the purpose of the donation is, and have it signed. This donor agreement is not just for designated funds, as in the cases above, but especially important if you think the donation is unrestricted. The donor's signature on an agreement that you can use the funds in whatever way is needed to support the mission will protect you if they - or their heirs - ever come back and say the funds were designated.

Such clear, written agreements also protect the donor. And, with such well-publicized scandals putting us all under the microscope, offering your donors such transparency and guarantees will help ease their doubts about your integrity.

Tim Newell, Elizabeth Banks' nephew and one of the principals in the case against Johns Hopkins, explains, "You hate to lose faith in the entire system. ... All donors have the right to be assured that gifts be used for the reason they were given."

Still here, Back to work, Answering questions

Thanks to all my readers with being patient through a summer of irregular blogging, including this last three week silence. Vacation time is necessary to recharge the batteries, and I spent a portion of that time in Maui, and the rest of it catching back up on my work. Things should be getting back to "normal" and regular posting over the next week or so.

Yesterday I was meeting with a new potential client and we had the usual conversation where I asked the details of their programs and fundraising, and they asked me about rates and deliverables. Then, one of the women I was meeting with asked a question I'd never gotten before; "Have you ever turned down a client for ethical reasons?"

I think what she was really getting at was, will I work with just any organization, or only those I believe in. And the answer is certainly that I'm picky about with whom I work.

I've responded to a couple of inquiries from potential clients with a polite, "I'm busy, why don't you try..." That's rarely happened, but yes, I do need to be able to believe in the organization I'm trying to help. When I do turn a client down, I do still try to be respectful. While I may not agree with their cause, I acknowledge their right to do that work... with another consultant.

Missions I don't care for are not the only reason I've turned clients down, or dropped them. Here are two examples of organizations I initially thought were good, that I later decided I couldn't work with.

One began positively enough, but the ED wanted several changes in the contract, and the long negotiations over that convinced me it would not be a good working relationship. I suggested to him that "perhaps this is not a good time, why don't we talk again in six months?" My feeling is that life is too short to work with people who bring you unneeded stress.

Another organization that I did contract with for grant writing kept switching who my contact was, and more importantly, what their budget was. It became clear that while they weren't necessary crooked, they were certainly not able to manage their finances properly, and I couldn't be sure that grant money I was asking for would be spent per the proposals I was writing. I ended that relationship quickly.

So, yes, I do have criteria. I have to believe in the cause, I have to actually like the people I'll be working with, I have to know that I can accomplish the task, and I have to be sure that the results of our contract (whether a grant or a strategic plan, etc.) will be managed properly. If those criteria aren't there, I don't want to waste my time or their money.

So, how was your summer?

More on corporate sponsorship: Good news and a warning

Last week, I reported about how mergers and changing corporate priorities can put nonprofit funding at risk. Today, I've got some good news to help you retain those corporate sponsors.

There's new data that demonstrates that businesses that donate to charities earn back $6 in sales for every $1 they contribute.

The businesses that are more likely to enjoy this return are those that sell directly to consumers, such as retail, financial institutions, and electronics manufacturers. This is likely because these companies can and do advertise their giving to the general public. Wal-Mart Stores, for instance, is planning to broadcast a national TV ad that touts its charitable contributions.

Yes, this is good data to bring to your meetings with potential sponsors. And, yes, companies should not be afraid to brag about the good works that they contribute to (don't fight it, this gives your nonprofit additional free publicity). But, it's not without ethical questions.

Because when you post a companies banner at your event, or place their logo on your website or annual report, you are essentially advertising for them - and when they advertise their good deeds they are strengthening the perceived link between you and them - all nonprofits must consider the company they keep, not just the dollars they raise.

What I mean is, you really have to consider how compatible your mission is with their product. Many organizations have already made strong points of refusing tobacco or alcohol money, but there may be other, less obvious compatibility issues you should consider.

Before you accept sponsorship from that building development company for your job training program, have you checked on their labor practices or history of labor disputes? When the grocery store supports your drug treatment program, do you look into their marketing of alcohol?

I'm sure I've written about this before, but this is a conversation your management and board should have before the question arises. Have a policy on what types of companies you will go after, and what types of companies you will refuse. And then, when you go after the ones that fit, let them know about that 6 to 1 return on their investment.

Donor Care & Privacy

Mary Allie of Marquette, Michigan is a regular donor to the North Shore Animal League - an animal rescue organization that has a no euthanize policy. Recently, she's received a new benefit of being a donor to North Shore: sweepstakes advertisements in the mail.

No, North Shore is not in the sweepstakes business, they've simply sold their mailing list to the sweepstakes company. Buying and selling mailing lists is a perfectly legal activity, but it is not without ethical issues.

Does your nonprofit organization sell your donor lists? Do you have a privacy policy that spells out under what conditions you will release the names and contact information about your donors?

In the case of North Shore Animal League, their policy is, "if donors want to remove their name from the list, they just have to mention it." The problem with that policy is that it is up to the donor to figure out that their names might be sold and be pro-active about removing it.

If she so requests, North Shore will no longer be able to sell Mary Allie's name, but now that the sweepstakes company has it, who else will they sell it to?

It is a much better policy for the nonprofit to be the pro-active one. First, create a list management and privacy policy and decide if and when you might share your list. Then, make that policy public - post it on your web site, publish it in your annual report or a newsletter. Then, on your donation forms, place a check box for donors to opt-in (I.E. "Check here if we may share your information with other organizations and corporate partners").

Personally, I don't think nonprofits should ever be selling their donor lists. There are times, however, when it might be appropriate to trade lists with another kindred organization. But, before you do so, make sure your donors are aware of how you use their information.

Don't wait for the phone call offering to buy your list to decide what to do. Get your management team and board together to discuss this and create a list management and privacy policy today.

Tags: nonprofit, donors, mailing lists, privacy policy, information sharing, ethics

Tainted Money?

What if a major donor of yours - one whose name is featured on your building plaque - were to be arrested and found guilty on charges of fraud and embezzlement? Would you remove his name from your building? Would you return the money? Would you make a donation to the fund for those who he swindled?

These are not just abstract ethics teasers for the many organization in the Aspen, Colorado area that were philanthropic beneficiaries of the late Ken Lay, who died just after conviction (but before sentencing) for his role in the Enron scandal.

The Aspen Music Festival and School is one organization facing this question. Their Garden Court bears the Lay name in prominent signage. The University of Missouri is wondering what to do with a $1.1 million endowed professorship Lay donated to the school's department of economics. In Katy, Texas, the YMCA of Greater Houston has no such problem; Lay wrote them a letter just after his conviction asking them to remove his name from their facility.

Had Lay lived, would he have released all of his Foundation's beneficiaries from their obligation to recognize him as a donor? This is a question of donor intent that we may never know the answer to. Meanwhile, nonprofits have to decide what they will do about it.

When Robin Hood steals from the middle class to enrich himself, but then gives a little bit back to the poor, how tainted is that money? Do you continue to promote your association with a questionable donor?

Public relations expert Jeanette Darnauer, owner and founder of Aspen-based Darnauer Group LLC, thinks distance is the best policy:

An organization's reputation takes years to build and it can be destroyed in a heartbeat. I think the music festival should do what's right to maintain their integrity and to protect their reputation. I certainly think they have a stellar reputation. But Ken Lay was convicted of hurting a lot of people. Any continued association with him is negative for the festival. I don't think they should disgrace their name by continuing to honor him by leaving his name in a place the public can see.

If you were on the board of the Aspen Music Festival and School, what would you do?

Tags: nonprofit, ethics, donors, Ken Lay

Transferring Assets Between Nonprofits

Here's a question that I received by email this week:

What are the rules for giving part of your profits from a fundraiser to another nonprofit?

What follows is from my email response:

Interesting question! If you are asking about IRS rules for transferring assets to another nonprofit, I don't think it's very difficult at all, although you should consult with your accountant to make sure it's done properly.

I think the bigger question here is the ethical one. What was the donor's intent?

If the money were from a grant, or from a single large donor, there'd be no doubt that you'd have to have a conversation with that funder about your intentions and to get their approval for the transfer.

Your email suggests to me, however, that it was from many smaller donors as part of an event that you held, making it more difficult to ask each donor.

Many nonprofits would (erroneously) assume that money raised this way is completely unrestricted and that they can use it for whatever purpose they choose. But, you really have to look at how the event was advertised, and what implied promises were made regarding how the money raised would be spent.

If the nonprofit you wish to give a portion of the proceeds to has very little to do with your mission, or the program promoted in association with the event, then it's probably not a wise decision. For example, a child welfare organization giving a portion of their assets to an addiction recovery clinic.

If, on the other hand, the reason for the transfer is that the other organization is now running the program that the event was held to support, it is clear that moving the funds would keep with the donor's intent. For example, if you were partnering with the other organization on the project, but they are now the sole fiscal agent for it.

In a situation where a nonprofit is dissolving and closing operations for good (such as in a bankruptcy), one of the last decisions the Board is required to make is to select a successor organization with a mission as close to the old organization's as possible to receive any liquidated assets once creditors are fully paid. As a nonprofit, these remaining assets cannot be taken as profits; they must remain with a 501(c)(3) (or similar) organization.

I hope this information helps in your decision. Please let me know if you have any follow-up questions.

Tags: nonprofit, fundraising, ethics, donor intent