Will Percentage-Based Fundraising Be Banned?

Friends,

Last week, the Association of Fundraising Professionals (AFP) called on Congress to ban percentage-based fundraising. This came in the wake of recent revelations that several veterans charities fundraising costs far exceed acceptable standards and that only a pittance of their contributed revenues go to their intended beneficiaries (contained within my blog on December 13). In a December 18th press release, CEO Paulette Maehara says:

If you examine the charities that have extremely high fundraising costs, including several of the groups highlighted during the hearing, you’ll almost always find that these organizations pay their fundraising firms on a percentage basis. The one single reform proposal that would make the most difference in stopping fraud and strengthening public trust in the charitable sector would be for Congress to ban percentage-based fundraising.

The release also states that AFP has developed a position paper on why percentage-based fundraising is unethical, which it summarizes in the release:

• charitable mission becomes secondary to personal gain
• donor trust can be unalterably damaged
• there is incentive for self-dealing to prevail over donors' best interests
• the very philanthropic values on which the voluntary sector is based are undermined.

Within public broadcasting, the topic of commissions periodically rears its head. It's a bit of a paradox because technically, "underwriting," which is the industry's form of advertising, is a contribution rather than promotional consideration. The Federal Communications Commission specifically prohibits advertising for non-commercial stations, so underwriting is technically recognition for contributions. A large number of public broadcasting stations, while conforming scrupulously to the limitations of what is permitted on-air for underwriting announcements, often regard the process of securing underwriting to be "sales." They form sales departments, often staffed by trained salespeople who work on some form of commission or bonus that is based on a percentage of the "contributions" they generate.

A couple of years ago, during one of the periodic discussions about the topic in public broadcasting, a colleague posted on a listserv:

Regarding commissions: I think the reality of the situation is that underwriting isn't really fundraising, and hasn't been for the past 15 years. It is sales of airtime, condoned by the FCC and the IRS with favorable tax consequences, but, well, if it looks like a duck... So, the AFP code should and does apply to membership fundraising, capital campaigns, etc., but to apply it to underwriting puts our salespeople at a real disadvantage in the marketplace.

I didn't agree then, and I don't agree now. One of the worst case scenarios that I have seen arise from this mindset was with a client of ours in a capital campaign. An underwriting salesperson had a solid relationship with the prominent head of a business that underwrote Nova on the public television station. The underwriting rep was asked to open the door for the station's CEO and development director to engage in a conversation about the capital campaign. The rep stonewalled and demanded a commission should the donor make a gift to the campaign. His argument was that the capital campaign gift was likely to erode the donor's underwriting support (the donor did make a gift to the campaign and the station gave the rep a "bonus").

I've shared my thoughts before on percentage-based compensation (see November 6 blog), and I have expressed my concerns over the declining credibility of nonprofits in the eyes of donors. While I'm skeptical that Congress will ever ban commissions in fundraising, I think that state charity boards can provide more oversight, and I think that it's time for the public broadcasting industry as a whole engage in a discussion over the inherent contradiction of calling advertising underwriting and then selling on-air announcements as commissionable contributions.

Talk to you soon!

Bob