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

The Leader of the Band is Tired

Friends,

Three people who touched a part of my life recently died.

My wife and I met Allan Bérubé, a MacArthur Award-winning independent scholar, in Liberty, New York when we dropped our daughter off at the legendary (and decrepit) Catskills performing arts camp, Stage Door Manor. He was running a lovely B&B with his partner, and we had decided to explore the region and the ghost towns of Borscht Belt resorts. Allan fascinated us with his stories and anecdotes, particularly those that related to his book and subsequent PBS documentary, Coming Out Under Fire, about the difficult and sometimes accommodating relationship between the U.S. military and gays in World War II, published in 1990. His obituary came as a shock to me and is well worth reading. We were in Liberty when Allan and a team of his friends were using a crane to position the recently relocated Munson Diner--a vintage chrome relic about to be demolished--from Hell's Kitchen in NYC. After several years of restoration work, the diner opened in Liberty just one month ago.

Just today I read Dan Fogelberg's obituary. Dying at the young age of 56, Fogelberg was a gentle balladeer, whose album Souvenirs seduced me away from listening almost exclusively to the Grateful Dead (this was over thirty years ago), particularly with its Zen-inspired song Part of the Plan. While most of his music has never been on my top 100 play-list, listening to him has always cheered me up and given me a sense of inner peace. I will miss him.

A couple of weeks ago I saw that the guru of subscriptions, Danny Newman, had died. To most, his life and death may be an overlooked footnote, but for anyone in performing arts management and marketing, he was a legend. His book, Subscribe Now! Building Arts Audiences Through Dynamic Subscription Promotion was a well-thumbed resource on all of our bookshelves. Very practical and simple, his book helped to fuel an explosion in performing arts subscriptions in the seventies and eighties (I once had the opportunity to attend a master class of his). Even today, his advice is followed, though box office sales techniques have evolved significantly since he began his quest. Indefatigable and bursting with enthusiasm, Danny Newman had an almost naive Horatio Alger personality. According to his wife (as quoted in his New York Times obituary), "even during his final illness he was often ready with one of his famous trademark expressions: 'We’ll get out of this mess yet.'"

Talk to you soon!

Bob

Hello It's Me--Linking In and Facing Out

Friends,

The Third Sector, "the UK’s leading publication for everyone who needs to know what’s going on in the voluntary and not-for-profit sector," reports that a new social networking web system for nonprofits will be coming on-line soon. Entitled MyCharityPage, it will provide nonprofits (and maybe donors) with the ability to create their own pages describing their activities, and, like Facebook and MySpace, users will be able to create their own blogs, share videos and photos, etc.

I've signed up for their waiting list, and though it seems to be a UK thing right now, can a US version be far behind? Naturally, there will be plenty of opportunities for retailers to glom onto some of the online action. Already named are Currys, Marks & Spencer and Body Shop. As you may know from my last entry (Point of Purchase Charity Comes Under Fire), I take a dim view of businesses co-opting charitable causes.

I'm fascinated, however, by the phenomenon of social networks as being played out in two of the most popular versions, Facebook and Linkedin, both of which I joined some time back but have only now been exponentially expanding my universe of friends and contacts. It's difficult not to be pulled into the Vegas-like distractions of Facebook. Everywhere you look there's some new action, game, "funwall" posting of a friend, contest, YouTube video with people beckoning you to join in the fun (interestingly, The Third Sector also reports on a health organization in the UK that has chastised Facebook for trivializing mental disorders by allowing a light-hearted "mental health exam" to be offered throughout their network).

Linkedin is far more austere and business-like. But there's little or no action--Facebook plays into our collective ADD with all of its neon-charged commotion, and Linkedin seems pretty boring. I'm still unsure what advantages there are to being connected on these sites(though my kids tell me that it's indispensable to them) , or how much revenue they generate, but its catching on among my friends and colleagues, who seem equally perplexed as I am why we find ourselves being invited to participate in movie trivia contests or download Vampires applications.

Talk to you soon!

Bob

Point of Purchase Charity Comes Under Fire

Friends,

A story in today's New York Times reports that while the trend of building donations into the cost of retail items has escalated, it has led to a host of worries about the accountability of those dollars. With very little transparency and often just the word of the retailers that the funds will find their way to the nonprofits, many observers and analysts feel that the lack of regulation, along with no registration requirements by state charity boards, makes it likely that consumers will be scammed. In some cases, the charities are unaware of products carrying their logos or that money is due them from the sale of items.

I have always been uneasy about retailers co-opting the good will generated by nonprofits. For me, philanthropy is a thoughtful act--as a fundraising professional I believe that we are in the business of helping people to make intelligent decisions on where to direct their charitable dollars. As the article noted, giving at the cash register is somewhat coercive. Worst of all, I fear that this is yet another burgeoning scandal that erodes donor confidence in the management of nonprofits.

For several years, corporations have been enamored of "cause-related marketing." While I have some friends in the nonprofit community who work in this area, here too I have my misgivings and question the motives of companies when they align their public image with high profile charities. I have also found that corporate "philanthropy" (where I gained some of my earliest chops as a fundraiser at the Hartford Stage Company during the era of big giving by United Technologies, Aetna, The Hartford, and The Travelers) carries big strings for the nonprofit. At a time when only 4.3% of all philanthropic dollars come from corporations, declining by nearly 7% from the previous year (Giving USA 2006), I am convinced that nonprofits must redouble their efforts in the growth areas of fundraising--individual gifts, bequests, and foundation support.

While composing this blog, I noticed a new article in the Washington Post about a study by the American Institute of Philanthropy that reveals how eight veterans charities, including some of the nation's largest, have given less than one third of the monies they raised for veterans and the wounded. One "group passed along 1 cent for every dollar raised... Another paid its founder and his wife a combined $540,000 in compensation and benefits last year." I'm sure that we'll be reading a great deal more about scandals in nonprofit land over the next several months

Obviously, we continue to advise our clients to maintain strict policies of transparency.

Talk to you soon!

Bob

Social Capital Redux--Analyzed

Friends,

My good friend and colleague Mark Laskowski posted an absorbing observation on his blog today about Robert D. Putnam's recent article (you SHOULD know Putnam from his important work, Bowling Alone, which revived the theory of social capital and placed it into a latter day context). The most interesting point (for me) of the blog was his report that a wide schism has grown between two different camps over the correctness--political or otherwise--of Putnam's somewhat controversial statements to the point that ethnic diversity temporarily "reduces social solidarity and social capital." Of particular interest is the fact that most of the rank and file have lined up either for or against Putman without having read his article.

Laskowski's blog points out the intellectual sluggishness of people who are all too willing to have avatars of their adopted beliefs (or shared delusional systems) mediate for them the philosophical constructs of their lives. It's far easier to listen to a pundit deride someone's writings than to engage in one's own critical inquiry.

Having just returned from an all-too-brief holiday in Spain, I found myself perplexed about how the EU is going to survive the low birthrate of its indigenous population while weathering the advancing growth of immigrants. Europe is far more grounded in historical values and grudges than the USA (where we're certainly dealing with our own debate over immigration) and each of its countries is struggling to define policy that conforms to EU multi-cultural standards while safeguarding the status quo. In my discussions with Europeans now and over the years, I have found that they are as prone as the rest of us to accept the views of their pundits than to seek their own meaning.

Mark's blog reminds me that my own writings can easily persuade and influence others. Obviously this is both desired and unavoidable. However, I hope that whatever else may come from this blog, readers will understand that my personal ethos is about independent thinking. While Dorothy Parker said "you can lead a whore to culture, but you can't make her think, " I'm less cynical and feel that the current tools of our trade promise more engagement and debate.

Talk to you soon!

Bob

Donors Want Accountability

Friends,

Monday's Chronicle of Philanthropy Daily Update reported that the Financial Times posted an article discussing the fact that donors are now expecting considerably more accountability from the nonprofits they support. The article quotes Stuart Danforth, an investment consultant in Boston:

“Strategic philanthropy is broadening from the corporate realm to the personal realm. It’s about individuals being more strategic in their giving –- they’re not just giving money to a good cause, they’re trying to effect change for a reason.”

There are many reasons why this is happening—some covered by the article, others not. Largely, business professionals are accustomed to seeing tangible, measurable benefits from investments. Also, entrepreneurs want to play a greater advisory (even supervisory) role in how dollars are used strategically. Younger people, too, want to have a greater hands-on role in the nonprofits they support, and far more donors are cognizant of scandals affecting charities (see last week's MajorGiving: The Blog).

I also think that smaller nonprofits are suffering because they lack sophisticated oversight by their grass-roots boards. In my own town of Winchester, Virginia, several groups immediately come to mind—organizations that live hand-to-mouth and would crumble under wide-spread donor scrutiny. I don't claim to have immediate solutions for these small groups—but historically, they often fold and are replaced by something similar. For the groups I do work with, there are some important lessons to be learned:

1. Transparency—if you don't make your financials and activities truly transparent in an easily accessible way (i.e. Your website), donors might suspect you're hiding something.

2. Education—if what your organization does falls out of the pale of understanding of the general public (I think of the cutting edge theater whose board I sit on), then you must demonstrate in more complex ways how your programs provide an otherwise unserved need to your community. Perhaps, too, as is the case of this theater, you must work overtime to show that what you do has an impact on the region's livability and desirability as a destination.

3. Board Development—all too often this is ignored. It's one of the most important roles of the CEO (some say the most important). Boards are there not just to raise money but to provide invaluable expertise in fiduciary matters and to serve as community barometers. I can't tell you how many organizations I've worked with that don't have board orientations, handbooks, or clear succession plans.

These are just a few thoughts that come immediately to mind. This is a very large issue that is going to consume the time of many people like myself who worry about the future of the Nonprofit Enterprise.

Talk to you soon!

Bob

Alms for The Alhambra?

While visiting The Alhambra in Granada this past Friday, I was struck by the lack of any collection boxes. And I found no literature reminding people that the cost of operations far exceeds the revenue they receive from the price of admission (€10); nor were there wall plaques at this world-wonder listing its generous donors. When I joined up with my friend and frequent travel companion Marino on Saturday and shared my observation, he commented that there is plenty of philanthropy in Europe by corporations but individual giving is rather minimal. Of course, like the U.S., corporate giving is likely to decline at the culmination of mergers and consolidations which will be the ultimate outcome of the EU countries' rapid move to American-style capitalism. Ultimately, important places like The Alhambra, because of their world status, will receive the lion's share of corporate support (maybe even naming rights—The BP Alhambra, The Nestle Acropolis), while smaller NGOs might languish as their tax-based funding evaporates.

Political advertising in Spain calls for the lowering of taxes, which is understandable but also likely to impoverish NGOs. While some European countries are slowly moving towards some form of philanthropy, it's slow going. Even the Picasso Museum of Malaga—a splendid new facility in the artist's home town shows no signs of fundraising activity. Nearby, the city's 16^th century cathedral bucks the local trend and requests a “contribution” in the form of admission. Marino tells me that the Church has been forced to resort to this because it no longer receives government subsidies.

Talk to you soon!

Bob