Fundraisers Seek More Ethical Guidance

Ahead of its “Ethics Awareness Month” events last October, the Association of Fundraising Professionals (AFP) polled its members, online, for reasons including identifying “which ethical issues were of most concern” to them. 

The survey results should be of interest to the entire nonprofit sector.   

[Note: This post was written just before the COVID-19 pandemic swept the nation.]

  Ethics in Fundraising

The Association of Fundraising Professionals, created in 1960, describes its mission as “empower[ing] individuals and organizations to practice ethical fundraising through professional education, networking, research and advocacy.” 

Its Code of Ethical Standards comprises the AFP Code of Ethical Principles (1964) and the ETHICAL STANDARDS (1964, amended 2014). Together these documents are aspirational statements as well as lists of acceptable and unacceptable behavior for fundraising professionals. 

The organization’s president & CEO, Mike Geiger, MBA, CPA, explains in his letter to the AFP membership to kick off “Ethics Awareness Month” that these codes were adopted because the initial AFP leadership “knew there would be moments where fundraisers felt pressure from others to cut corners or ignore ethical principles. Or situations where there might be competing interests, and the fundraiser would have to determine what’s best for the donor, the organization and the profession.”

   Survey Results: Frequency of Problems

In Donor Control, Conflict of Interest and Tainted Money: Key Ethical Concerns for Fundraisers (October 23, 2019), AFP describes generally the findings of the survey of over 550 of its members. 

It begins with a decidedly “glass-half-full” observation: “Most members don’t have to address challenging ethical situations or dilemmas very often.” What is “very often”? Apparently, that means just once a year. But AFP acknowledges that the survey hadn’t specifically defined “challenging” or “dilemmas” so those fundraisers answering these questions “may have different views of the situations they face.” 

But almost 17 percent of responding fundraisers say they have troublesome encounters about six times a year; 8 percent deal with them once a month. No wonder the burnout rate among fundraising professionals is skyrocketing and almost half of them report they will leave their current positions within two years. That level of talented, experienced professionals wanting to jump ship is a worrisome development for the nonprofit sector as a whole.

    Ethics Survey Findings

The “top ethical concerns” of the responding fundraisers mirror some of the major issues in philanthropy today. 

Almost half of those who were asked to select items from a proffered list of such concerns selected “donor control and restrictions on how gifts can be used” as a leading ethical issue in our sector. About 41 percent checked off “conflicts of interest” and 40 percent designated “tainted” donor money.

In the deluge of information and opinion on these thorny topics, they are typically portrayed as matters of concern for top leadership in nonprofit organizations. Too little attention is paid to the reality that fundraisers are frequently on the front lines of these difficult decisions; often, they must face them with little or no useful guidance from their organizations.  (One of AFP’s stated reasons for conducting its mid-2019 survey was to identify those topics that fundraisers most urgently need guidance and resources.) 

  Additional Concerns

Notably, when survey respondents tackled the question of identifying their “top ethical concerns,” they also listed “workplace issues, including sexual harassment and working with top executive staff.” 

The Association of Fundraising Professionals has been a leading voice on the serious problem of sexual harassment of fundraisers by powerful nonprofit organization board members, top executive staff, and donors. In Harassment of Fundraisers: A New Report (June 6, 2018), we reported on a first-of-its kind study and survey of sexual harassment of fundraisers conducted by AFP and the Chronicle of Philanthropy earlier in 2018. “The results,” we wrote, “are dramatic but not necessarily surprising to fundraising professionals who – over many years – have silently suffered from this kind of abuse.”

Respondents to AFP’s ethics survey from summer 2019 suggested that “fundraising needs a code of ethics or behavior policy for donors.” There are documents like AFP’s ethics codes and its Donor Bill of Rights but they deal with “what donors should expect and receive during the stewardship and giving processes.” But “there is nothing about the donor’s responsibilities.” 

  Conclusion

AFP’s Mike Geiger believes that fundraisers and their organizations should “think more expansively about ethics” beyond the usual lists of do’s or don’t’s.  It’s a “way of thinking—how can we not only just prevent harm, but actually help everyone achieve and flourish in a just and equitable way?”

Enlightened Self-Interest in the Nonprofit Sector

Feeding the Nonprofits

There’s an important conversation these days in the nonprofit community on a somewhat unexpected topic: Exploring the Problems and Benefits of Self-Interest in Nonprofits. 

That’s how the editors of The Nonprofit Quarterly launched its new series on Halloween 2019. In separate articles published over the next week or so, distinguished experts – Professor David O. Renz, Vernetta Walker, and Ruth McCambridge – offered historical background and provocative commentary.  (We’ve posted on these developments; see, for example, Charity Conflicts, Self-Interest, and More (November 5, 2019).   

Toward the end of NPQ’s introductory article, the editors encouraged interested readers to take a look at another piece published a week earlier: We Are All Ducks: Othering and Enlightened Self-Interest in the Nonprofit Sector (October 24, 2019). The author is none other than Vu Le, a longtime nonprofit executive and prolific blogger. 

Mr. Le had originally written this piece (absent “light edits” for the NPQ Fall 2019 self-interest) a year earlier for his popular blog, Nonprofit: Absolutely Fabulous. As usual, readers can easily pierce the irreverent and humorous tone to find the important underlying message in this insightful commentary. 

   Ducks, Self-Interest, and “Othering”

Vu Le writes that he had been thinking “about a bunch of things” for a while that led to his 2018 epiphany that “we are all ducks.” 

One of them is “the community-centric fundraising model, and why we each do the work we do.” Apparently, he’d been thinking about this and related issues for almost as long as Game of Thrones has been on HBO. The footnote links in We Are All Ducks:… go back to 2013 (The Wall of Philanthropy, Wildlings, and White Walkers) and 2015 (Winter is coming, and the donor-centric fundraising model must evolve). A few months later in 2015, he switched from GOT to another popular-culture inspiration in The Nonprofit Hunger Games, and what we must do to end them

Getting back to those ducks and self-interest, what triggered Mr. Le’s more recent line of thought had been his escalating – hands-on – involvement in his organization’s pursuit of the ever more elusive individual major donor. He generally approves of the notion of  “donor-centric fundraising,” but only to the point of giving an appropriate level of gratitude and acknowledgment of generosity.

He “started noticing that many of us have unconsciously created an unhealthy dynamic between our clients and our donors and funders.” Vu Le explained that “without realizing it,” nonprofit executives and fundraisers, “… often reinforce an image of donors as nice people standing at a lake throwing bread at hungry ducks in the water.”  

This insidious “othering” takes the form of reassurances to donors that they’re desperately needed “… bread helped fifty ducks” who “are now not going to die of starvation.”  And, of course, there are the ubiquitous fundraising campaigns and events designed to stoke donors’ “sense of pity and compassion” where we “show video images of hungry ducks and prevail on the starving ducks “… to tell compelling, sometimes harrowing stories.” 

Exactly how much, Mr. Le has been wondering, “do we as nonprofits, who stand in the middle between foundations/donors and communities, unconsciously perpetuate the notion that the people we serve are ‘others’?”

   We’re In One Big Lake Together

This “othering” is wrong on many levels, but seems to be growing: “There’s been a lot of ‘othering’ going around in society in general” recently. 

Vu Le uses a simple recent example that he recalls of parents from a resource-starved, lower-income, school district pleading for financial help from “… parents from wealthier families” whose kids attend well-funded schools nearby.  What’s the response? “‘Sorry, we are investing in our own kids.’” He wants to tell these other parents: “‘Hey, guess what? Your kids are going to grow up, and they’re going to MARRY OTHER PEOPLE’S KIDS. So maybe you should invest in those kids as well.’” (emph. In orig.

We are “one community”; it’s one big lake, he reminds us. “None of us is standing on the edge of the lake feeding ducks.” 

We all “have personal stakes in what everyone else in the world is experiencing.” We “all personally benefit when other people’s kids do well, not just because our kids marry … them,” but also because we’ll need them to work in our businesses, teach our grandchildren, and be able to do our heart surgery. We “all personally benefit” from a better environment so we can “breathe and drink water.” It’s good, too, “when people in other countries are successful” so we can “travel and eat stuff.” There’s much more, but you get the idea. 

That’s how “community-centered fundraising” enters the picture. It’s important to explain to donors and funders “… how the well-being of people who look completely different from them, or who are geographically far away, or who speak other languages, affects … their… own well-being.”

   Enlightened Self-Interest in Philanthropy

The main – though not only – point of Vu Le’s current article as well as his earlier linked posts is that placing every big-fish prospective donor on a throne and appealing to that person’s narrow interests and “othering” inclinations may seem to be in the short-term interest of a nonprofit and its dependent ducks. But it’s unsustainable in the long run in our interdependent society and will not solve society’s most intractable problems. Nonprofit organizations should dare to see the bigger picture and take the long view. 

And the people in philanthropy should “reexamine their motives and adopt a new perspective. “Selfishness,” according to Mr. Le, “is not all that bad.” The thinking should be: “I am totally doing this work for me… I want my kids to grow up in a safe neighborhood. I want to be able to walk down the street and see art and hear music. I want trees and pandas to exist in the world so I can visit them—trees and pandas are awesome. I want the world to be safe and diverse and vibrant because I personally am planning to grow old in it and enjoy the hell out of it…” 

   Conclusion

This type of “enlightened self-interest within the collective good is what will allow us to build our ideal world – not the patronizing notion of selflessness, pity for the ‘others,’ and old-school charity.” 

 

Struggling to Measure Charitable Impact

Nonprofit Impact

For nonprofit leaders today, it’s no longer good enough to have programs and activities that are popular and apparently well-received or to have services that beneficiaries often use. 

Recently, more and more funders are insisting that grant recipients demonstrate “impacts” of the funding they provide. That’s according to a recent “benchmarking survey,” Nonprofit Standards (June 2019), from BDO’s Institute for Nonprofit Excellence. It asks board chairs and chief executives about “key issues and trends” so they have the “data needed to make good decisions.”  A particular finding of note is that, especially in the health and human services sector, “more and more funders want more information” – specifically – on “outcomes and impacts.” (emph. added)

According to Jacob Harold, now executive vice president of Candid, the organization formed after the merger of GuideStar and the Foundation Center, “there are three important pieces of information that a donor looks for: the organization’s impact, the legitimacy of the organization and the organization’s finances.”

Michael Thatcher, CEO of Charity Navigator, explains that – previously – the discussion in the nonprofit sector has been about “… where the money is going.” The focus is changing; “now it’s more of what the money is doing.”

  What is “Impact”?  

The bottom line is to “figure out ways to make sure that” money given to nonprofits – and to social enterprises – “will have an impact.” But what, exactly, does that mean? What information and data are required to determine impact? And how do nonprofits go about collecting the relevant data, evaluating and measuring it, and presenting it to the satisfaction of grantors and donors?  

In Measuring and Improving Social Impacts: A Guide for Nonprofits, Companies, and Impact Investors (2014) authors Marc J. Epstein and Kristi Yuthas describe with simple examples [at Table 2, p. 4] the difference between “goals based on outputs (outcomes)” vs. “goals based on impacts.” 

For instance, Organization A says that it wants “to deliver meals to 10,000 homeless people.” That’s an “output goal.” When it says it wants “to reduce hunger by 5%,” that’s an “impact goal.”  Or Organization B says it wants to “provide 1 million insecticide-soaked bed nets.” That’s an “output goal.” But the “impact goal” is better explained as wanting “to reduce malaria by 5,000 cases.” Similarly, for Organization C, the output is teaching “reading to 500 primary school students”; the impact is increasing “literacy in the village by 10%.”

“One common problem,” the authors explain, “is defining success in terms of what the organization produces rather than the impacts that result.” They acknowledge that “the distinctions here can be subtle, but it is essential that we focus on impacts for the following reasons: actions don’t always have the anticipated results, instincts aren’t always correct, and without understanding impacts it is difficult to improve them.”

“…Social impact metrics are a “defined system or standard of measurement to track the progress of change by your organization. Impact-oriented organizations use either standard metrics or custom metrics to track change.”

  Challenges in Measuring Impact

You may be relieved to learn that “nonprofits have consistently been challenged with measuring their impact,” said NetHope CEO Lauren Woodman. “As these organizations work to expand their mission by acquiring more donors and increasing gift size, there’s never been a more important time to provide visibility into the results.” And just 18% of senior nonprofit executives reported in this most recent BDO benchmarking survey that they “offer their donors and funders access to real-time reports” instead of annual reports (65 percent), emails (54 percent) and one-on-one meetings (39 percent).”

  Conclusion

In Measuring for Impact: It’s Not a ‘One-Size-Fits-All’, Nhu Te, editor-in-chief for Nonprofit PRO, explains in more detail how that the nonprofit sector “has been struggling with figuring out the right way to articulate impact and across all of the different areas of the sector.” Part of the challenge is developing useful “taxonomy or language for measuring” it, given the breadth and scope of nonprofit organizations. But she emphasizes that while “quantifying impact is not easy,” that doesn’t mean that philanthropy experts and leaders shouldn’t try.

More Thoughts from Philanthropy Thinkers

In June, we posted Philanthropy Thought Leaders: Hot Topics to highlight just a few examples of the useful and provocative commentary popping up regularly from expert observers and leaders of our sector. 

Continuing on this month – and it may turn into a regular series – we present introductory tidbits and links to a few more worthwhile articles with a “philosophical ‘big-ideas’ tone.”    

One of the recent books having a significant impact in the philanthropy community is Decolonizing Wealth by Edgar Villanueva, an internationally recognized expert on social-justice philanthropy. He has long consulted with nonprofits around the world about “advancing racial equity inside of their institutions and through their investment strategies.” He is currently Vice President of Programs and Advocacy at the Schott Foundation for Public Education. 

A prominent blurb on the website for this bestseller aptly summarizes Mr. Villanueva’s viewpoint: “We have to be honest about the sources of wealth and how wealth was accumulated in this country—a great part of it was on the backs of people of color, and now those communities are benefiting from just a very small percentage of dollars….” The end of this quote is his call to action: “Once you know, how can you not be equitable about how you’re distributing the money?”

Certain criticism of Decolonizing Wealth focuses on challenges to one extent or another of Villanueva’s underlying premise about the sources and distribution of wealth. Michael Seltzer, though, is a fan. He notes that Villanueva is an admirer of Frantz Fanon, author of The Wretched of the Earth (1961), who describes the “necessary conditions for the overthrow of colonialism”; that is, a “whole social structure being changed from the bottom up.”

Mr. Seltzer describes Decolonizing Wealth as “… perhaps the most refreshing and insightful of the recent spate of books on foundations” because of Villanueva’s “… spotlight on how colonialism has been perpetuated and the importance of eliminating its persistence in today’s wealth and philanthropic circles in particular.”  He also lauds the author’s “eye-opening prescription of how foundations can dismantle the power divide that has historically separated funders from those nonprofit organizations that seek their support.” 

Villanueva “differentiates himself from many of philanthropy’s contemporary critics” by “focusing our attention specifically on the grantor decision-making process.” Villanueva’s current work at the Schott Foundation for Public Education involves overseeing grant investments in the U.S. for education justice campaigns; he also has the insight of being a member of the Lumbee tribe, “the very first people on the North American continent to experience directly the arrival and invasion of Europeans.” 

An important aspect of Decolonizing Wealth is that in conjunction with Edgar Villanueva’s “calls for foundations to give up or share control in decision-making with the people most affected…,” he highlights certain foundations that have taken “modest” steps in that direction, discussing, among others, San Diego’s Jacobs Family Foundation and Philadelphia’s Bread and Roses Community Fund, formerly known as The People’s Fund.     

Mr. Piereson and Ms. Riley, it’s fair to say, observe the issues of the day facing philanthropy from a decidedly different perspective and ideology than Edgar Villanueva or his reviewer, Michael Seltzer. 

They discuss what they believe is a misguided and flawed public debate about so-called “tainted money”; that is, when – or if ever – a nonprofit institution should refuse it from uber-wealthy donors or return contributions already made. Referring to certain of the “latest ‘woke’ assaults” making headlines recently, they point to decisions by the Metropolitan Museum of Art, the Tate Modern, the American Museum of Natural History, and the Guggenheim to reject (or return) money from Sackler family members who have been tied in one way or another to Purdue Pharma, of opioid crisis notoriety. 

Another example Mr. Piereson and Ms. Riley include in the “‘woke’ assaults” category are is the clamor for the Whitney Museum of American Art to eject one of its vice chairmen who is CEO of a company “which activists claim has been used against migrants at the border.” Similarly, they point to controversy about “…the Koch family” which “has been the subject of such protests for years  because, the activists claim, their businesses contribute to greenhouse-gas emissions and global warming.”  

The authors take issue with the premise underlying this current debate over “tainted” donations partly because, they write: “Making money in a way that ‘imposed harm on other people’ is a subjective and broad category.” More particularly, they argue, “such a mix of benefits and losses often comes with the accumulation of wealth. Many products that have created personal or family fortunes have brought great benefits to society along with some collateral damage.”

They also discuss a current idea proposed by certain commentators including Robert Reich, Stanford professor and author of Just Giving: Why Philanthropy Is Failing Democracy and How It Can Do Better. He argues that “nonprofits can be complicit in reputation-laundering of their donors. If the donor made money in a way that was illegal, or imposed harm on other people, philanthropic use of the money does not balance the ledger.” 

The authors’ response: “Donors don’t donate to charities to cleanse their reputations …. This is a crude fairy tale.” The uber-rich are like everyone else: they “give their money away primarily to help others or contribute to some public good.” They disagree with “the critics’ view” that “business and wealth are inherently bad and charities exist to balance the moral scales. In fact, our great charitable institutions are creatures of the business system and the wealth it generates and continues to create.” 

Charity leaders, Mr. Piereson and Ms. Riley assert, “should generally reject activists’ calls to ban specific donors on debatably moral grounds” because they will end up “soon banning everyone,” and lose their own jobs as well as depriving the nation “without financial support” for our “most cherished institutions.” 

Conclusion

We’ve covered these issues and the debate over “tainted money” in many earlier posts over the years. This topic shows no signs of disappearing any time soon. 



Giving USA Report Has Troubling News

On June 18, 2019, the Giving USA Foundation issued Giving USA 2019: The Annual Report on Philanthropy for the Year 2018, its once-a-year publication that is the “longest-running and most comprehensive report of its kind in America.” 

In 2017, charitable giving was at a record rate. But in the landmark Tax Cuts and Jobs Act of 2017 (TCJA), effective January 1, 2018, Congress hurriedly jammed through dramatic changes in the available tax incentives for charitable giving. Most notably, the doubling of the standard deduction category was set to swallow up more than half of the taxpayers formerly eligible to itemize deductions including the Section 170 (charitable) deduction. Throughout the philanthropy sector, there was concern that contributions to 501(c)(3) organizations would drop off – perhaps significantly. 

The Giving USA 2019 report substituted hard data for the anecdotal evaluation during 2018 of apparent amounts and patterns of charitable giving. To some degree, the results were more positive than expected but there are troubling trends as well. 

The Giving USA Results

The Giving USA Foundation is a public service initiative of The Giving Institute. Its  Annual Report on Philanthropy is produced by the Indiana University Lilly Family School of Philanthropy

The good news is that “charitable giving set another overall record in current dollars for 2018 – up to $427.71 billion, according to preliminary estimates in the Report. That is 0.7 percent higher than the revised $424.74 billion figure for 2017. Taking inflation into account, though, means that there was a drop of 1.7 percent from the 2017 figures. 

More ominous is that “giving was uneven throughout the sector under new federal tax laws.” For the first time since 2013, donations by individuals were down 1.1 percent, or 3.4 percent when adjusted for inflation.”  And for the first time in decades – since 1954 – individual giving dropped below 70 percent of total charitable giving. For 2018, the figure was just 68 percent. 

While “giving by foundations and corporations reached record levels,” that figure is only about a third of the total amount of giving by individuals. “Bequest giving was essentially flat” but taking into account inflation it “declined by 2.3 percent.” Across the sector, “giving was uneven, with most areas being flat or down in 2018, unable to keep pace with inflation.” The only bright spots were the “international affairs” followed by “environment and animal” categories. This uptick may be due to increased focus and interest by younger donors. But researchers have concerns in the long run about the giving patterns of the (now) millennials, who are experiencing significant financial challenges in this economy.  Historically, donors have given more as they age, but that may not be true down the line. 

Another notable finding of the Giving USA report is that “overall giving to religious congregations .. and to educational causes including higher education” were the top categories in 2018 – but there was a decline even for them from the figures for 2017.  

  Mixed Giving Picture 

According to the Giving USA researchers, there was a “mixed picture for giving in 2018.” They expect to be “analyzing data for the next few years to better understand how broad giving patterns may have changed.” 

Put another way by consultant Elizabeth Wilson of American Philanthropic, the “survey tactfully describes 2018 as having been ‘a complex climate for charitable giving,’ due to fluctuations in the stock market, the new standard deduction ushered in by the Tax Cuts and Jobs Act, and a host of other factors.” The results may fairly reflect the “hastening” of an existing “trend: …an increase in the amount of individual giving, simultaneous with a decrease in the number of individual givers. Put another way, there are more dollars but fewer donors.

This may account for the “sharp rise in foundation giving” according to Ms. Wilson, and indicate “increased income inequality along with the emergence of a new ‘philanthropic class’ consisting of wealthy individuals relying on foundation structures as more expedient giving vehicles.” Indeed, a number of commentators have expressed concern about the dramatic growth of donor-advised funds that continued to accelerate in 2018. 

Giving Data For First Quarter 2019

According to results of monitoring by the Fundraising Effectiveness Project of the Association of Fundraising Professionals (AFP) “almost every metric… has decreased” in the January – March quarter of 2019.  “We’re seeing the exact same situation that we experienced in the first quarter of 2018….”  FEP’s 2019 First Quarter Report revealed that the “total number of donors decreased by 5.7 percent in the first quarter of 2019 compared to the first quarter of 2018, while overall revenue dropped 2.2 percent.” Retention rate was down, but “…perhaps the most troubling figure is the number of new donors, which dropped precipitously by 10.5 for the quarter.” 

According to Ben Miller, chief analytic officer at DonorTrends, while total giving went up in 2018, the rate of growth in giving “decreased dramatically, and it masked a number of concerns, and those weaknesses are showing up again in the first quarter of 2019.” And AFP’s head, CPA Mike Geiger, notes that projecting results out for the rest of the year is difficult, but the growth of giving may continue to fall in 2019, “perhaps to the point where overall annual giving actually decreases.” 

Conclusion

Elizabeth Wilson calls these results a “troubling shift that may suggest a weakening in civil society, as well as some discomforting trends in the American economy: financial stagnation among the lower and middle socioeconomic classes exacerbating the fragmentation of, and disengagement from, communities.”


Top-Heavy Philanthropy Creates Risks for Democracy

An important report released in November 2018 by the Washington-D.C.-based Institute for Policy Studies raises the alarm about a troubling trend in philanthropy and charitable giving in the United States.

Traditionally, American charities have been broadly supported by “low-dollar and mid-level donors.” In recent years, though – and particularly as the nation emerged from the 2008 economic crisis – there has been a marked change. Now, the “charitable sector in the United States is increasingly top-heavy”; more and more “philanthropic power” is wielded by a “handful of very wealthy individuals and foundations.”

The report, “Gilded Giving 2018: Top-Heavy Philanthropy and Its Risks to the Independent Sector” is an update to a 2016 report which had “pointed out this trend.” More current data “shows that the trend is not only continuing, but accelerating.

Problematic Philanthropy Trend

While “there’s nothing wrong with wealthy people giving bigger gifts,” there are significant near- and long-term risks to the overall integrity of the nonprofit independent sector if this anti-democratic shift continues without some needed reform and safeguards.

“The problem is the rules regulating our charitable sector have become skewed toward prioritizing tax write-offs for the ultra-wealthy and not toward solving social problems.” And a “tiny group of mega-philanthropists – techies – … have set up funds with huge amounts directed to their favorite causes.” Making the problem worse is that more and more money is “directed into wealth-warehousing vehicles such as private foundations and donor-advised funds and away from direct nonprofits serving immediate needs.”

The Gilded Giving 2018 report authors pose this question: “What are the risks to the autonomy of the independent sector – not to mention our democracy – when a growing amount of philanthropic power is held in fewer hands?

They identify “implications” of this trend away from broad-based popular support of charities for: (1) charity fundraising; (2) the role of the independent sector; and (3) the health of American democracy.

One of the significant risks to U.S. charitable organizations is the issue of “volatility and unpredictability in funding” as reliable sources of revenue shift. This change makes budgeting and income forecasting more difficult. A related problem is that nonprofits must undertake the cultivation of mega-donors and compete for those significant dollars. A third issue of concern is that the organizations may need to dilute their own mission and vision to bend to the funding biases of the new crop of uber-wealthy donors.

There is risk as well for the public including – most notably – an “increasingly unaccountable and undemocratic public sector” as well as  “use of philanthropy” as an “extension of power and privilege.” In addition, there are significant problems and objections to the “warehousing of wealth” particularly in “the face of urgent needs.” When mega-donors choose avenues of charitable giving – donor-advised funds, for instance –  that do not include sufficient requirements to pay out the money in the short-term, these wealthy individuals are gaining valuable immediate tax benefits but charitable organizations are not given the immediate cash they need to alleviate poverty, further medical research, advance the arts, or pursue whatever charitable mission they have been created to accomplish.  

Proposed Philanthropy Reforms

The Gilded Giving 2018 authors conclude that “urgent reform of the philanthropic sector” is needed to combat the problems identified in the report.

In connection with the use of private foundations, they recommend that: (1) the annual payout requirement be raised; (2) foundation overhead be excluded from any calculation of “payout percentage”; and (3) the foundation excise taxes be linked to the payout distribution amount.

As to donor-advised funds, the authors suggest a three-year payout requirement as well as a ban of gifts from private foundations to DAFs and vice versa.

More generally, they endorse a policy change from the current rules to a universal charitable deduction. This may stimulate giving by the growing percentage of taxpayers that no longer itemize deductions. In addition, to curb some of the exploitation of the tax code by uber-wealthy individuals, the authors recommend a lifetime cap on charitable deductions.

The authors caution, though, that these reforms must be accompanied as well by any and all possible efforts to combat wealth inequality in our society.

Conclusion

A key downside to the trend toward mega donations is that “the rules regulating our charitable sector have become skewed toward prioritizing tax write-offs for the ultra-wealthy and not toward solving social problems.” While that’s a good deal for the top 1%, it’s a bad deal for the Treasury, the taxpayers, and charitable organizations and beneficiaries.   

Dark Money in Nonprofits Gets Darker

In the third week of July 2018, the U.S. House of Representatives approved an appropriations bill that – if passed by the Senate – would effectively repeal the Johnson Amendment for political activity by churches. Many in the philanthropy community oppose this move as do many religious organizations. The fear is that it could open the door to an enormous amount of political “dark money” flowing in and through houses of worship without any accountability at all.

A week before, there was another move that may well open the door to political “dark money” into tax-exempt organizations other than 501(c)(3)s. The main concern is about the many 501(c)(4), “social welfare,” organizations that are permitted routinely engage in a good deal of advocacy and lobbying activities.

This other change was accomplished with the stroke of an administrative pen, changing a Treasury Regulation that has been around for almost 50 years. Specifically, beginning for taxable years on or after December 31, 2018, these non-501(c)(3), tax-exempt, organizations no longer have to disclose their donors on their Form 990s.  Critics were taken by surprise and are howling over this development.

Regulation Change: More Dark Money?

This change was announced in a sunny, feel-good, press release dated July 16, 2018: “Treasury Department and IRS Announce Significant Reform to Protect Personal Donor Information to Certain Tax-Exempt Organizations” with accompanying published “guidance” in the form of Revenue Procedure 2018-38.

According to this press release, “[t]he IRS’s new policy will relieve thousands of organizations of an unnecessary regulatory burden, while better protecting sensitive taxpayer information and ensuring appropriate transparency.”
The key elements of this change are:

  • Tax-exempt organizations other than 501(c)(3)s are “no longer required to report the names and addresses of their contributors on the Schedule B of their Forms 990 or 990-EZ.”
  • These groups “must continue to collect and keep this information in their records and make it available to the IRS upon request, when needed for tax administration.”
  • “Form 990 and Schedule B information that was previously open to public inspection and will continue to be reported and open to public inspection.”

Perhaps in an effort to persuade the public that this is no big deal, the Treasury mentions the relevant history.  In a nutshell, “Congress required the IRS to collect 501(c)(3) information in the 1960s, but in 1971 the Nixon Administration extended the reporting requirement to other nonprofits.” That is, the requirement that 501(c)(3) disclose donors to the IRS was enacted by a statute passed by Congress, but the extension of this requirement to 501(c)(4) and other tax-exempt organizations was done by regulation only.  A regulation can be set by the executive branch without Congressional action and can be changed in the same way. That’s what happened here.

The press release also explains the Treasury’s view of three benefits to this change.

“First, the IRS makes no systematic use of Schedule B with respect to these [non-501(c)(3)s] organizations in administering the tax code.”  It may once have had a need for the information, but it’s no longer needed, and “if the information is needed for purposes of an examination, the IRS will be able to ask the organization for it directly.”

“Second, the new policy will better protect taxpayers by reducing the risk of inadvertent disclosure or misuse of confidential information – an especially important safeguard for organizations engaged in free speech and free association protected by the First Amendment.”  “Unfortunately,” according to this Treasury Department statement, the IRS has “accidentally” spilled some confidential donor information before.

What’s added next is a highly partisan and discredited so-called “fact”: “In addition, conservative groups were disproportionately impacted by improper screening in the previous Administration…” in connection with the “political targeting scandal….”  (In a separate post, we’ll address the now-discredited notion that there was any such anti-conservative political targeting activity.)

“Third, the new policy will save both private and government resources.”

Not Everyone’s On Board

The Nonprofit Quarterly has some thoughts on the matter. While this change affects more than 300,000 non-501(c)(3) organizations, “… it’s an open secret that the intent is to aid in concealing the donors to 501c4 social welfare groups often involved in significant political activity, sometimes referred to as “dark money” groups. In addition to further shrouding the identities of donors from the IRS, the rule change also makes it more difficult for states seeking to regulate political expenditures on elections held within their borders.

This move also creates problems for state regulators who already have a difficult time identifying “the sources and extent of dark money in state-level political campaigns.”

One governor – Steve Bullock (D-MT) – is so fired up about this, he announced in a tweet that he’s going to court over this policy change: “Hey there, quick update: I’m suing the IRS over dark money.” Gov. Bullock has “filed suit in a Montana federal district court seeking to prevent the relaxation of rules for certain types of nonprofits, including 501c4s, to disclose identifying information on their donors. This, of course, renders dark money even darker.”

Gov. Bullock’s lawsuit “…seeks to have the new rules nullified” alleging they “unlawfully interfere with Montana’s ability to gather the data it needs to manage its tax laws. The suit also claims the Trump administration did not follow the Administrative Procedure Act, which requires agencies like the Treasury Department to provide opportunities for public comment before changing policies.”

Professor Roger Colinvaux of Catholic University of America unleashes a multi-faceted attack on this recent change in How the IRS’s Stance on Donor Disclosure Corrupts the Nonprofit World. “The Internal Revenue Service,” he explains, “made clear last week just how broken federal oversight of nonprofits has become….The IRS has decided it does not need to know the funding sources of advocacy groups … that have charitable arms but raise a big share of their money through related tax-exempt organizations classified under Section 501(c)(4)….”

He asserts that this change “was in response to intense congressional and outside pressure and so should come as no surprise. And on the surface, the tax agency’s action may seem like a benefit for nonprofits because it further promotes donor privacy.”

In a lengthy critique, Prof. Colinvaux explains why this “lack of disclosure will facilitate the further degradation of the nonprofit world to the benefit of foreign nationals, wealthy influence peddlers, and the outright corrupt.”

Conclusion

In addition to Montana Governor Bullock’s lawsuit challenging this policy change, Treasury is likely to face an onslaught of criticism and opposition in the months ahead.

Donor Secrecy at Public Universities

George Mason University (GMU) is a “young university that, in just a short time” [since 1972] “has made impressive strides in size, stature and influence.” Now, “Virginia’s largest public research university” serves some 34,000 students; its main, “beautiful wooded” campus is in Fairfax, Virginia, only 15 miles from the nation’s capital.

But in late April 2018, a simmering controversy erupted. It shattered the calm of this bucolic setting and “rankled the academic world.” It did not “come as a surprise,” though. “Many scholars saw this as just the latest revelation of strings-attached giving with an ideological slant – another encroachment on the sacrosanct idea that teaching and research at universities, especially public ones like George Mason, must be immune from outside influence.”

  The Donor Issue

It has been more or less an open secret for years that the conservative billionaire industrialist Charles Koch has been funneling huge donations to many educational institutions around the United States – including George Mason University.

According to a 2014 news article, “[a]ctivists and journalists have long monitored” the higher education donations by Charles Koch because of the scope and breadth, which totaled about $150 million between 2005 and 2015….” A group called UnKoch My Campus has revealed ties between Koch and the University of Kansas, Florida State University, and other institutions, noting it’s “not unusual for schools to resist disclosing the terms of Koch grants” where they “offered a lot of control to Charles Koch, in exchange for a few million dollars.”

Of course, the scope of this largesse goes well beyond Charles Koch alone; it includes his brother, David, and other billionaires – of both political ideologies.

A common feature of the GMU situation – as well as other ideologically fueled donations under scrutiny in recent years – is that the money is funneled to a public university through an affiliated foundation – set up as an independent 501(c)(3) entity, but often with (too) close ties to the university. The foundation then becomes a useful vehicle to shield these transactions from public scrutiny.

    The GMU Donor Controversy Explodes

Students, faculty, and others in the GMU community have been concerned for years by the enormous flow of money coming in from Charles Koch and affiliated sources; for instance, since 2005, there has been an estimated $50 million donated. Just a few years ago, the Koch Foundation gave $10 million (along with another $20 million from an anonymous donor) to rename the George Mason’s law school in honor of the late Supreme Court Justice Antonin Scalia.
A group called Transparent GMU had been seeking records about these donations for about a year. Announcement in March 2018 of a new, $5 million, gift to the economics department to create three faculty positions hardened their resolve.

The matter came to a head at a court hearing in late April 2018 in a lawsuit brought by Transparent GMU against the George Mason University Foundation after the community group’s request for records was denied. The litigation was brought under Virginia’s Freedom of Information Act on the grounds that since the “foundation conducts business on behalf of” the public university, it “should be considered an arm” of the university.

The Foundation’s position has been that it is not subject to the records request because it operates independently: “The foundation is a private nonprofit entity that is not exercising any type of delegated government power or function….And if it isn’t, that means it’s not subject to the Freedom of Information Act.” A spokesman added an additional argument: “philanthropists have the right to request anonymity when they make donations.

The judge did not make a ruling at the hearing; nevertheless, events moved swiftly in the week or so following it.

University President Angel Cabrera reiterated his long-standing position: “I feel compelled to once again affirm that all gifts accepted by the university, including this one, are strictly compliant with our principles of academic independence,”

   The Donor Truth Spills Out

Within days, some of the documents sought were released or leaked, and President Cabrera had to walk back from this position. He acknowledged that “some financial gift agreements accepted by the school ‘fall short of the standards of academic independence’ and raise questions about donor influence at the public institution.”

What the documents revealed was, in many respects, as bad or worse than critics had feared: “…as George Mason grew from a little-known commuter school to a major public university and a center of libertarian scholarship, millions of dollars in donations from conservative-leading donors like the Charles Koch Foundation had come with strings attached.”

From about 1990 through at least 2009, “entities controlled by the [Koch brothers]” had extraordinary access and control over faculty appointments, particularly in the economics department and at the Mercatus Center, a “Koch-funded think tank on campus that studies markets and regulations.” Selected professors “embraced unconstrained free markets.”

According to GMU associate professor Bethany Letiecq, a leader in the Transparent GMU group, the “documents demonstrated that the school had ‘ceded our authority and autonomy to one of the wealthiest industrialists in the world.”

Following these revelations, the University president acknowledged that “some gift agreements… raised questions concerning donor influence in academic matters.” They “fall short of the standards of academic independence” he expects “any gift to meet.” He ordered an investigation and a review of the gift acceptance policy.

   Conclusion

This story has implications far beyond the specifics of George Mason University and strings-attached gifts from billionaires. “Foundations that raise, spend and invest private support for public universities have become staples of higher education in the last 40 years. They often refuse freedom of information requests, claiming that transparency laws governing their affiliated schools do not apply to independently operated 501(c)(3) nonprofits.”

But they have been described, properly, as “public bodies cloaked in a thin private veneer.” The Government Accounting Standards Board, an independent private-sector organization that sets accounting and financial reporting standards, considers the foundations to be “component units” of public universities” because they “fundraise for specific schools,” and those schools count on that money.

A few states, like California, Colorado, and Nevada require “at least some financial transparency from university foundations.” Others, like Illinois, Iowa, Kentucky, and Ohio have found them to be public bodies or at least to be doing public work.” Otherwise, these foundations are presumed private.

Thanks, but No Thanks (For the Donation)

Long gone are the days when a nonprofit couldn’t imagine turning down a donation – particularly a large one. In recent years, though, more and more organizations are rejecting contributions for a wide variety of legitimate reasons.

Two of the most frequently cited rationales for rejecting a charitable gift are: (1) too many restrictions on how the money is to be spent; and (2) ethical issues about how the donor gained the wealth from which the donation will be made. We’ve previously covered instances of each. Here are two more – current – examples.

  Small Library Turns Away $3 Million Donation

A decision to accept or reject a charitable gift is best evaluated within the context of each situation. A contribution of – say – $X million would be considered routine and fairly inconsequential if made to a large organization with a huge budget and a deep and loyal donor base. But if the same $X million donation was proposed to a much smaller group, it would be reviewed and considered as a possibly “course-changing offer.” The decision to accept or reject the contribution is much more difficult in the latter case.

Recently, the board of the Barry-Lawrence Library system in Missouri was faced with such a critical decision. They gratefully acknowledged and carefully considered a $3-million donation offer but – in the end – politely turned it down. These directors did everything right, including having a gift acceptance policy already in place that helped guide a difficult decision.

The Library system has needed a new location for its branch in Monett, Missouri. Any new facility must serve not only as the Monett area’s library but also have space for the system’s regional offices to conduct their business. The current building has leaks – the repairs for which would cost less than $4,000 – but the space is not big enough for these multiple purposes and is badly designed.

Last December, when bad weather compounded the leak problem, the Library system board learned of an offer by an anonymous donor interested in helping to build a new facility. This sounded like a perfect solution because the organization already had available a donated location – although not in downtown Monett – where it could build a new structure. They just needed the money.

Through an intermediary, the Community Foundation of the Ozarks, the Library system board asked for $2.5 million. The donor, however, wanted a downtown Monett location. The only available building there was a site needing complete renovation for the purpose.

This board faced a wrenching choice, but they (prudently) had an existing gift acceptance policy which wisely anticipated this kind of dilemma.  The Library system’s policy is to not accept gifts which are restricted. The Library director, Gina Milburn, explains the nuances: They don’t accept donations when “… someone says, ‘I’ll give you money, but you have to renovate this specific building [with it]’.”

We do let people say, ‘We want [you] to spend our donation on this and that, but we don’t let them pick out the items we purchase. For instance, late Sen. Emory Melton gave $25,000 for a specific purpose […use it for children and teens…] but he didn’t say, ‘You have to use it on books and furniture.’

Notwithstanding this gift acceptance policy, and recognizing that the anonymous donor had made an important and generous offer, they “continued to explore and negotiate.” But when they toured the downtown site, they saw two additional obstacles: It was in the floodplain and flood insurance costs would have been prohibitively expensive, and there was insufficient parking space. This site visit confirmed that they had no choice but to decline the gift.

“Some large gifts are philanthropic versions of Trojan horses, and the wise nonprofit measures this possibility carefully.” That’s the lesson to be learned from this story. “Ultimately, the board made the decision to value its own assessment of the situation over the temptation of a large, restricted, gift.”

   “Tainted” Contributions

Anyone unaware of the prescription-opioid crisis devastating communities around the United States must be living under a rock.

The Sackler Family – specifically descendants of Mortimer and Raymond Sackler – have become billionaires from the sale of the drug OxyContin from the family-owned Purdue Pharma company. An important aspect of this story is that the medication has been notoriously over-prescribed by physicians nationwide as a result of a relentless marketing campaign and questionable promotional practices from the drugmaker.

For two decades, foundations formed and run by Mortimer and Raymond and their families have become “major philanthropists in the arts,” donating “enormous amounts of money” to many institutions, including New York’s Metropolitan Museum of Art and the Guggenheim, as well as London’s Victoria and Albert Museum.  

Earlier this year, activists – including some who became addicted to OxyContin after medical procedures – began a protest movement demanding not only that the Sackler family fund treatment for victims but also that major nonprofits refuse to accept any more money from their charitable foundations. In mid-March, demonstrators  unfurled banners and scattered pill bottles…inside the Sackler Wing at the Metropolitan Museum of Art in New York.”  

The Met was chosen as the protest site because of its high profile in the art world and “because [the protestors] see it as symbolic of the fact that Sackler family members are often viewed primarily as art patrons rather than as owners of a pharmaceutical company.” The Sackler wing at the Met is “named after Arthur, Mortimer, and Raymond Sackler, brothers who in the 1970s donated $3.5 million toward its construction.” Of course, that gift was made well ahead of the time that the family was involved in pharmaceuticals and the manufacturer and distribution of Oxycontin.

In the current climate of rising political activism, it’s no surprise that protests are springing up against the use of this “tainted money” to enhance the family “brand” through their philanthropic activities.  A key question for nonprofits is whether they should allow themselves to be complicit, so to speak, in rehabilitating those who became rich through “acts that violate the public good.”

Or as the New York Times’s Ginia Bellafante observes in When Should Cultural Institutions Say No to Tainted Funding?: “Having facilitated one of the biggest public health crises in modern American history, [the Sacklers] need a new profile. The art world should not help them achieve it.”

   Conclusion

In earlier posts, we’ve discussed a variety of instances including “tainted” donors or donations as well as when it’s prudent to decline a contribution. See, for instance:

 

Harassment of Fundraisers: A New Report

What was only whispered about last year at this time is now out in the open and finally receiving the attention it deserves: sexual harassment and assault in the nonprofit sector and – particularly – the plight of vulnerable fundraisers at the hands of powerful donors and board members.

    Fundraisers’ Vulnerability

For many groups, the fundraising or development professional is vital to the organization’s success, but that person’s activities take him or her beyond the usual employer-employee interaction and often include out-of-office meetings with established or prospective donors.

At its core, sexual harassment is, according to fundraiser Beth Ann Locke, who has written previously on the topic,  “(a)n insidious use of power and/or privilege over those with less…;  the need for donations outstrips the need for protection from sexual harassment.” Well-known nonprofit commentator, Vu Le, agrees that “power dynamics” are a key to the “perpetuation of sexual harassment” in the fundraising context.

  Harassment of Fundraisers is Widespread

In 2017, as revelations of workplace sexual harassment became major media stories, plans were made for a sector-wide study of the problem for fundraisers in the nonprofit sector.

On April 5, 2018, the Chronicle of Philanthropy and the Association of Fundraising Professionals (AFP) released a first-of-its kind study and survey of sexual harassment of fundraisers.  Respondents are 1,040 current members of AFP (90% from the U.S. and 10% from Canada) who are either in-house fundraisers or consultants to nonprofits. The survey was compiled from an online poll conducted in February 2018 by the well-known Harris Poll organization.

The full report titled “Professional Harassment Survey” is here; an article in the Chronicle of Philanthropy on April 5, 2018, by Timothy Sandoval reports on the findings and conclusions. The results are dramatic but not necessarily surprising to fundraising professionals who – over many years – have silently suffered from this kind of abuse. Some observers believe that the survey would have revealed worse statistics if people who had left the field of fundraising on account of this rampant abuse had been included.

A quarter of female fundraisers have been sexually harassed; only 7% of male fundraisers say they have been victims. The harassers are 96% male. Of the respondents who reported on-the-job sexual harassment, two-thirds said that donors were the culprits; the rest answered that colleagues, “mostly those in senior positions,” were responsible. Thirty-five percent also reported that “board members — who often make big gifts to organizations — have been at fault in at least one instance.”

Fundraisers who responded they have been harassed described the type of conduct involved: 80% were subjected to “inappropriate comments of a sexual nature”; 55% “experienced unwanted touching or physical contact”; 36% “encountered unwelcome sexual advances”; 29% “faced verbal abuse of a sexual nature” and 26% “received requests for sexual favors.”

When these same respondents were asked about what, if any, action they took, 43% said they reported the conduct to their organizations, but 27% took no action at all. “Others took smaller steps, like distancing themselves from offenders.” Over a quarter of the entire group of responding fundraisers “said they’d heard about or witnessed sexual harassment but took no action.”

Of those fundraisers who made reports, “(s)lightly more than half … were either somewhat dissatisfied or extremely dissatisfied with how the organization handled their allegations.”

   What Happens Now?: Solutions

In his article accompanying the release of this landmark survey, Timothy Sandoval reiterates the point made by other observers that any solution to this problem must “focus on power dynamics” especially “(b)ecause women are the main targets of sexual misconduct.” Although “70 percent of fundraisers are women,… chief-executive and board jobs, especially at elite nonprofits, are often held by men.”  And, of course, most donors are older men.

Big donors have a lot of influence over nonprofits, especially because many fundraisers are rated on their ability to pull in large donations. Adding to the challenge: Meetings with donors often occur in intimate settings, like in homes, at bars, or in restaurants — increasing the odds that harassment will take place, experts say.

We cannot address this issue,” Vu Le writes,  “without acknowledging the power imbalance in our sector, between board and staff, between donors and fundraisers, between staff and clients, etc.”

In the urgent task of developing solutions to this entrenched problem, nonprofits must unequivocally, commit to an organizational philosophy and promise to their personnel including fundraisers: “We don’t value donor dollars more than we value your personal safety and dignity.”

   Conclusion

Nonprofits must “create an environment that is safe for [their] staff, volunteers, and community members” which includes “having strong policies.” That includes anti-harassment policies in-house, employee handbooks, and board governance manuals as well as gift acceptance policies and related documents that make clear to outsiders, including donors, that there is a zero-tolerance policy on harassment.