Nonprofits rely on the generosity of their donors now more than ever before due to the challenges created by the virus. Thankfully, many contributors have stepped up to continue and even increase gifts to their favorite charities. Santa Barbara is blessed with many kind-hearted, caring and generous benefactors.
The ongoing pandemic has had a significant impact on fundraising and donor relations. Some organizations are using this challenge to become more creative in their communication with donors and getting better at telling their story to the community at large. Many are scrambling to meet their financial goals.
However, the increased need for contributions is also tempting some nonprofits to accept donations they may later regret. Increased public scrutiny of donor motives can be confusing to leaders and board members of charities.
For example, the Washington Post reported: “In recent weeks, the Solomon R. Guggenheim Museum in New York, the National Portrait Gallery in London and the Tate museums, also in London, have all announced they will no longer accept gifts from the Sackler family. Some Sackler family members are owners of Purdue Pharma, the maker of OxyContin, and have been accused of facilitating the national opioid epidemic.”
The question of ethical gift acceptance may become more and more confusing as time goes on. It is critical to recognize that there are distinct types of challenges facing nonprofits.
Experts Recommend Moderate Approach
While the art museum story may be an extreme example, I have noticed that some social media sites seem to be looking under every rock to find something to complain about. David Allyn, vice president at Graham-Pelton, a fundraising management consulting firm for nonprofits, gives us some more practical advice for avoiding these ticklish situations.
“I believe that the rush to reject funds from criticized donors is often shortsighted,” Allyn said. “Nonprofit organizations serve the public interest and should not readily cave in to pressure to return gifts from controversial sources.”
Allyn recommends a more moderate approach: “First, remember that any money given to a nonprofit ultimately is good for society as a whole. That’s why nonprofit organizations are deemed by the Internal Revenue Service to be ‘public benefit corporations.’”
Board Source, a popular resource provider for nonprofits confirms that, “The question of whether to reject funding from wealthy donors with tainted reputations is an issue that nonprofits have grappled with for generations.
“A nonprofit board must weigh competing factors when considering its decision on this issue. Some boards may choose to decline these donations because of misalignment with the mission and values of the organization and the associated ‘reputational risk’ of acceptance.
“Other boards may choose to accept the donations because in their assessment, the potential impact of the funds to serve the public good exceeds the potential damage to the organization’s reputation or the impact of declining the funds as a ‘symbolic statement’ against a donor with a questionable reputation.”
Local Nonprofits Facing Similar Challenges
Many nonprofits, like the Foodbank of Santa Barbara County, have developed policies specifying the types of donations they will accept and which kind they will decline. “A well thought out policy provides general guidance and requires flexibility to accommodate unique situations that may present themselves,” explains Carrie Wanek, CFO of the Foodbank.
Wanek says it is critical for the board to adopt a gift acceptance policy but that it must also be flexible enough to allow the board to address a wide variety of non-traditional contributions. “We have welcomed many new partnerships that have come our way, such as the emerging cannabis industry,” she said.
Heidi Holly, executive director of Friendship Center, which provides day care for adults with challenges such as dementia, addresses the issue of whether to accept financial donations from the cannabis industry.
“As a nonprofit organization, Friendship Center encourages and gratefully accepts tax-deductible sponsorships to support our mission and relevant activities. At a recent board meeting we discussed receiving sponsorships from controversial sources. Needless to say, this led to a lively discussion.
“One topic that came up was whether nonprofits in general should receive sponsorship dollars from the cannabis industry. Some board members have strong feelings about accepting these dollars, others not so much, due to California legalizing cannabis for both medicinal and adult recreational use.
“As these topics come up at the board level, it is essential as leaders of our organization to have a gift acceptance policy in place that the Board of Directors embraces and that the management team follows. If policies are not in place, matters could take a turn for the worse and things could definitely go up in smoke.”
I also spoke with Tina Frontado, a local philanthropic advisor and community relations professional. Frontado explains:
“The new local, legal and compliant cannabis industry is proving to be a great supporter and partner to our philanthropic community. Local schools, healthcare organizations, environmental causes and many more are finding this new source to be a most valuable and sought-after funding opportunity.”
However, Frontado cautions nonprofits that “before your development team approaches this new industry, it’s important to get a few ducks in a row. I’ve witnessed donations secured only to be returned because some board members have expressed disapproval.
“Cannabis is legal; nonetheless, there are still those who are deeply opposed. That opposition can bring conflict into your organization in the form of board members and or influential donors threatening to quit or pull future donations.
“Fleshing out those opinions first is vital to success. I advise leadership staff and the board to thoroughly discuss the ramifications of accepting cannabis donations and call for a vote.
“Many nonprofits have developed and/or amended their gift receiving policy to reflect just that, creating verbiage such as ‘only from legal and compliant sources’ or ‘these donations will be treated like all other donations.’”
Boardsource shares this valuable advice: “By adopting a gift acceptance policy, the board can clarify some of these issues and avoid some pitfalls. This policy should address various topics such as:
• Accepting only gifts that are related to the mission: If a donor proposes to fund a pet project or offers seed money for an activity that does not relate to the mission and purpose of the organization, the board must carefully assess the consequences of accepting this money. Without clear guidelines — or blinded by a generous offer — the organization may veer off course and become involved in activities that will drain resources from its bona fide programs. ‘Follow the mission’ is the strongest gift acceptance policy any board can have.
• Ensuring you can honor restricted gifts: Few contributions come with no strings attached. Individual donors often want to set conditions for their gifts. A nonprofit needs to define its limits and determine whether it is able to honor the restrictions.
Donors may demand the funds be used for a particular purpose or be dispersed within a certain time frame. The donor might also want to be recognized in a specific manner. If the demands are unacceptable, the organization can try to negotiate with the donor and make them understand the existing constraints. The organization can point out how certain restrictions may affect the donor’s tax benefits.
• Define what you would consider as questionable donors: Would an environmental nonprofit want to accept a donation from an oil company? Should a daycare center take major contributions from a celebrity with a questionable parenting reputation? Would a high school allow a liquor company to sponsor its sports event?
When the values or practices of a donor do not meet the standards of the organization, the best policy is not to accept the money. In the long run, the reputation of the organization is worth more than any check.
• Be prepared to appropriately handle planned gifts: Planned giving vehicles (bequests, charitable remainder trusts, insurance policies) are labor intensive to manage and may not be feasible for every organization. Unless an organization has dedicated staff or can hire a professional to promote and manage estate planning, it may be wise to decline traditional planned gifts.
• Clarify your position on non-traditional gifts: Gifts of stock, real estate, cars and art can require special handling. So be sure you have those processes in place before accepting this type of gift.”
Donors are needed and appreciated now more than ever.
If you are a current donor to nonprofits, please know your gifts are appreciated immensely. If you are not contributing, please consider funding some of the organizations you think enhance our community and benefit you tax wise. Consider including nonprofits in your estate planning. Most organizations have people who can help you with that.
— Dr. Cynder Sinclair is a consultant to nonprofits and founder and CEO of Nonprofit Kinect. She has been successfully leading nonprofits for 30 years and holds a doctorate in organizational management. To read her blog, click here. To read her previous articles, click here. She can be contacted at 805.689.2137 or email@example.com. The opinions expressed are her own.