by Sri Raghurama Somala, UIC senior
Yellow jacket, informational clipboard, and a heart wrenching speech: the bane of any pedestrian. Outside shopping districts or on busy streets, selfless fundraisers are practically ubiquitous. Sometimes it restores my faith in humanity that people would sacrifice their own time to fight and raise money for charities. Altruism isn’t dead after all. However, I was always baffled by the breadth of issues that these noble members of society fought for. While it ranges from breast cancer awareness to animal cruelty, but the yellow jacket, clip board and speech never change. Who are these social justice warriors?
The yellow jackets roaming the streets are employees of professional fundraisers.
Non-profit organizations outsource their fundraising to these for-profit fundraisers. There are various ways that professional fundraisers collect fees for their services, such as percentage based fees or fixed rate fees. It is not just the principle of charity at stake. Many professional fundraisers take 70-80% of the donations, leaving the charity with only 20%. One campaign for Planned Parenthood Federation of America raised 2 million dollars but they ended up losing 1.8 million dollars. In some instances, charities not only get just a sliver of the donations accrued, but they end up paying the fundraisers at a loss, like Save the Children, who netted a loss in three of their four campaigns.
So what does this mean? In the end, the money raised doesn’t fully go to the cause advertised. Lawyers like Errol Copilevitz have defended charities against government
regulations, using the first amendment. As a result, charities have no limit on how much they spend on third party fundraiser. Also the professional fundraisers the charities use have no responsibility to reveal how much of the money they pocket, unless the donors ask. The charities Copilevitz represents raised 1.2 billion dollars, and 880 million dollars was used on outside solicitors.
Copilevitz’s 1988 case Riley vs National Federation of the Blind established the precedent for the percentage based fees that exist today. After learning that professional fundraisers kept almost 50 percent of the donations collected, North Carolina amended its Charitable Solicitation Act to create a three stage test for reasonable fees. The Act prohibits charitable organizations from spending “unreasonable” amount of money for solicitations, and requires solicitors to reveal the percent of revenues that they retain.
Up to 20% of revenues were deemed as reasonable fees. Fees of 20-35% percent were
deemed unreasonable, unless the fundraisers had an effect on the interest and awareness of the charity, due to their campaign. Any fees above 35% were considered unreasonable.
Caopilevitz and his clients argued that the Act was unconstitutional. The Supreme Court ruled in their favor, arguing that the definition of “reasonable” was vague. The Court also ruled that there was no reason that the fee should not exceed the limitations set forward by the State. It saw no reason indicating that the charities could not negotiate on their own behalf, without government intervention. It is at the discretion of the charity to evaluate the value of the solicitor’s services. As for revealing the solicitor’s cut to the donors, the Court ruled that revealing these facts would be against the solicitor’s freedom of speech, since they would not say it if they didn’t have to.
This court case has a significant effect on future legislation, regarding professional
fundraising. North Carolina’s goal was to insure that the revenues from fundraising were going to the charities, not lining the pockets of the solicitors. Unfortunately they failed, but the case shined light ones who are responsible. The Court ruled that ultimately, charities were the ones responsible for the high fees. The lack of transparency of charities makes them as accountable to the issues at hand as the solicitors. Does this mean that transparency is a solution? Forcing charities and solicitors
to reveal how much of the donations are pocketed can dissuade donators from giving money to the organisation.
To solve this issue, one must first elucidate the core of the problem with corporate
fundraising. Why is it wrong to use for-profit solicitors? To me and the Association of
Fundraising Practices, this type of solicitation is unethical. The Association of Fundraising Practices or AFP is vehemently against the idea of percentage based fees, because it deviates from and defiles the nature of fundraising. They believe it to be unethical because it can change the motives behind the goal of raising money. Rather than fighting for a charitable cause, it can become about personal gain, as is evident from the examples shown above. The AFP has attempted to have Congress ban the percentage based fees employed by many professional fundraisers. On July 22, 2004, the AFP along with the IRS, FTC and other charity governing agencies convened a roundtable to discuss the regulations on charities, including percentage based fees.
Why do charities still use percentage based compensation? Simple answer is that there
is no downside for them. 20% of something is still better than 100% of nothing. For small
charities that don’t have the workforce or the resources, percentage based compensation is the holy grail. They have no down side and can only profit. On the other hand, it is ethically ambiguous for charities to ignore the donor’s intent. A donor does not intend the majority of their money to be pocketed by the fundraiser. The spirit of fundraising and the principle behind donation is violated in these instances. So what can be done?
As established by the Supreme Court case, it is the charities that must make a change.
While percentage based compensation is safe for small charities, there are alternatives. A cap can be established along with percentage based compensation. The cap would be equivalent to the market value of the services. This would require charities to evaluate the costs related to the industry as a whole. The responsibility does not end at the charities but also extends to the donor. The donor has to be aware of what they are donating to. It is always best to directly donate to the charity itself.