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Engaging Public Trust:
La Fidelizzazione del Donatore in
Una Prospettiva Internazionale by
Dr. jur. Rollin A. van Broekhoven, DPhil [NOTE: The following paper was delivered by WRF member, the Honorable Rollin Van Broekhoven, at a conference on philanthropy in Milan, Italy, in mid-November, 2008. The conference was sponsored by the Instituto Italiano della Donazione and several foundations and NGO monitoring agencies in Italy. The audience to which the paper was delivered was NOT primarily Christian. The paper is reproduced here with the kind permission of Judge Van Broekhoven and the Instituto Italiano della Donazione. In addition to his responsibilities as a Federal Judge in Washington, D.C., Judge Van Broekhoven works closely with the Evangelical Council on Financial Accountability {ECFA}.]
There was a recent special report in The Chronicle of Philanthropy in the United States that addressed the challenges that charities face in standing up to hard economic times. While this special report was written in the context of the United States experience, I believe that it has broader application.
However, just a few years ago, fundraising organizations were thinking about the fact that the United States, and perhaps the world was facing the potential for the largest transfer of wealth in history. There, the discussion focused on the fact that the “World War II” and “baby boomer” generations had accumulated so much wealth through their creative labor and genius and would be passing their wealth to the next generation. The point was that with the tax consequences inherent in the transfer of this wealth, much of that wealth could be directed to charity, either by aging generation, or by the offspring. These expectations have not been realized to the level in which charities had anticipated.
Now, both in the United States and around the world, we face economic challenges unlike those faced in recent years. The special report in the recent Chronicle of Philanthropy identifies a number of survival strategies. Thus, for example, charities to survive the current economic situation must focus on providing services that meet critical local community needs. They must build relationships with donors and prominent townspeople, including those who have moved away from the community. They must raise money from a variety of sources, not just grant making bodies, such as foundations. They must capitalize on timely and newsworthy issues that require local charitable attention for reaching out to new sources of revenue. They must collaborate with other organizations and make the most of local resources to and relationships to meet local needs.
What we have seen in the United States over the past three to six months has been a decrease in giving from the public for a number of reasons. This decrease in giving results from wealthy donors waiting for clearer signs of the direction from the stock markets before making significant donations to charity, and reductions in giving by those that do not have the resources to make regular contributions because of uncertainty in the economic situation and employment insecurity. There have also been losses of value of the portfolios of non-government public benefit organizations, attention to reducing the expense side of the balance sheet, the closing of charities for lack of resources, and mergers of compatible charitable organizations.
While major public benefit organizations that operate nationally and internationally may require more than this kind of local attention and emphasis, some of these survival strategies still apply. What we are really dealing with here is the motivation for giving and participation in the work of charities. Yet, in the midst of these challenges, the sector continues to grow and expand in the United States, both with respect to giving and volunteered labor. With over 1.4 million charitable and religious organizations providing a huge range of services that improve lives, from meeting immediate need to funding medical research to assuring the future of the arts or educational institutions, how does one explain the massive growth of the nonprofit sector in the United States?
The sheer scale of this growth, even in an era of economic downturn, is hard to ignore. According to recent statistics reported by Independent Sector, U.S. charitable giving had reached $295.02 billion in 2006, the last year for which statistics have been provided. While there have been no completed statistical studies since this study in 2007, these trends appear to have continued into 2008. The statistics for 2006 reflect approximately 4.2 percent increase over 2005. Of this total, only 1.3 percent was represented by the “mega-gifts,” such as those from Warren Buffet who gave $1.9 billion in 2006. However, the largest percentage of giving was from individuals, and totaled $222.89 billion.
Approximately 65 percent of all households with annual incomes lower than $100,000 gave to charity. Approximately 89 percent of all households gave to charity, with the average annual household donation estimated at $1,872. The statistics for volunteer services are also staggering with 44 percent of all adults volunteering, or 83.9 million American adults volunteering, representing the equivalent of over 9 million full-time workers at a value of $239 billion. Recent surveys report that 73 percent of all older Americans volunteered for public benefit organizations in the past year. This is in addition to the 12 million workers employed by nonprofits. If this volunteer time was included in the statistics for the workforce in nonprofit organizations, it would represent over 10 percent of all U.S. employment. The total amount of U.S. nonprofit endowments exceeds $1 trillion in stocks, bonds, and real estate. The combined annual expenditures of all nonprofits exceed $1 trillion, or approximately equal to one-half of the size of the U.S. budget excluding Defense spending.
These statistics are understated because they do not include religious charities, such as churches, foreign mission agencies, local food kitchens and homeless shelters, boys and girls clubs, camps, etc., and large religious organizations such as the Salvation Army, which is the second largest charity in the United States. With an annual income exceeding $4 billion and expenditures close to $3 billion, and assets exceeding $14 billion, one cannot ignore the impact of the Salvation Army. These numbers are repeated in large religious denominations, such as the Roman Catholic Church and the Church of Jesus Christ of the Latter Day Saints, or Mormon Church as it is generally known. In ECFA, we have estimated that approximately 85 percent of our accredited membership, those receiving seals, are small with incomes of less than $2 million per year.
There are many factors that influence this level of commitment to the charitable/public benefit sector. In my paper, Engaging Donor’s Trust, published by ICFO in Berlin, Germany in May 2008, I identified these factors generally in “Engaging Donors’ Trust Through Their Hearts.” The question arises with respect to the meaning and use of money: what are the deepest motives for giving and volunteering? Why should we care about those outside our own groups, especially the poor, the needy, the disenfranchised, those suffering from the absence of social justice, those who have experienced calamities in the form of earthquakes, floods, famine, and disease?
The contemporary focus on institutional philanthropy has a secular cast that simply ignores any beliefs and attitudes that give rise to a culture of giving and to those ideas that are required to sustain it. Fewer than five percent of research projects on philanthropy dealt with religion, religious based charities, and religious motivations for giving. Yet, religious organizations are the largest recipients of giving, and religious motivation is one of the strongest impulses for giving. Whereas individual giving and support for charity stresses the efforts to help the poor and needy and work toward alleviating the present situation, supporters of philanthropy see their efforts directed toward society and the future, and in addressing long-term solutions. The former take their model from Jesus and the religious concept of love.
In the Western Christian Tradition, there is also the concept of stewardship, in which we as individuals have a duty to manage our resources and time on the basis that everything we have and do or are ultimately belongs to God and that we are responsible as agents of God for how we care for those less fortunate. The latter take their model from the limited imperatives of ancient Greece and the examples of Promethius and the distinct concept of philanthropia. Thus, philanthropy tends to be targeted to narrowly defined causes that address recognizable changes in social conditions. As such, they tend to require larger financial commitments, mainly from the wealthy and foundations. The recipients of philanthropy tend to be educational and arts institutions and organizations, medical research, and organizations that direct their activities to promote and improve the quality of human life.
There are different motivations in these two categories of public benefit activity. Whereas philanthropic organizations generally draw resources from wealthy donors and organizational foundations, the charitable organizations and religiously based organizations and churches draw their resources, both financial and volunteer labor, from individuals or small groups of individuals. If the published statistics are accurate, giving by individuals comprise 75 percent of all charitable giving in the United States, totaling $222.89 billion as I mentioned earlier. Moreover, as recently reported by Independent Sector, 85 percent of all religious-giving households support secular organizations. Those households account for 81 percent of all donations to charities. Similarly, patterns of volunteering between both religiously based organizations and secular charitable organization are much the same. What this tells the researchers is that the connection of the donor with a church tends to define the donor’s heart and character. The conclusion of this study was that faith-based generosity, whether measured in terms of dollars or time, is real, measurable, and carries considerable impact.
These statistics paint a picture of what is going on in the United States, and as the statistics demonstrate, most of the charitable organizations are small, that is, with annual revenues under $2 million per year. Having been involved in leadership capacity in the sector for the last 35 years, I believe that something is going on in the charitable community that is more that mere compliance with standards issued by a monitoring organization. Our observation in ECFA bears out the fact that most donors give financial and in-kind donations, and volunteer time to those charities with objectives and programs matching the interests of the donors. Similarly, the vast majority of individual donors give to those organizations with which they have some ongoing relationship, either with the leadership of the organization, or with the charitable organization itself. Most of these charities target either immediate local community needs with which the donors are familiar and about which they care. This was borne out as a survival strategy in the recent special report in The Chronicle of Philanthropy.
Donors giving to a charity for the first time, and only once or twice a year, generally give because of some need to which they feel the impulse to give. Studies seem to suggest that only approximately 35 percent of first time donors continue to give beyond the first year, and the evidence strongly suggests that whether or not the charity has been monitored or given a seal is of no consequence to either the first time gift, other than to simply confirm the donor’s decision to give to that particular charity. Those that continue to give to the same charity into the second year and beyond tend to be more loyal with retention rates of between 60 and 70 percent. Thus, while the vast majority of donors to these charities are loyal, those that drop off generally do so because their relationship with the organization or its leaders was not nurtured, or because of some change in their personal financial situation.
Giving always increases significantly when there are widely published reports of disasters, such as hurricanes, tsunamis, earthquakes and fires, for example. Many donors to these special needs arising out of the widely published disasters, simply respond to that need without major thought of the charity to which they are giving, and then do not continue the pattern of regular giving to the charity to which they gave for disaster relief. Depending the level of publicity and the reputation of the charity soliciting funds for such major disasters, the existence of a monitoring organizations and the granting of a seal may have some influence on what charity is to receive the gift. The influence generally, however, is to merely confirm the legitimacy and accountability of the charity receiving the donation.
What was interesting about the special report series in The Chronicle of Philanthropy on coping with the current economic situation was that almost all of these articles talked about the importance of developing trust between the charity, and by implication, between the public benefit sector and the larger general public. To do this, the sector must be transparent in its communications with the public and with donors. This includes telling stories of the work being done, developing an image and culture emphasizing the hard work and frugality, and showing donors and the public where and how money is being spent.
The emphasis is not simply between the charity and the donor, although that is certainly a major factor. Rather, embodied in the Standards issued by both ECFA and BBB Wise Giving Alliance is the idea of transparency to the larger public, not just the donors or potential donors. Indeed, from the beginning of its history, almost all of the questions to which ECFA has been required to respond, come from the general public and from the television, radio, newspaper, and other media, not from specific donors or potential donors to a specific charity. Thus, the Standards require accredited members of ECFA to be fully open in their disclosures to any inquiry received from anyone in the general public without regard to whether the inquiry comes from anyone who has a history with the charity. Similarly, almost all of the complaints leading to investigations and possible sanctions against an ECFA accredited charity have come from outside the donor base of that charity.
It would seem that charity monitoring standards and independent, or self-regulation monitoring organizations, serve a useful purpose for engaging trust between donor and charitable organization, and might, therefore, have some role in promoting loyalty on the part of donors to their charities. However, there is no strong data in the U.S. to support this correlation. Our experience in the United States supports the view that real benefit for independent monitoring relates to the public trust of the charitable sector and to its trust and confidence in specific charities.
It is almost always that it is to ECFA and the Wise Giving Alliance, both monitoring organizations, that individuals in the general public, and representatives of the news media organizations come to register complaints, or to ask questions about specific charities, standards, and monitoring activities. As a result, ECFA frequently, if not generally, upon concluding its investigation, has been called to explain what the investigation revealed, including the sanctions imposed on the charity, or to defend the particular charity against false accusations.
While some of survival strategies identified in the special report in The Chronicle of Philanthropy, such as a requirement for a responsible and knowledgeable governing board, the requirement for independently audited financial statement, the requirement for truthfulness in all communication with both the donors and the general public, and the requirement for disclosure of financial information upon request, are quite commonly recognized and set forth in many of the charity monitoring organizations’ standards. Thus, for example, in the United States, the BBB Wise Giving Alliance, ECFA, and other associations involved with charity standards and monitoring all have standards and best practices relating to boards and board governance. The Independent Sector in Washington, DC, as collected standards from 100 such organizations. Indeed, ICFO, the International Committee on Fundraising Organizations, has agreed on International Standards, which address board governance issues. Similarly, they all have standards relating to audit requirement, disclosure of financial information, avoidance of conflicts of interest, and standards for truthfulness in solicitations for funds.
However, it is important to recognize the context in which these standards are issued, and charities monitored for compliance with those standards. In the United States, the BBB Wise Giving Alliance Standards for Charity Accountability states in the preamble that the standards were developed “to assist donors in making sound giving decisions and to foster public confidence in charitable organizations.” [Emphasis added] Here, both the potential donors are targeted, and the need to foster public confidence is emphasized. The mission statement of ECFA states that ECFA is “committed to helping Christ-centered organizations earn the public’s trust through developing and maintaining standards of accountability that convey God-honoring ethical practices.
Again, the emphasis is on assisting charities to gain public confidence in their operations, transparency, and how they solicit funds for their charitable purposes. Just a word about ECFA’s Standards of Responsible Stewardship, the glue that holds the religious nonprofit sector together in the United States is the religious beliefs and commitments of those charities that seek accreditation and monitoring by ECFA. Thus, the commitment to adherence to a set of standards and a regulatory structure is based, not simply on following a set of rules established by some independent body, but is based on the importance of conducting its operations and maintaining its relationships with donors that are absolutely above board and sincere before God. Included in this motivation is that the charities accredited by ECFA are frank and open in their operations, using no hocus pocus or trickery or manipulation of people’s emotions to obtain funding.
In a paper delivered by ICFO Secretary General in Paris in 2003, Burkhard Wilke wrote that non-governmental public benefit organizations have become important counterparts of economic and political force in society. He then ties the importance of accountability to this important role that non-governmental organizations (NGO) have in society, which provides for “informed trust.” Thus the members of ICFO, such as the Istituto Italiano della Donazione are important as building “bridges of trust” between reliable NGOs and the donors, and by extension, I would add, the public. Donor loyalty is undermined by lack of public trust in the sector, and in specific charitable organizations, even if the offending organizations are not the recipients of the donor regular giving. Donor loyalty is also undermined if there is no monitoring that includes enforcement of standard that serves as a counterbalance to what appears in the news broadcasts and newspapers.
While we may think of this in terms of accountability, frequently to some charity monitoring organization or the government, what we are really dealing with is transparency. I have saved fundraising solicitation appeals over a period of time to see what trends, if any, there might be. What I have generally found, and what the date we see in ECFA shows, are some trends that are important in the context of both charity monitoring, and in particular, the monitoring performed by ECFA over its membership. First, whether or not a charity is a religious charity, the methods of fundraising are modeled after secular marketing transactional practices, doing whatever it takes to achieve the financial bottom line, whether through urgent headlines, underlining, premiums promised, and emotional manipulation.
In the United States, these methods barely raise 2 percent per household income. While the data demonstrates religious people give more to charity, barely 3 to 4 percent, what is missing in all of the figures is a sense of generosity and loyalty to the particular charity on the part of the givers. The question is whether the donor and the charity are being transformed as stewards of what has been entrusted to them. However, what is important is that this does not simply occur in the life of the donor or charity, but that it occurs in the context of the general public.
It is important, also, to realize the context in which ECFA was organized. Prior to the mid-1970, there was no monitoring of the charitable sector, other than the initial certification that a specific organization had qualified for tax-exempt status. The requirements for such certification were minimal. There are national and state constitutional prohibitions against government promoting or interfering in the free exercise of religion. Thus, there was a long tradition of the separation of church and state, and the legal regimes that enforced that separation. Since most of the sector tended to be religiously based, there was a reluctance to establish a legal regulatory scheme for the public benefit or independent sector.
Moreover, there was a long history in the United States of the sector providing most of the public benefit services to the general public, such medical care, education, social services for the needy and disenfranchised, and care for the elderly and the poor. Over much of the history of the United States until the early 20th century, this was the case. In the early 20th Century, the government started taking over these public benefit and welfare responsibilities, thereby reducing the prominence of the charitable sector to the general well-being of society. However, to recognize the public need for services from the charitable sector, tax laws provided for tax exempt status to public benefit private, or non-governmental organizations that qualified under the tax laws.
In the mid-1970s, the U.S. Congress, attempted to respond to some publically exposed scandals within the sector. In doing so, it contemplated enacting some legal structure to address these types of issues, through what it thought were the limited jurisdictional avenues within which it could enact new laws. Basically, it was looking at possible mail fraud legislation to address what it thought was fraudulent fundraising and public accountability of disclosure of finances. Nevertheless, there were those in the Congress and in the general public that raised objections to such a proposal. With leaders in the sector meeting with the primary Senators and Congressmen, the decision was made to recognize the potential for independent, or self-regulation not directly connected with government regulation.
ECFA was the first, and for a long time, the only body to issue specific standards that addressed accountability and transparency in the evangelical religious sector and to provide monitoring and enforcement of those Standards through a compliance process.
What ECFA uniquely brings to the table is this. Whereas the philosophical model for philanthropy is improving the common good, the ECFA model is based on the concept of stewardship, that is, that we as individuals, and the charity as a public benefit organization are charged with managing what God owns and has provided. Where the focus is on raising money in the philanthropic sector, the focus of ECFA is to facilitate stewards to be generous with what God has provided for their management. Where the ethical framework within the general public and sector is minimalist, that is whether an action is minimally legal, the framework in ECFA is a commitment to Christian values of truth, integrity, and love.
The ideal outcome for the sector generally is that the donor meets organizational needs, whereas the ideal outcome for those accredited member organizations of ECFA is that the giver becomes generous because he or she is trying to honor God in his or her generosity. Whereas the general thrust in the nonprofit community in its fundraising or solicitation activities is manipulative business sales and marketing techniques, in the ECFA world, it is presenting the opportunity to partner with the particular charity in its called mission.
With respect to accountability, the general model is the accountability to the organization and to law, whereas in ECFA, the ultimate accountability is to God and His eternal values.
While many may disagree with the approach of ECFA, and perhaps in this audience, not understand it, ECFA and its members have gained a reputation for the integrity and transparency and donor loyalty throughout its history. When there have been noncompliance issues raised, and when there have been scandals in the public eye, ECFA is almost always the first one to whom these questions are posed. Indeed, the compliance process has been recognized both for the legal fairness and competence in the investigation, and the transparency in its reporting the results to the public and news services.
There are many things ECFA standards and monitoring seem to do. One is simply to provide guidance to charities that want to do what is right and who want to be transparent. As I said earlier, part of that is based on the Biblical teaching of the importance of the charity conducting its operations and maintaining its relationships with donors that are absolutely above board and sincere before God, and that the charity is frank and open in all of its disclosures and solicitations.
Secondly, actual monitoring, including on-site examination of records and meeting with the leadership of the charity, not only ensures compliance with the standards, but also provides the level of encouragement to those who are insecure in how they are operating the charity. When questions are raised in the media or in the general public about the legitimacy and integrity of certain charities within the independent sector, these questions will often bring doubt to donors and potential donors concerning the wisdom of their individual contributions to the charities they support. The existence of standards and enforcement of those standards through a monitoring process that includes on-site reviews of records and interviews with the leadership of the charity, and a complaint compliance investigation has the salutary effect of assuring the donors and potential donors of the value of their continued relationship with their chosen charities. Thus, not only does ECFA serve to strengthen the relationships between donor and charity, it strengthens the relationship that donors can have with ECFA because of its effective enforcement of its standards and regarded as a voice in support of the donor public.
From its very earliest days, ECFA has regarded itself as being the voice of, and the force for the protection of the donor public. This has required a certain balance between its watchdog and donor protective role and its role being the voice for the charity and encouraging charities in the furtherance of their respective missions and goals. ECFA has sought to strike this balance as stated in its mission statement: namely to help these charitable organizations earn the public trust through maintaining standards of accountability that convey God-honoring ethical practices.
Indeed, the entire thrust of ECFA’s core program and objective since its earliest years has been to encourage donor loyalty to the charities the donors have chosen to support, either financially or through volunteer services. We have long recognized that far more expense is required to generate new donors than to keep those donors that have been cultivated and encouraged to be loyal givers. Fundraising or solicitation costs and administrative cost increase in the process of donor acquisition, and the ratios of administrative costs to mission costs are unfavorable to the financial balance sheets which are disclosed either publically through ECFA’s website, informational tax returns, or charity reporting organizations, such as GuideStar.
After considerable research and thought, I question the importance of charity monitoring to donor retention, unless the monitoring organization is well-known and respected for its knowledge of the charity sector and for its enforcement of well-accepted Standards of Financial Accountability and integrity. I have polled the charities on whose boards I have served over the last 35 years, and found that the loyalty retention rate of their donors runs approximately 75-80 percent of the donors who have continued giving to an organization on a regular basis beyond the second year. More important, however, is the fact that so many of these donors increase their level of giving over time.
My sense also from talking to a number of professional fundraising consultants and to charities that are members of ECFA, that is, that have been granted the ECFA seal of compliance with ECFA’s standards, is that the monitoring done by ECFA is of little significance to donor retention except when the charity has lost the seal due to noncompliance with the standards or some public awareness of a potential scandal due to noncompliance with the standards.. This data may be dated, but it does reflect the important role of the ECFA seal within the religious evangelical charitable and mission community. Since BBB Wise Giving program is relatively new, I have not seen any statistical data that would reflect whether the BBB seal of approval program has the same effect, especially since its constituency is much broader than is the constituency of ECFA.
I am most eager to hear your experience in Italy and learn what I can take back to the United States.
Thank you for your attention and participation in this important subject matter!
 
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