NEW IDEAS: Radically rethinking fundraising regulation to include duties to beneficiaries

Ian copyAround the world, fundraising regulators focus their activities almost exclusively on acting in the interests of donors. Ian MacQuillin describes the change in regulatory philosophy that’s needed to bring beneficiaries into the frame.

One of fundraising’s knottiest problems has been how can you make both beneficiaries (as required by NCVO’s new charity code of ethics) and donors (as determined by the prevalent ethical theory in fundraising – donorcentrism – and the codes of practice based on that) central stakeholders within your organisation.

With two different stakeholders vying for attention like this, what one stakeholder wants from a nonprofit organisation my well rub up against what the other wants. Apart from a few rather shallow platitudes, such as ‘what is in the interests of donors is therefore in the interests of beneficiaries’, the charity sector hasn’t had many tools to help resolve such potential tensions.

Rogare’s theory of Rights Balancing Fundraising Ethics is one such tool. And last month I wrote on the Critical Fundraising blog how we can re-envision a nonprofit’s organisational structure in a way that it is clear to all that the charity’s primary duties are to their beneficiaries, while the vitally important role that donors play is apparent to and understood by the entire organisation, not just the fundraising department (Fig 1).

Fig 1. An organogram representing a truly beneficiary-centric organisation. Donors provide the resources with which charities help their beneficiaries, with fundraisers integrating donors with the needs of the organisation (and to a lesser extent, integrating the needs of the organisation with the needs of donors).

Fig 1 illustrates how donors envelope an organisation and provide the resources that allow the nonprofit to help its beneficiaries, resources that flow through fundraisers, who perform the function of integrating donors with the rest of the organisation. That integration is two way: fundraisers connect donors to the cause though the organisation, matching what the organisation needs with what the donor can provide. But integration also goes the other way, with fundraisers connecting the organisation to donors, helping donors to derive the most meaning and satisfaction from their philanthropy – in other words, deliver the best donor experience possible.

A popular metaphor is that fundraisers are ‘double agents’, representing both the needs of their donors and employers to the other. The organogram in Fig 1 shows how this could be the case.

Eddie Chapman, the infamous ‘Triple Cross’ double agent who worked for both British and German intelligence services in WW2. Fundraisers are not like Eddie Chapman in any conceivable sense.

But – and it is a big but – because it is the beneficiary that sits at the heart of the organisation, it is the beneficiary’s needs that have primacy, and so the primary direction of integration is inwards, matching what the donor can do for the organisation’s needs; not outwards, matching the what the organisation does to the donor’s priorities, whatever those priorities may be.

And the double agent metaphor is precisely that – a metaphor. It doesn’t denote an actual real role; fundraisers are not really ‘agents’ of donors (they are, after all, paid by and have contractual responsibilities to the charities that employ them). Being the ‘agent’ of donors is a function fulfilled by philanthropy advisors, not fundraisers.

In my previous blog, I argued that we need to start thinking about charities in this donor-facilitated, beneficiary-centric way, because in reality, there is often a fault line between fundraising (a ‘necessary evil’) and the rest of the organisation. This schism also divides a nonprofit’s marketing function in half, with social marketing falling on one side and fundraising (which is then cast in the role of ‘sales’) on the other.

Partly this is because, it’s been argued (see Part 1 for a full discussion), that charities are run as two ‘separate’ organisations, serving two different roles to two different stakeholders in two different markets (which is a key difference to commercial organisations):

Resource allocation market – resources are provided to beneficiaries

Resource attraction market – resources are raised from donors and supporters.

(See Figs 2 and 3 or check out the full exposition in the first part of this blog.)

Fig 2. Fundraising as a ‘separate’ organisation.
Fig 3. Fundraising as a departmental and ‘detached’ function.

This can help us to gain some new insights into how and why fundraising is regulated the way it currently is, and how it could be regulated differently in the future.

But before we do that, we have to look at some differences between charities and commercial enterprises – between fundraising and commercial marketing – since this will give us some more context for considering fundraising’s regulatory philosophy.

Regulating two ‘markets’

Within the ‘two separate organisations’ paradigm, fundraisers operate only in the resource attraction market, where their ethics and best practice standards are focused almost exclusively on donors and doing right by them.

Fundraising regulation also operates only in the resource attraction market. Its role is to ensure that fundraisers adhere to those donorcentric ethics and best practice standards (see Fig 4).

This sets up the resource attraction market as an exchange relationship (despite the anti-transactional sentiment of many relationship fundraisers – see pp9-10 of Volume 3 of our review relationship fundraising theory). Donors give money to the charity via fundraisers in exchange for: various (mainly intangible) benefits – such as a warm glow, sense of identity and moral worth; courteous and glowing expressions of gratitude; an implied promise to prioritise their concerns (by being their donorcentric ‘double agent’); a guarantee to act ethically by sticking to the prescribed standards; and, more contentiously, implied promises not make donors feel any negative emotions, such as guilt, or operate in a way donors consider inappropriate.

Things that are usually considered to be unethical from within the perspective of the resource attraction market are:

  • Not using money for the purpose it was donated
  • ‘Shock’ advertising and undignified portrayal of beneficiaries (poverty porn)
  • Targeting vulnerable people
  • Guilt-tripping
  • Aggressive/intrusive fundraising
  • Too much money spent (‘wasted’) on fundraising and admin.

Those involved in regulating fundraising (in the widest sense) regulate the resource attraction market by acting in the interests of donors to ensure that fundraisers abide by the promises they have made on their side of this exchange and do not breach that agreement in the ways outlined above.

Further, most self-regulation (of most sectors and industries) has grown out of a tradition of regulating market transactions, where its purpose is to protect consumers from exploitation. It is unsurprising then that fundraising regulators bring this consumer protection approach to regulating what from the outside appears to be just another market exchange.

Yet donating is not an exchange process analogous to the process of consumption (which most regulation is set up to police) and so it ought not be regulated as such.

Whereas consumption is an exchange by which a person (the consumer) exchanges money for goods or services for their own use, donating to charity is a transfer process in which a person (the donor) makes money available to be converted by the charity into goods and services for use by a different group of people (beneficiaries).

If you think about donating to charity as an exchange between donor and fundraiser/charity only, it is confined within the resource attraction market.

But considered as a transfer, the process of donating extends out of the resource attraction market into the resource allocation market.

Considering donation as a transfer of resources from donor to beneficiary, and fundraisers as the facilitators of that transfer (the direction of integration between donors and the organisation being inward towards the beneficiaries at the centre of the organisation) changes the ethics of the situation. If we conceive of donation as a transfer, our ethics ought then encompass the end-user in that transfer (the beneficiary) and be structured to avoid or minimise anything that harms the end-user (the beneficiary) and whole transfer process, rather than just the part of it that involves the donor and the giving of money, as is currently the case.

This is the context in which Rights Balancing Fundraising Ethics sits. Viewed from the beneficiary side of this transfer equation, a whole host of other things become potentially unethical (or at least become potential ethical dilemmas):

  • Not asking for a sufficiently high gift
  • Allowing donors to dictate how funds will be used – mission creep. (This is part of the issue of ‘donor dominance’, which is the subject of a new Rogare project that International Advisory Panel member Heather McGinness is leading on.)
  • Pulling a fundraising campaign because of media pressure – it’s often said that fundraisers should use some version of the ‘Daily Mail test’ to determine whether a piece of fundraising is ethical; the argument being that if it were to appear in a negative headline on the front page the Mail then it is likely to be unethical. I’d suggest the Daily Mail should never be the final arbiter of anyone’s ethics. The less prescriptive version is that ‘failing’ the Daily Mail test is only one factor to feed into a consequentialist risk analysis, and may not be the determining factor.
  • Not asking for gifts you could/should have asked for
  • Using images that you have good reason to believe are less likely to raise money.
How ethical is the ‘Daily Mail Test’?

And yet how would these potential ethical dilemmas be regulated? What role is there for a regulator in ensuring that fundraisers don’t allow donors to dictate how funds are used, or ensure that they ask for appropriately high amounts? None, because these are ethical dilemmas that extend into the resource allocation market, where fundraising regulators currently do not tread (and see no reason to venture into).

Just about the only time that regulators of fundraising ever focus on the perceived needs of beneficiaries and purport to act in their interests is in the case of so-called ‘poverty porn’ images. Imagine Canada’s standards, for example, contain one (Standard C8) that stipulates:

The organization does not exploit its beneficiaries. It is sensitive in describing those it serves (whether using graphics, images or text) and fairly represents their needs and how these needs will be addressed. [This is a notwithstanding the difficulty of interpreting the terms ‘exploit’ – to what end? – ‘sensitive’ and ‘fairly’ for regulatory purposes.]

And yet when a campaign such as Oxfam’s ‘Lift Lives for Good’ fails to raise sufficient money, there are no ethical questions to answer and no regulations have been breached, and so regulators not are in the slightest bit concerned, despite it being arguably a waste of donated income. It’s ironic that such a campaign as Lift Lives for Good accords perfectly with Imagine Canada’s Standard C8, while failing in the fundamental duty to beneficiaries to ensure services are sufficiently resourced; yet a campaign using starker and more graphic imagery of the type favoured by Save the Children would fall foul of the same self-regulatory standard even though it would probably raise the necessary level of income.

What regulatory and ethical questions are asked when a fundraising campaign fails to generate sufficient income?

The ‘voice’ of the beneficiary (sometimes)

One reason that fundraising regulation is only concerned with the donor-fundraiser exchange is, for sure, because fundraising regulation is set firmly in the consumer protection tradition of regulating market exchanges. Another is that the two-organisation paradigm obscures any duties or responsibilities to ensure the transfer works to maximise good for beneficiaries. This can be seen in Fig 4.

Fig 4: How fundraising ethics and regulation fit into the ‘two organisations’ paradigm. Click on image to expand.

Fundraising is regulated purely as a transactional exchange that occurs exclusively within the resource attraction market as if nothing that happens after this has any bearing on the rights and wrongs of the giving part.

But plenty can impact this. Restrictive regulation – the exemplar for me is the Fundraising Preference Service – while conceived of a consumer protection initiative to protect donors, has the potential to cause considerable harm to the whole transfer process.

But, if we view fundraising as the integrative function that links donors to beneficiaries through charities, so spanning the resource attraction and allocation markets (Fig 1) then it is not so easy to compartmentalise fundraising regulation within and confine it to the attraction market.

As fundraising is always focused on delivering maximal good for beneficiaries – as the NCVO code of charity ethics requires it to be – the regulation of fundraising cannot divorce itself from that ultimate goal.

We need a sea change in the ethos and philosophy of fundraising regulation. Regulators need to relinquish their policies of being the ‘voice of the donor’ – as both F-Reg in the UK and the Deutsches Zentralinstitut für soziale Fragen (DZI) in Germany, for example, state that they do – and to accept that their role is not a consumer protection one. Rather than regulating a bilateral ‘exchange’ process, fundraising regulators should conceive of their role as to regulate a trilateral transfer process, in which donors allow charities to convert their donations into goods for use by beneficiaries.

This maintains the focus on codes of practice and ethics that ensure fundraisers behave appropriately to donors. But it changes how those codes might be developed and what they are used for.

We cannot expect codes of practice to suddenly start including provisions about asking for appropriately high gifts, and whether codes even ought to include such provisions is a different discussion.

A re-envisioned form of fundraising regulation could seek out the view of beneficiaries about how fundraising ought to be carried out, such as the research published by Save the Children last year.

But perhaps rather than trying to actively regulate by developing new standards, the most immediate way regulators can make a difference is through the kinds of things they choose not to do – I’m thinking of things such as the Fundraising Preference Service, which for me is the exemplar of restrictive and unnecessary regulation and, from the perspective of Rights Balancing Fundraising Ethics, arguably unethical.

And instead of only listening to what donors think about fundraising and assigning a special privilege to donors in deciding how codes ought to be developed, as F-Reg in the UK has done with its recent focus group research (no longer available on F-Reg’s website, but you can read about it on my UK Fundraising blog), they could pay similar heed to what beneficiaries think, either by considering research such as that published last year by Save the Children or Beth Breeze and Jon Dean in 2012, or actively seeking the views of beneficiaries during consultation processes.

This represents a radical re-envisioning or the role of fundraising regulation (Fig 5). It takes it out of the context of regulating exchanges taking place only in the resource attraction market in favour of donors, and into the realm of considering how that regulation impacts on the amount of money entering the resource allocation market to help beneficiaries. One could call this ‘beneficiary-focused fundraising regulation’ (though one might also decide that is not the most appropriate name).

Fig 5: Rights Balancing Fundraising Ethics and fundraising regulation re-envisioned to be ‘beneficiary focused’ in a truly beneficiary-centric organisation. Click on image to expand.

Rights Balancing Fundraising Ethics underpins this whole approach. This states that fundraising is ethical when it:

“Balances fundraisers’ duty to raise money on behalf of beneficiaries with the relevant rights of donors to obtain a mutually optimal outcome such that neither group is significantly harmed.”

The question regulators currently set out to answer is:

Are the public being harmed by fundraising and if so, how can we protect them from that?

…without considering any potential harm to beneficiaries.

The new approach requires them to ask an additional question:

Are beneficiaries being sufficiently helped by fundraising and, if not, how can we facilitate that help?

…and consider any potential harm to beneficiaries that might result from restrictive regulation.

Any organisation that is regulating the entire process of transferring donations from the attraction market to the allocation market within truly beneficiary-centric charities might sometimes have to act as the ‘voice’ of the beneficiary, not just the ‘voice of the donor’, in making sure that process delivers beneficial outcomes for both groups while also avoiding significant harm to them.

  • Ian MacQuillin is director of Rogare, the fundraising think tank at the Hartsook Centre for Sustainable Philanthropy.

Further reading:

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