Sample Ethics Case—Solicitation and Stewardship of Philanthropic Funds: High Dollar List for Sale

Ethical Dilemma:

Sean is the Director of Development for a small organization who is about to launch their first ever capital campaign. The organization is making plans to commence building a new headquarters. Sean’s team is small, but mighty. There are four people on the team and while they have good experience and do a great job supporting the annual fund, he realizes that it will take more expertise in the acquisition of major gifts to successfully achieve the ambition goal of $10 million needed for the project.

With the support of the CEO and board, Sean is given the green light to hire a fundraising consultant to help plan and shepherd the project. The chair of the board is eager to assist in the effort by recommending someone he knows that owns a local fundraising consultancy. The consultant in question knows wealthy donors who believe in their mission. She says the donors want to gift the organization mid-6 figure gifts. Excited by this possibility, Sean and the CEO are leaning toward hiring her when they see that her contract includes a 5% commission on all funds raised. In addition, it is discovered that the consultant is a good friend of the board chair.

Who’s involved:

• Staff
• Consultant
• Board

What are the possible ethical issues; who else might be impacted?

• By not disclosing that the consultant in question is a personal friend, there could be a potential conflict of interest.
• Commissions based on amount raised are not allowable and is considered unethical practice.
• Asking questions regarding how the names of the potential 6-figure donors were acquired is important to avoid unintended breach of donor privacy.
• Many regulatory bodies require transparency and accountability in how nonprofits raise and allocate funds. Using commission-based compensation models may lead to scrutiny or challenges in meeting compliance standards.
• There could be legal implications. In some jurisdictions, paying fundraisers a commission based on funds raised may violate legal guidelines governing nonprofits, as it could be seen as an inappropriate use of charitable funds. Organizations/fundraising professionals should familiarize themselves with their state and local guidelines governing this issue.

What are some possible considerations or solutions?

• Create clear gift acceptance policies that are approved and regularly reviewed by the board of directors. This will ensure alignment with staff and board as to how manage such issues when they arise.
• Were there any professional boundaries crossed by the chair of the board to offer assistance in identifying potential consultants for the project?  
• How could such arrangement undermine donor trust?
• Consider how this type of arrangement might compromise confidentiality of your own donor data.
• Use resources that help to determine industry standard for selecting, hiring, and negotiating compensation for fundraising consulting companies.

Related Ethics Standards:

Standard 24:  Decline receiving or paying finder’s fees, commissions, or compensation based on a percentage of funds raised.

• Percentage-based compensation can shift focus from cultivating meaningful, mission-driven relationships with donors to prioritizing personal financial gain.
• Tying compensation to fundraising results can create conflicts of interest. Fundraisers may become incentivized to pressure donors or seek quick, large donations without considering the long-term relationship or mission alignment. It can also create lack of sustainability for the organization.

Standard 19:  Protect from disclosure confidential information to unauthorized parties as defined by an organization’s policies and procedures.

• Consultants can gain access to donor names and other sensitive information. Organizations must safeguard against consultants acquiring donor name and information for use outside of and beyond the contracted project. While not specifically stated how the consultant in this example compiled their “list of wealthy donors”, there could be a change that this list was generated from other projects.  
• Ethical fundraising practice requires that organizations and fundraising professionals ensure that prospect and donor information is collected lawfully, used lawfully, and presented factually
• Data management policies should clearly outline how records and files will be kept confidential.

Standard 20:  Recognize information created on behalf of an organization, including donor and prospect information, is the confidential intellectual property of that organization and may not be taken, shared with, or transferred to other entities.  

• This standard specifically states that members employed by or working on behalf of an organization, shall not transfer or utilize donor and prospect information except on behalf of that organization or client.  

Steps you can take:

• Refuse to engage with the consultant by citing Ethical Standard 24 which prohibits receiving or paying finder’s fees, commissions, or compensation based on percentage of funds raised.
• Create a process for accepting project proposals from several consulting firms so that the organization to have more options from which to choose.  This will create a fair, comprehensive, and thoughtful process.
• Talk with the chair of the board about the dilemma.  Explain the policy. Thank the board member for their willingness to help. Invite the chair to help review all candidates under consideration.

What are the potential outcomes if nothing changes?

• Engaging the consult is in direct violation of Standard 24. The organization or fundraising professional could be reported to AFT for violating the Code of Ethics.
• Donors might lose trust in the organization because they fear their names might also be added to the consultant’s list and share with other organizations.
• Relying on generated lists for prospecting may only result in a single gift if any. This type of fundraising does little to build a strong and sustainable fundraising program.

What could have made the outcome(s) more ethical?

• Letting the consultant and board member know upfront the policy of not using commission or compensation based on percentage of funds raised.  
• Creating a process of inviting consultants to submit a proposal.