DATELINE: December 13, 2007, Chicago
What a coincidence. Yesterday we railed against the United Way's Pennies for Change program, and today our very own Jack B. Siegel is quoted in the New York Times railing against another embedded gifting/cause-related marketing program, this one sponsored by Whole Foods. Stephanie Strom, Concerns Over Charitable Shopping.
Now back to the United Way. We took a look late last night at the United Way press release announcing the program. There is a slight...
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discrepancy taking the form of an omission from the press release and what the Chronicle of Philanthropy reported. Specifically, the press release described the program as follows:
United Way of America today announced the launch of its philanthropic initiative "Pennies for Change." This national program provides the opportunity for customers of participating financial institutions to automatically donate one penny for each credit or debit card transaction. These donations will help fund United Way programs in local communities…
According to the Nilson Report, more than 40 billion card purchases made nationwide by Americans per year, "Pennies for Change" serves as a simple, but revolutionary way for consumers to donate to their local United Way every time they make a purchase.
[italics added]
Fair enough, but notice what is missing. The Chronicle reported that 45% of the contributed funds would go to the national United Way of America organization. Nowhere in the press release does it mention that nearly half the funds go to the mothership in Alexandria, Virginia. The press release only emphasizes the local element of the program. As we pointed out yesterday, we strongly suspect that most people would not be as generous when giving to a charity that is supposed to help the local community if they knew that almost half the funds were leaving the local community and going to the national organization for program development. We don't have a problem with charities spending money on program development, administration, and overhead, but that matters to many people. Right or wrong, those people are entitled to fair and complete disclosure of all the material facts. Our securities law require issuers of securities to make disclosure of all material facts. We should demand the same thing of our charities.
This is another problem with embedded giving/cause-related marketing. The charitable aspects of the program are often not fully disclosed or are lost in the marketing hype. We hope that when the banks start sending out the junk mail letters promoting this program that they explain exactly how and where the money is going to be used.
As Jack told the NYTimes reporter Strom, there are regulatory issues with this sort of fundraising. We hope the state charity regulators take a close look at United Way's program, as well as others, to make sure that full and fair disclosure is being made to consumer/donors.
By the way, this program is neither innovative or revolutionary. As Strom notes in her article, American Express used a similar penny campaign in the early '80s to save the Statute of Liberty. In that case, it appears that American Express actually funded the donation, but that strikes us as a relatively immaterial distinction--we suspect most people do not focus on who is actually paying the penny. The hype demonstrates once again how the facts get lost in the marketing.
Internal Revenue Service - Circular 230 Disclosure: As provided for in Treasury regulations, any advice (but none is intended) relating to federal taxes that is contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.
THE FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL ADVICE IS REQUIRED, THE NONPROFIT OR OTHER PARTY IN QUESTION SHOULD SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL. If you liked this post, please visit http://www.charitygovernance.com for a description of our training and consulting services. You will also want to acquire a copy of Jack Siegel's book, A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good."
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