B. R. Forbes

Writing

Laws, Standards, Ethics and Public Radio Development

By B. R. Forbes

Originally published in the Development Exchange journal i.e. development, March 1989.

Questions about Ethics
While he was U.S. Attorney General, Edwin Meese believed that he fulfilled the expectations of his office by avoiding prosecution. However, some of his critics maintained that the position demanded higher ethical standards than simply avoiding breaking the law.
Ethics. Such a slippery term! Does it mean simply not breaking the law? Does it mean following a distinct set of standards somehow established by a professional review committee? Or does "ethics" imply some other set of beliefs, individually developed and practiced? And who should develop and practice such ethics? Only elected officials? What about organizations, such as public radio stations, that are publicly supported...?
Sweepstakes mailings for Cancer Fund of America, Pacific West Cancer Fund and Walker Cancer Research were signed by a lawyer and notified recipients that they had won a cash award and implied that the prize was $5,000. The small print indicated that prizes in fact ranged down to ten cents. (The entire amount awarded equaled $5,000) Two lawsuits have been filed with the direct mail company, Watson and Hughey of Alexandria, Virginia.
Whatever the implication, the sweepstakes mailing did note that the prizes ranged down to ten cents each -- so the mailing was totally ethical. Right? So why have two lawsuits been filed...? Now compare this to a station offering "this great KXYZ tote bag for your tax-deductible contribution of $100" but noting in small print on the pledge form that the market value of premiums is not tax-deductible. Totally ethical...?
The Creo Society fundraising production of "Hair” raised $829,667. Nine percent, or $74,000, of the proceeds actually went to UNICEF and the Creo Society Fund for Children with AIDS. The New York Attorney General's Office is investigating what critics call "waste and mismanagement" but what Board member William F. Buckley Jr., termed an "error in judgment." The New York Philanthropic Advisory Service (NYPAS) has investigated -- and has determined that the Creo Society has failed to meet NYPAS standards.
Has the Creo Society been totally ethical by promoting this production as a benefit to assist UNICEF and children with AIDS when nine cents of every dollar actually went where the donors expected? Or, was it just an "error in judgment?" Now compare this to a public radio fundraising dinner that grosses $30,000 from $125-a-plate participants and program book advertisers -- while food, drinks, program books, invitations, advertising, facilities, transportation for a special guest, and staff time cost $25,000. Is this the same as "waste and mismanagement” or totally different...?
Clear-cut Ethics: Fundraising Laws and Regulations
The easiest determination of what's ethical and what's not is simply what's legal and what's not. Every non-profit organization in the United States is regulated by the federal government (through the Treasury Department's Internal Revenue Service) and by a state commission (such as the secretary of state, department of consumer affairs, division of licensing, attorney general or other specially designated office.)
The IRS monitors non-profit organizations through the annual filing of Form 990. Non-exempt status under section 501(c)3 of the IRS Code specifies that such organizations must operate for specifically charitable purposes, that no portion of net earnings will benefit private shareholders or individuals, and that the organization will not influence legislation to a substantial degree. In addition to these basic parameters, the U.S. Congress develops laws that affect disclosure of tax-deductibility of contributions, unrelated business income taxes, and other activities of non-profit organizations. For a more in-depth look at federal regulations, see The Law of Tax-Exempt Organizations or other books dedicated to the subject.
State laws are as different as the states which develop them. As an example of the kind of laws regulating non-profit fundraising at the state level, here are the requirements for non-profit organizations in the Commonwealth of Virginia:

Organizations must file an annual registration statement that includes the ratio of fundraising expenses to contributions.
All agreements with professional fundraising counsel must be reduced to writing and be filed with the Commissioner at least ten days after entered into and at least ten days before the contract starts.
Professional solicitors must disclose their names, employers, the fact that they are paid solicitors, and the minimum percentage of the contribution to be received by the organization.
Organizations may not imply that any portion of a payment is tax-deductible without a signed opinion of counsel or an IRS ruling.
Professional solicitors must file authorization from two officers of an organization and must exhibit this authorization when requested.
Organizations must provide written acknowledgments for gifts exceeding five dollars upon the contributors request.

Optional Ethics: The Professional Standards Bearers
If you feel your station should subscribe to higher ethical standards than simply avoiding breaking the law, consider the standards developed by two consumer protection organizations. The Philanthropy Advisory Service (PAS), a division of the Council of Better Business Bureaus, investigates nonprofit organization' based on 22 specific criteria in five areas:

public accountability;
use of funds;
solicitations and informational materials;
fundraising practices; and
governance.

National Charities Information Bureau (NCIB) rates national non-profit organizations and publishes its findings in the bi-monthly listing called the "Wise Giving Guide." The NCIB uses nine basic standards in assessing non-profit organizations:

active and responsible governing body;
clear statement of purpose in public interest;
program consistent with organization's stated purpose, personnel and financial resources;
accuracy of all promotion, fundraising and public information;
accountability of the governing board for all fundraising activities;
percentage of funds actually used for programs;
availability of an annual report and the amount of information disclosed;
degree to which financial statements conform to generally accepted accounting procedures (GAAP); and
degree to which a board-approved budget is consistent with detailed financial statements.

Although PAS and NCIB agree on many points, the two "watch-dogs" disagree on a few minor points. For example, the PAS feels that a minimum of 50% of the total income should be spent on programs (with not more than 35% of contributions devoted to fundraising expenses) and that no more than 20% of the governing board should be compensated. NCIB feels that a minimum of 60% of total income should be spent on programs and only one member of the governing board should be compensated.
Professional Ethics: National Society of Fund Raising Executives
Many organizations have grappled with the ethics of their professions by establishing "codes of ethics" for their members. For example, the National Society of Fund Raising Executives has established its "Code of Ethics arid Professional Practices" which encourages its members:

to encourage the institutions they serve to conduct business in accordance with accepted principles of sound business management, to use gifts only for the donors' intended purposes, and to comply with all laws;
to manage all accounts entrusted to them solely for the benefit of the organization(s) served;
to recommend only those fundraising goals which they believe can be achieved;
to work for a salary or fee, and not a commission;
to fully disclose to employers or clients all relationships which may appear to be a conflict of interest and to never accept "finder's fees";
to hold confidential and leave intact all lists, records, and documents acquired in the service of current or former employers or clients; and
to maintain a public demeanor which brings credit to the fundraising profession.

Ethics: Beyond Regulations and Standards
All these laws and standards mentioned are based on some sense of what is "right" in fundraising practice. Sarah C. Coviello, CFRE (certified fund raising executive), believes that while many ethical questions are black and white, most questions are varying shades of gray. Ms. Coviello, senior vice president of The Oram Group, Inc., is the chair of the national NSFRE ethics task force. In a recent interview with the Development Exchange, Ms. Coviello emphasized that "the leadership of organizations, both volunteer and staff, and professional fund-raisers need to develop an awareness that there are questions of ethics that will arise and decisions will have to be made with those in mind.”
The major challenge facing non-profit organizations, Ms. Coviello believes, is balancing short-term and long-term needs, or "being so bottom-line oriented that the long-term impact is not considered." The long-term impact may well affect an organization's reputation -- which is critically important in its ability to raise the funds necessary to accomplish its mission. The NSFRE task force on ethics has developed ten major values on which ethics rest. these values were developed directly from the work of Michael Josephson, a professor of law at Loyola Law School in Los Angeles and the founder of the Josephson Institute for the Advancement of Ethics. The ten values are:

honesty with donors, board members and the public in representing your mission and purpose of funds;
integrity in making the means just as important as the ends;
keeping promises with donors and the public;
fidelity or loyalty to both the institutions and the people we serve;
fairness in treating people as individuals and in not exploiting donors or abuse their trust;
caring by showing concern for the privacy and dignity of others;
respect for others by giving full disclosure and allowing donors to make their own decisions;
citizenship by observing laws and regulations faithfully in the course of the fundraising effort;
excellence by continuing to learn and to strive for the highest possible standards of performance; and
accountability by accepting responsibility for personal decisions and by setting an example for donors, peers and employers.

Russ Reid, Chairman of the Board and CEO of the Russ Reid Company, offers practical advice in creating "ethical" solicitations. In the "Reid Report" (Issue 138), Mr. Reid suggests that nonprofit organizations ask the following questions to determine the truthfulness of appeals:

Are we creating an accurate impression?
Will donors' gifts be used as they have been lead to believe?
Will the contributions produce the stated results?
Will further information from other sources confirm our appeal?
Is the emotional impact of the appeal appropriate?

As Ms. Coviello points out, non-profit organizations are all operating within "the public trust." And, in order to succeed in the long term, we muse pay careful attention to the decisions we make in the short term.

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