What is the Most Important Thing You Can Learn from Recent Nonprofit Scandals?

Recent incidents at Michigan State University, The Ohio State University, Oxfam Great Britain, The Presidents Club Charitable Trust, Silicon Valley Community Foundation, and elsewhere remind us that the nonprofit sector is not immune to wrongdoing and scandal.

If you’ve never worked for a charity reeling from scandal, there’s a good chance you will one day. Even if you don’t work directly for a scandalized charity, you could still be affected by a loss of public trust if a similar nonprofit finds itself under the spotlight for misdeeds.

For those reasons, it is essential that you learn the most important thing about how to survive a scandal.

Three broad types of scandals can affect a nonprofit organization negatively:

1. Self-inflicted scandals beyond your control. Here’s an example of a situation that was beyond the control of fundraising staff. Oxfam Great Britain was banned from operating in Haiti and the organization’s country director was forced to resign following allegations of inappropriate sexual behavior. Four other employees were fired for “gross misconduct.” While the frontline fundraising staff was not at all involved in the scandal itself, they nevertheless had to deal with the aftermath.

2. Self-inflicted scandals you could have avoided. We saw this when the Ohio Attorney General’s Office accused the charity Cops for Kids of defrauding donors of $4.2 million. Of all the money it raised over a 10-year-period, the charity spent less than two percent on charitable programming. This scandal allegedly involved fundraising staff as well as senior staff engaging in fraudulent behavior. The solution to this type of scandal is simple: Do not misbehave. Obey the law and adhere to the Association of Fundraising Professionals Code of Ethical Standards, the International Statement of Ethical Principles in Fundraising, and/or your nation’s own fundraising code of ethics.

3. Guilt-by-similarity scandal. People in Scotland experienced this several years ago. A cancer charity was embroiled in a well-publicized scandal. As expected, that charity saw a sharp decline in contributions. However, there was also an unpleasant, broad side effect. Completely unaffiliated cancer charities in Scotland also experienced a deep drop in donations resulting from broad public mistrust of all cancer charities. It took the innocent charities nearly a year to recover even with a coordinated campaign to restore public confidence.

Other than avoiding problems in the first place, always a good idea, what can you and your organization do to ensure it can survive a crisis or scandal?

The answer is simple, though the execution is not: Build strong relationships with donors. It takes effort, financial resources, and time. However, it’s an investment well worth making.

Recently, a reporter for The Columbus Dispatch contacted me. Rob Oller sought my commentary about the scandal involving Urban Meyer, The Ohio State University football coach. You can read about the situation on your own since there’s no need for me to get into the details here. Suffice to say that the coach has received a three-game suspension, but not before Bob Evans Restaurants withdrew its corporate sponsorship of Ohio State football.

Oller asked me about how scandal affects charitable giving. I told him, “It depends on the institution and quality of the relationships with its donors over time. The stronger the relationships the more likely the institution is able to weather the controversy.”

Ohio State and Bob Evans Restaurants did not have the same high-quality relationship as the university does with its alumni. The motives for giving are different as well. So, it’s not surprising that the university lost a big corporate sponsor without suffering a massive drop in alumni giving. Paraphrasing me, Oller wrote, “But sponsorships are not dependent on the emotional attachment between alum and school. Corporations care more about their shareholders than about keeping football fans happy, and scandals risk hurting the company’s bottom line.”

In the absence of strong relationships with donors, a nonprofit can be broadly hurt by the loss of a prominent sponsor. Such a loss can cause a domino effect among other sponsors and even individual donors. As I said to Oller, “While it’s bad to lose those [corporate] dollars, it also sends a message to the broader public: ‘They’re losing that endorsement, then maybe I should reconsider my gift, as well.’”

Strong relationships with donors can help nonprofits endure the fallout from a scandal. However, as I mentioned to Oller, “It’s easier when it’s a one-off situation for people to make excuses for the organization. When it’s multiple issues, that becomes harder to do and does seem to offer an opportunity for people to believe, rightly or wrongly, that there is an institutional culture of permissiveness.”

The more serious a scandal or the more scandal-prone a charity is, the more its relationships with donors will be tested. The stronger those bonds are prior to a scandal, the more likely donors will be to continue to rally around the organization’s mission.

Building strong relationships is essential for acquiring, retaining, and upgrading donors. It is also critically important when the time comes to weather a crisis or scandal. In other words, quite simply put, building solid relationships is a critical part of every fundraising professional’s job.

Nonprofit organizations need to respond quickly when a crisis or scandal emerges. However, speedy action is not enough. Organizations need to take the best possible course of action. No response or a bad response can be equally damaging.

Let’s briefly look at this issue by continuing with the Ohio State example. Should university officials have considered the fundraising ramifications of their decision concerning Coach Meyer? Or, should officials have made their decision solely on the coach’s conduct?

I believe the university should have considered the effects on all stakeholders of its various potential courses of action. Perhaps they did. In any case, when faced with a serious decision, particularly one without any great options, nonprofit organizations should consider how each possible course of action will affect the organization’s mission, those it serves, its relationship with other stakeholders (e.g., staff, board members, the broader public, donors, etc.),  and even the sense of the personal integrity of the decision makers.

Just know that while following such a deliberative process will yield the best possible solution to a dilemma, it will likely not result in a perfect outcome, often impossible to achieve by any means. You can learn more about Dr. Marilyn Fischer’s ethical decision-making model by clicking here.

What are some of the things you do to build strong relationships with donors to your organization?

If your organization needs help building relationships, or is looking for ethics training or assistance with an ethical dilemma, I can help. Please contact me by clicking here.

That’s what Michael Rosen says… What do you say?

6 Responses to “What is the Most Important Thing You Can Learn from Recent Nonprofit Scandals?”

  1. I have a question about what to do when we know another nonprofit is behaving unethically. I know of one where the director is blatantly lying to its donors. I realize it is incumbent upon donors to do due diligence, but I (and other local nonprofits) fear the fallout when corporate sponsors and foundations realize they have been lied to and betrayed. Any advice?

    • Madeline, thank you for trusting me with your inquiry. The situation you’ve described is challenging, to say the least. My advice would vary depending on the details. However, based on what you’ve shared, I’ll offer some general thoughts.

      If the unethical nonprofit is also behaving illegally (e.g., fraud, etc.), you might consider speaking with your state’s attorney general or chief charity regulator. They’ll be more likely to take action if you can present them with evidence. Of course, even if they take action, it will likely take considerable time. Furthermore, when officials do act, it will lead to negative publicity.

      Another course of possible action for you to consider, either in addition to or alternatively to the above, is to file an ethics complaint with the Association of Fundraising Professionals, assuming the fundraiser in question is a member. You can learn more about AFP’s enforcement procedures by clicking here.

      Another possible option for you to consider is to empower donors. On a flight a few years back, I was seated next to a complete stranger. As we talked, it turned out she had donated a considerable sum of money to a prep school for a specific project. Unfortunately, the school failed to report back to her regarding the use of her gift though that was a condition of the donation. After several inquiries, she continued to get the run-around from school officials. However, she was able to learn that the project she funded would not be going forward and that her money would be used for something else without her permission. She thought she’d have to live with it, but asked me what I thought. I told her that she did not have to go along with the situation, and gave her what she needed in order to take action on ethical and legal grounds should she ultimately wish to receive her money back or control how the gift would be used. If you have donors in-common with the other charity, you could consider educating them so they can make more informed philanthropic decisions. Of course, you’d have to be sensitive about how you present your evidence.

      Finally, you’ll want to do everything you can to weather the storm if and when it comes. That means developing stronger relationships with prospects and donors. It also means having the organization adopt ethical policies and promoting its commitment to ethical practice. For example, your organization’s board of directors can vote to adopt the AFP Code of Ethical Principles and The Donor Bill of Rights as institutional policies. You then could mention this on your organization’s website while providing copies of each. There are other things you can do; these are just a couple of ideas.

      I hope I’ve provided you with some useful thoughts. I wish you and your organization the best. If anything interesting develops, please let me know.

  2. Michael,

    Excellent post. Too many organizations think it won’t happen to them, but one rogue staffer can derail years of doing good. I have a PPT on this topic and will be discussing at a conference in CT in October.

    FYI I would add that people should read your work about ethics.



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