Where Do Your Pennies Go? Disclosing Commissions for Charitable Fundraising

Abstract

Nonprofit organizations are using commercial fundraising services. The cost of such services may reach a high percentage of the funds collected from the public. The premise of the US Supreme Court is that a high percentage fundraising commission is not, per se, a fraud on the donor. Yet, in the eyes of the donating public a high rate of fundraising commission is likely to be seen as unreasonable and illogical irrespective of the economic rationale for its amount. Disclosing information to donors is likely to result in an intuitive refusal to contribute. This fact gives rise to what I call "the disclosure paradox". On the face of it, it is the charitable sector that ought to benefit from public scrutiny which inhibits the prices of commercial fundraising services. However, these organizations generally oppose efforts to restrict their ability to enter into contracts with commercial fundraisers. It is feared that the restrictions will not lead to lower prices but will impair the ability of these bodies to raise funds from the public. In my view, The Supreme Court shared this fear against the minority view of Justice Rehnquist. In his opinion, full disclosure of information will rather strengthen the capacity of the third sector to raise funds. It will heighten the confidence felt by the donors in the bodies raising money. A similar view is reflected in the motto coined by the UK Charities Commission. In my opinion, this is the correct view. Third sector organizations following a policy of concealment are likely to lose out. The inevitable result of this approach is a gradual erosion of the motivation of the public to give which eventually leads to a refusal to give and in the long term harms the image of the third sector.

Keywords: charity, charitable, trust, fundraising, telemarketing, constitutional law, third sector, charities, commercial fundraising, freedom of speech, commercial, commission, UK, Germany, nonprofit, nonprofit organization, fundraising cost, fraud, do not call list, Rehnquist, Supreme court