Charity-Business Ties: Proceed With Caution

To the Editor:

The opinion piece by Shirley Sagawa and Eli Segal (“Break Down Barriers to Business-Charity Partnerships,” My View, December 16) paints a rosy picture of the benefits generated by partnerships between businesses and charities, and argues for a loosening of regulations and restraints on such arrangements.

There are very good reasons to encourage such partnerships. However, there are also very good reasons to be cautious about them, and to ensure that the public and potentially unwary charities are protected from situations that can do more harm than good. …

Charities are built on trust, and corporate partnerships that undermine that trust can be devastating. The top leadership of the American Medical Association found that out recently when they entered a deal with the Sunbeam Corporation to endorse that company’s health-related products, even before the quality of those products was proven. Universities risk undermining their public trust when they give businesses special rights to the results of research or impose confidentiality limits on such information instead of sharing new knowledge openly for public benefit.

Charities such as the American Cancer Society, the March of Dimes, the American Heart Association, or the American Lung Association that associate themselves with Florida orange juice or a particular brand of smoking patch or with various nutritious foods are very careful to argue that their identifications with companies fall short of product endorsements. Nonetheless, these charities are aware of the sensitivity of their arrangements, and they know that the public perceives them as something close to endorsements. They also realize that no such arrangement, no matter how immediately lucrative or how effectively it gets their charity’s name into general circulation, is worth the price of losing their reputation and credibility with the public.

Perhaps it is easy enough for a large charity like the American Cancer Society or a large university or hospital to spend the resources to adequately investigate the risks before entering gingerly into a corporate partnership which it hopes is not only safe but also allows it to obtain a fair share of the benefits generated by the deal. Even such charities are challenged because they must bargain with corporate juggernauts on the other side of the table. For smaller charities, and for those that are associated with causes whose marketing power is unclear, the situation is much more difficult and fraught with danger.

The citizen-consumer plays a critical part in these arrangements. Ms. Sagawa and Mr. Segal argue that consumers can choose products “tied to specific causes or that were manufactured by socially beneficial enterprises.” But how much do consumers really know about what portion of their purchases goes to charity or what sacrifices they are making by choosing a product that may not be as good or as cheap as a competing brand? How much of the price of my Save the Children tie actually goes to that organization (not much, in fact), and how much of my credit-card purchase actually makes it to the charity?

Is Florida orange juice or the Nicoderm smoking patch — or the brand of insurance endorsed by AARP — really better than competing brands, or am I being misled by the charities that are supposed to be looking out for my health and welfare? It may not take much in the way of exposure of sour deals to threaten consumer confidence in these arrangements and, by implication, undermine trust in the very charities that business partnerships are presumed to assist.

Moreover, citizens are not only consumers but also charitable donors. If they are unhappy with the business deals entered by the charities they support, or if they come to feel that those charities have tapped into lucrative commercial revenue streams and no longer need their charitable assistance, they may decide to give less in the way of traditional donations.

Indeed, donors may themselves come to feel more like consumers than donors in this commercial environment and may give less because they feel they don’t receive enough in return. This potential “crowd-out” effect must be factored into calculations made by charities considering partnership ventures.

Ms. Sagawa and Mr. Segal may be right that the existing structure of regulations, such as having to register for charitable solicitation in every state, is awkward and inefficient and can potentially retard the development of charity-business partnerships — although the rapidly growing incidence of these partnerships suggests that regulations are not a major stumbling block. In any case, some effective type of regulatory structure is needed. If existing barriers are to be torn down, then we must at least put in place a program of full disclosure so that the public knows the true parameters of every deal. In addition, charities need to be protected with consultation or educational services that can help them to make sophisticated judgments about potential partnerships and to negotiate deals that are fair both to charities and to business.

Dennis R. Young
Professor
Case Western Reserve University
Cleveland

Mr. Young also is current president of the Association for Research on Nonprofit Organizations and chief executive of the new National Center on Nonprofit Enterprise.