June 4, 1998 | Read Time: 4 minutes
As Paulette V. Maehara takes up her post this week as the new president of the National Society of Fund Raising Executives, her biggest challenge may be the threat to ethical fund raising that has come about because non-profit groups increasingly manage and market themselves as businesses. Consequently, the society’s historic stand against percentage-based compensation is being hotly questioned.
In business, percentage-based compensation such as royalties, commissions, and finder’s fees — which are not permitted under the fund-raising society’s strict code of ethics — are standard practice. People from the corporate world who serve non-profit organizations as trustees, or who are recruited as staff members, have difficulty understanding why acceptable ethical behavior in one world is considered out of bounds in another.
As charities increasingly adopt the values, customs, and efficiencies of the commercial world in every way save for compensation, the society’s stand on commission fund raising is often viewed as unrealistically high-minded, hopelessly muddled, and out of step with the marketplace.
The bedrock of the N.S.F.R.E.’s fund-raising code has always been that members work only for a fixed salary, though for the last few years, bonuses have been permitted. Percentage compensation has long been deemed unethical because it allegedly puts the individual’s self-interest above the charity’s. The legal and moral premise of a charity is that it is organized for the public good, and not for the personal gain or benefit of anyone associated with it.
But in a time of strained resources for almost all charities, trustees and executives see incentive percentages and commissions as the most efficient way to operate. That creates a dilemma for N.S.F.R.E. members, who are required to reaffirm adherence to the code annually — in writing.
Another form of contingent payment, the finder’s fee — a financial reward given to someone who acts on behalf of a donor to arrange a gift for a charity — is no longer uncommon. Lawyers and financial planners, for example, often work on setting up bequests, trusts, and other planned gifts for charities. In their professions, a piece of the action is not deemed improper. The society’s code, however, says that “members shall not pay, seek, or accept finder’s fees.”
Though the society’s members are ethically bound to uphold all of those standards, some members have clearly stepped over the line when planned gifts are involved, largely because the pressure of boards and C.E.O.’s can be irresistible. Who is going to fall on a sword over the ethics of finder’s fees when no one up the line sees anything wrong with paying a small fortune to get a large one?
Given the outright ban on commissions and percentages, the society’s stand on bonuses seems truly contradic tory. For many years, bonuses were banned. But in the early 1990s, after much wrangling, the ethics code was adjusted to reflect the hard fact that in countless large non-profit organizations like hospitals and universities, managers and staff members routinely receive bonuses, just like people in the business world do.
The revised code now states that “members may accept . . . bonuses provided that such bonuses are in accord with prevailing practices within the members’ own organizations, and not based on a percentage of funds raised.” That revision of the code, which I helped draft, simply countenanced a widespread practice that the society was powerless to reverse. Unhappily, the same now seems to be increasingly true of other banned compensation practices.
Because ethical behavior is really in the heart of the individual, a code of ethical behavior is ultimately unenforceable. But in survey after survey, N.S.F.R.E. members rank the society’s role as an ethics watchdog at or near the top in terms of importance.
In this day of blurred distinctions between for-profit and non-profit organizations, squaring the ethical ideal with the practices of the marketplace is probably the toughest and most important challenge the society and its new president, Paulette Maehara, face. If the society fails to uphold its code, “fund-raising ethics” will soon be an oxymoron.
Henry Goldstein, president of the Oram Group, in New York, is a regular contributor to these pages. His e-mail address is hankus@juno.com.
