DIFFICULT MORAL QUESTIONS
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Question 98: What percentage of donations may fund raisers spend on overhead?
I am the president of a Church-affiliated, nonprofit organization whose sole function is to raise and distribute funds for missionary activity. Raising money costs money for staff, offices, advertising, and so forth. Most contributors to nonprofit organizations probably do not realize that these overhead costs often take a large part of what they contribute. Before I became president, our board of directors had considered this problem and decided that eighty cents of every dollar we raise must actually go to the missions and not more than twenty percent may be used for overhead. I am wondering whether I should urge the board to increase the percentage I may use for overhead, and, if so, by how much.
The case for making the increase is quite simple and straightforward. Last year we raised nearly ten million dollars, and our total overhead was just over $1,800,000—which was a little under 19%. Advertising accounted for more than half the overhead, just under one million. An advertising agency we use has worked up a convincing study showing that, if we double our advertising budget, we can expect to raise two to four million more. That would give us about one to three million more to distribute, since distributing the money costs virtually nothing and other elements of our overhead would hardly increase at all. At worst, our total overhead would be 25% of twelve million raised and at best under 21.5% of fourteen million raised.
The same sort of argument can of course be made for increasing the advertising budget even more, to the point at which any further increase would no longer bring in contributions adequate to cover it. That strategy, adopted by some fund raisers, often results in overhead of fifty percent, seventy-five percent, or even more. Personally, I feel adopting that strategy would not be keeping faith with our contributors, but I do not feel the same way about the proposal to double our advertising budget. But if we do that, where do we draw the line?
In considering my question, you may find it helpful to know that at present we are not required to tell contributors about overhead costs and never do so unless asked. When asked, we send a brochure that includes a detailed statement for the previous year and an easy-to-understand explanation justifying our overhead. The explanation points out that, while all our advertising is meant to raise money, it does incidentally educate people about the missions and their needs, including their need for vocations and prayers. Thus, our advertising has some nonmonetary benefits, sometimes even when it brings in no contribution.
On this basis, we could adopt a device used by many fund-raising organizations. Instead of saying that more than eighty cents of every dollar received goes to the missions and less than twenty cents for overhead, we could introduce “educational programs” (the advertising budget) as a third category. Then we could say that more than so much of every dollar is either distributed to the missions or used for educational programs, while the remainder, ascribed to overhead, would be a much smaller percentage than now, and would shrink proportionately as our advertising budget increased.
Of course, we could make this change whether or not we raise the present limit. I would therefore appreciate it if you would consider as a distinct question: May we adopt the device of attributing our advertising costs to “educational programs” so as to reduce the proportion of contributions apparently going for overhead?
Analysis:
The first question—What percentage of the money donated may be used for overhead?—admits of no precise answer, and reasonable judgments must take into account diverse circumstances. Fund raisers defraud donors if overhead takes a significantly larger portion of donations than thoughtful donors would expect. Fund raisers also must be fair to other fund raisers and their causes. The present policy of the questioner’s organization limiting overhead to twenty percent does not clearly violate these norms. However, in my judgment, raising that limit would be questionable. Investigation could determine recent donors’ expectations regarding overhead. If those expectations are to be exceeded, all appeals for donations at least should state clearly that a substantial portion of donations is used for fund-raising costs and that a detailed statement is available on request. The second question—May this organization’s advertising costs be attributed to “educational programs”?—can be answered definitely: no. Because all of the organization’s advertising is directed primarily to fund raising, attributing advertising costs to educational programs would be deceptive.
The reply could be along the following lines:
I do not think there is any precise answer to the question: What percentage of donated money may be used for overhead? But one can articulate some relevant norms indicating the outer limits of moral acceptability. For organizations making a first effort at fund raising, those whose purpose is to raise funds adequate to meet some well-defined need or set of needs, those with unpopular causes, or those with substantial management expenses other than fund-raising costs, the norms would be somewhat different from those for organizations which, like yours, are well-established, are seeking funds to meet open-ended needs, have a cause acceptable to many members of an easily identified community, and have few other management expenses. So, while some of the following norms are true for every fund-raising organization, not all are.
First, fund raisers must be dedicated, not merely self-serving. Claiming to serve the good cause for which they seek funds, they must intend to serve it, not simply to make a living for themselves. Of course, they may take fair recompense for their service, but the good cause, not self-interest, must remain the end shaping their decisions about fund-raising strategies and how much to spend on overhead.
Second, in seeking donations, a fund raiser implicitly assures potential donors that their money will be used for the purposes described. Everyone who thinks about it knows there will be some overhead, so fund raisers need not make a point of that unless it exceeds what potential donors would expect. Unless told otherwise, people asked to donate for a particular purpose surely expect that most of what they might give would be used for that purpose. So, a fund-raising strategy resulting in undisclosed overhead of fifty percent or more plainly would be fraudulent. That would not be so if the high overhead were fully disclosed to all potential donors, but then of course the campaign would not be likely to succeed.
Third, in many situations, a strategy resulting in overhead even less than fifty percent would be fraudulent, since expectations are based on people’s past experience. For instance, many Catholics’ expectations regarding fund raising are shaped by their experience with parish and diocesan collections, such as Catholic charities, where the overhead is very low. Of course, anyone who thinks about the matter should realize that the overhead for virtually any other sort of fund raising inevitably will be greater. Still, when the costs of fund raising for Catholic causes are significantly greater than most thoughtful Catholics would expect, fund raisers defraud people unless all appeals for donations include a fair warning about overhead costs.
Fourth, fund raisers must be not only honest with potential donors but fair to other fund raisers and their causes. Some strategies might encourage people to give more overall, but others are more likely to lead them to redirect part or all of what they donate. In the latter case, even if relatively high undisclosed overhead is not fraudulent, it can be unfair to competing fund raisers and causes. Most bishops and pastors of parishes, for instance, probably would regard any Catholic organization spending a quarter of what it raises for overhead as unfair competition, unless the organization encouraged people to regard what they give it as a complement to, rather than as a substitute for, their contributions to diocesan and parish collections.
Applying these norms to the current policy of your organization, I think it clearly meets the requirements of the first two. Whether it meets the requirement of the third is not so clear, yet I do not think it clearly violates that norm, and your practice of responding fully and honestly to inquiries about overhead costs is reassuring. Without analyzing the literature you now send out, I cannot guess whether your present strategy meets the requirement of the fourth norm. But since your purpose is to raise and distribute funds for missionary activity, you can easily avoid unfair competition with parish and diocesan collections by focusing your appeals on the responsibility of all Catholics to contribute not only to their own parish and diocese but to the Church’s worldwide apostolate—especially to spreading and supporting the faith where the Church is not yet well enough established to sustain herself.
What about the proposal to double your advertising budget, so as to increase the amount you will raise and distribute to the missions, while also increasing your overhead, perhaps to nearly twenty-five percent? Assuming all or much of the increase in donations would result from acquiring new donors, the additional advertising cost might well be fruitful in future years.302 Still, I suspect that increasing your overhead would put it beyond donors’ reasonable expectations. To find out whether it would, you could have an independent organization poll a representative sample of your recent donors. Those polled would be asked to guess the costs of fund raising by various causes on a list including the missions among others. I think the inquiry will show that increasing the advertising budget, and perhaps even maintaining it at the present level, will violate the third norm unless you begin to inform all current and potential donors about overhead costs, at least by clearly stating that a significant part of every donation goes for overhead and offering to send your detailed statement and explanation to anyone who wants it.
What about calling advertising expenditures “education?” Unless the primary purpose of the advertising really is to educate, introducing so-called educational programs as a third category would be fraudulent. All sound advertising to raise money for good causes does teach people about responsibilities pertaining to justice and mercy. But this teaching is strictly subordinate to fund raising. Some organizations, of course, not only raise money for a certain purpose (for example, research to cure or treat some disease) but carry on distinct programs intended to educate both donors and the general public (for example, how to watch for signs of the disease); their budgets rightly include educational programs as a category separate from overhead. Since the purpose of a program determines what it is, an honest description of any particular expenditure requires that it be charged to one or another category according to the main intention in making it. Expenses intended for both purposes should be divided appropriately between the two categories. Since the content of any advertisement or literature an organization distributes reveals the intention behind the material, one might seek advice from a panel of impartial people in deciding how to allocate the costs of such materials between overhead and educational programs.
If it is literally true, however, that your organization’s “sole function,” as you put it, “is to raise and distribute funds for missionary activity,” then all your advertising is intended to raise money, and it would be dishonest to attribute any part of its cost to educational programs. Yet the educational benefits from your advertising, even when it elicits no contribution, do help justify its costs, and so you rightly point out those benefits in explaining your statement of income, expenses, and funds distributed to the missions.