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 funds collected from public. The premise of US Supreme Court is that a high percentage fundraising commission is not, per se, a fraud on donor. Yet, in eyes of donating public a high rate of fundraising commission is likely to be seen as unreasonable and illogical irrespective of 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 face of it, it is charitable sector that ought to benefit from public scrutiny which inhibits 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 restrictions will not lead to lower prices but will impair ability of these bodies to raise funds from public. In my view, The Supreme Court shared this fear against minority view of Justice Rehnquist. In his opinion, full disclosure of information will rather strengthen capacity of third sector to raise funds. It will heighten confidence felt by donors in bodies raising money. A similar view is reflected in motto coined by UK Charities Commission. In my opinion, this is 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 motivation of public to give which eventually leads to a refusal to give and in long term harms image of third sector.