The AFP Code of Ethics: Breached By The Internet?
By Henry Goldstein

Charities are no longer as trusted as they once were, as Paul Light reports on the Brookings Institution web site. He reports that only 15% of 1400 people surveyed in August said they trusted charities. Though that is an increase from a low of 13% in January, it is still well below the 25% figure of 4,000 people interviewed in December, 2001.

Even as the industry struggles to explain away this lack of confidence, mostly through denial, Senate hearings on excess compensation to charity and foundation officials, as well as pending legislation to strengthen regulation of charities in states across the country strongly indicate all is not well.

Overlooked in the bad news about charity is yet a more subtle issue: a core ethical principle engrossed in many organizations’ codes of ethics – thou shalt work on a salary or fee basis, and never on a commission or percentage of funds raised – is now under increasing assault. This will, in my view, ultimately force the industry to reconsider the standards in place for nearly 70 years in the ethical code of the American Association of Philanthropy (AAFRC), and for almost half a century in other groups.

The surface problem is the web, a free and essentially unregulated medium of immediacy, information and exchange, all at high speed. A growing number of businesses have set up on the web as intermediaries between charities and consumers. They charge a “transaction fee” for the service of getting your gift to a charity or to several. This is a percentage based on the amount of your gift. Is this a violation of the ethical codes put out by AAFRC, Association of Fundraising Professionals, and others? Apparently not. AFP has weighed in with a document, almost theological in its parsing of the issue, and has concluded that a transaction fee is different because these businesses are not fund raisers, but mere agents.

Actually, I have little problem with this interpretation, and indeed, neither AFP, government regulators, nor anyone else can do much about it. Percentage or commission fundraising is not illegal anywhere; it is common business currency. Lawyers, real estate professionals, architects, salespeople, and many other wholly ethical professionals compute compensation on a percentage or commission of the transaction.

The Wise Giving Alliance of the Better Business Bureau says nothing about percentage fundraising, stating only that fundraising costs be “reasonable.”Charity Navigator, an evaluator of philanthropic groups does not have an online code of ethics but neither there nor elsewhere on the site is there any discussion of percentage fundraising. Guidestar, the national database of charitable organizations has nothing to say on the subject. In short, percentage fundraising is a concern of the professional fundraisers. But is it losing traction everywhere else?

I doubt the ethical codes of the professional and trade groups – no matter how worthy people think they may be - will survive over time. This troubles me. As former chair of AFP’s national ethics committee, I had a (some would say heavy) hand in setting up and amending the existing code. I still believe that the field has been very well served by holding commission and percentage fundraising as unethical. These standards were put in place originally to separate the bad apples in the market from the good ones. There had been egregious abuses – as there still are. The advance of technology, its widespread use over print in a society that is increasingly non-linear, and the fact that what goes up on the web is essentially beyond the reach of meaningful regulation, threatens the old ways. Moreover, business people on nonprofit boards often don’t get the problem of commission or percentage fundraising.

The on line philanthropic transaction is no different from other kinds of on line “shopping.” The question that logically arises is whether the AFP or AAFRC code is really for the consumer at all, or more for the continuing education of staff fundraisers and consultants. Given the high rate of turnover in development work, I am tempted to argue that is alone sufficient reason to let things be.

On the other hand, it is past time for the leadership of the nonprofit industry to convene as a group, not just organization by organization, to address the question: will the old codes of ethical practice hold up in today’s changed society? And more broadly, assuming Paul Light is correct, why is the American public losing confidence in its charities?

Henry Goldstein is president of the Oram Group in New York. Click here to send an email.