Protecting Philanthropy – Part 2

18 October 2017

Despite what feels like endless economic uncertainty,  philanthropy is on the rise in the US, the UK and across Europe, underscoring just how important ‘giving back’ is to today’s most successful individuals. This is evident not least by the fact that the Giving Pledge – a commitment by the world’s wealthiest individuals and families to dedicate the majority of their wealth to giving back–  now has 170 pledgers, having started with 40 in 2010.

From helping the poorest in one’s community to investing in technological breakthroughs and programmes that could one day save the world, philanthropy can take many forms, including impact or sustainable investing, which has become increasingly popular among entrepreneurial millennial investors and has grown by 33% between 2014-2016. But donating effectively can be  complex; especially when it comes to setting up your own foundation or ensuring that organisations or initiatives you support are carrying out their duties effectively so that your philanthropy makes a difference.  

Without appropriate due diligence, philanthropy can have major reputational consequences, from damaging publicity; to regulatory investigations; to loss of stakeholder confidence and ultimately loss of business. The last thing you want is to find out is that an organisation or initiative you have been supporting for years is suffering huge financial difficulties, meaning your donations have not been reaching their intended target; or that inadequate safeguards have enabled the embezzlement of funds by trustees. In terms of sustainable investing, there can also be reputational and business risks attached to getting more involved in policy and geo-political issues.

So what can you do to ensure that a perfect intention doesn’t end up becoming a perfect storm; with your reputation firmly at its centre?

First, research your chosen cause to ensure that the organisation’s values align with your own personal values and that any philanthropic efforts on your part will not be seen as inappropriate or unethical by your business stakeholders. Understand what the organisation’s mission is – for example is it looking to effect change at a policy level? Further, are the companies you are investing in really delivering the social and environmental impact they say they are? Research should include reviewing the organisation’s annual report, its rating on sustainability issues, speaking with senior staff and board members, seeing its work first hand, and assessing whether the organisation has the staff and resources to deliver successful outcomes.  

Second, monitor outcomes by keeping tabs on your chosen organisation to ensure that your investment or donations are making a genuine impact. Speak regularly with the organisation to understand how it evaluates the outcome of its programmes and defines ‘effectiveness’ and how your financial resources will be used.

Third, assess processes and look for regular proof points that the organisation has good governance, is transparent, accountable and fiscally responsible. In the UK and US, charities have a duty to promote transparency and accountability to ensure public trust and confidence in their work. Records of both domestic and international transactions must be sufficiently detailed to show that funds have been spent as intended and in a manner consistent with the purpose and objectives of the organisation. Members of the public are able to check an organisation’s tax status and its financials – the register in the UK, the IRS search tool in the US and the Foundation Centre’s 990 Finder are a good place to start.

Fourth, ongoing due diligence and risk management is key, with the caveat that due diligence needs to be proportionate to the level of risk the charity is exposed to. In the same way that due diligence is commonplace in the commercial sector, from the on boarding of clients through to investigating and auditing potential investments, the same principles apply to philanthropy.  Trustees will need to ensure that appropriate due diligence is conducted on both those individuals or organisations that give and receive money, as well as its contractual partners. Likewise, risk management is essential for business planning and governance. As with commercial organisations, charitable organisations must also take precautionary measures to protect against the increasing risk of  privacy and security crises, as well as cyber-attacks such as phishing scams and malware attacks. 

In addition to the above, consider your own privacy strategy and how prominent a supporter of a cause you wish to be. The more vocal a proponent, the greater both your exposure to public scrutiny and your responsibility to ensure that you do not compromise an organisation’s philanthropic efforts. Commissioning a report into your and your executives’ existing privacy exposure and digital footprint will be a good first step to mitigating any risks in this regard.

In circumstances where the reputational fall-out can be significant, there is a greater need to ensure that a charity’s governance is beyond reproach. Having the conversations, doing the research and investing the time will mean not only that your philanthropic efforts will make a difference to the organisation that you are supporting, but that the difference it makes to your life is one for the better, not worse. 

To read part one of this Protecting Philanthropy series, click here.

To read part three of this Protecting Philanthropy series, click here.

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About the Author

Hind Habib

Senior Associate

From defamation to data breaches, Hind advises prominent individuals and successful businesses to identify threats and mitigate risks to reputation both pre and post publication.

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