Guns, oil, fags, booze: Where should charities draw the line on funding?

With charities turning away donations from the Sackler Trust and ending partnerships with oil giants, exactly when should charities be saying 'no' to gifts or investments? Emily Burt delves into the tangled ethics of bad money

(Photograph: Getty Images)
(Photograph: Getty Images)

If you were put on the spot, could you say exactly how far the organisation you work for was willing to go for money? Would you accept a donation from a company that is causing a health crisis of epidemic proportions in another country? Would you accept money from a multinational corporation known to be a global player in the climate crisis, or invest charitable funds in tobacco or alcohol firms, or even in a weapons manufacturer?

At best, these scenarios seem to be at odds with the ethics that the majority of the third sector stands for; at worst, they seem to be offensive and ill-advised. However, they are all drawn from real examples of the choices made by UK-based charities in recent years.

Take the alcohol and weapons. In 2013, BBC’s Panorama programme found that Comic Relief had invested hundreds of thousands of donated pounds in these two areas. This included an investment of £630,000 in shares in the arms manufacturer BAE Systems and holding more than £300,000 in shares in the alcohol industry, even though the charity supports children in war-torn countries and its mission statement says it works "to reduce alcohol misuse and minimise alcohol-related harm". And more recent cases suggest the dialogue around charities and "bad money" has persisted.

Sackler cash

Earlier this year, the Sackler Trust, which historically donated more than £60m to healthcare, education and the arts in the UK, halted philanthropic giving when the National Portrait Gallery and the Tate said they would no longer accept donations after the Sacklers were accused of fuelling the prolific opioid drug addiction crisis in the US. The Dr Mortimer and Theresa Sackler Foundation, which gave grants totalling £5.2m to UK charities in 2018, according to BBC News, also suspended giving.

And in early October, the Royal Shakespeare Company announced that it would prematurely end its partnership with the oil giant BP, which had sponsored the charity’s successful £5 ticket scheme for 16 to 25-year-olds since 2011. It had been due to end in 2023, but will now finish at the end of this year. In a statement, the theatre company’s artistic director, Gregory Doran, said the "difficult decision" had been made after listening to feedback from young patrons. "Amid the climate emergency, which we recognise, young people are now saying clearly to us that the BP sponsorship is putting a barrier between them and their wish to engage with the RSC," he said. "We cannot ignore that message."

A lot of money has a history: charities should be aware of where their income derives from

Professor Cathy Pharoah, co-director, Centre for Charitable Giving and Philanthropy at Cass Business School

There are no easy answers to the complex question of what constitutes bad money. But at a time when the sector is under increasing financial pressure and public sentiment is quick to criticise, it has never been more important for charities to establish where the line is drawn.

Professor Cathy Pharoah, co-director of the Centre for Charitable Giving and Philanthropy at Cass Business School, acknowledges the conundrum charities face. "A lot of money has a history, and charities should be aware of where their income derives from," she says.

"We live in a culture of greater transparency, with an increasing awareness that money comes with a context. Charities must consider not only their numerous different stakeholders, but also the potential effects of their financial choices on donors."

Guidance from the Charity Commission and best-practice advice from the Institute of Fundraising, though both bulked out after a number of recent donation scandals, remains relatively light-touch. In essence, they dictate that deciding when to accept or reject a donation, gift or sponsorship deal rests ultimately with a charity’s trustees, who must make the call based on what is in the best interests of the organisation. However, the IoF stresses that donations should be refused only in "exceptional" circumstances. Exactly what constitutes exceptional is for the trustees to decide and falls into the muddy tangle of ethics.

Ian MacQuillin, director at the fundraising think tank Rogare, says a major stumbling point when it comes to corporate ethics is the struggle to separate them from personal feelings. "People have a tendency to conflate their moral values with their codes of ethics and treat them as one and the same," he says. "In reality they are two very separate processes. Ethics is not about values; it’s about the process of how you make a decision."

Where money is involved, decisions tend to fall roughly into one of two ethical camps: "deontological ethics", where a person makes a decision because they believe it is the right thing to do regardless of the outcome; and "consequential ethics", where a decision is made based on the possible outcomes carrying out that action (or not) would lead to.

It would be understandable to suppose that charities, as "do-gooders", are drawn towards the deontological approach, but the majority of the guidance and advice on process when it comes to making a decision about money is arguably more consequentialist in tone. IoF guidance even goes so far as to say that, although ethics and values are important in reaching a decision about whether or not to accept tainted money, they "cannot be the decisive factors".

Not simple to say ‘no’

To say no to a donation, a charity must be able to prove that doing so would be unlawful – an incident along the lines of the $40,000 "gift" allegedly given to a Caribbean football official by a candidate for the Fifa presidency in 2011 would land any charitable organisation in serious legal trouble – or that accepting the donation would be materially detrimental to the charity achieving its purposes. Material detriment could take the shape of other lost donations from supporters or funders, which would crucially have to be at least equivalent in the long term to the value of the tainted donation, the loss of volunteers or staffers who might resign from the charity in protest, or the inability to recruit new people to the charity in the future.

People have a tendency to conflate their moral values with their codes of ethics and treat them as one and the same. In reality they are two very separate processes. Ethics is not about values; it's about the process of how you make a decision

Ian MacQuillin, director, Rogare

This might explain why you rarely find unanimous agreement on whether a charity made the right move in accepting or refusing what they considered to be bad money.

"I understand the RSC decision but am also perplexed by it," says Michelle Wright, chief executive and co-founder of the B-corporation Cause4, which develops philanthropy and ethical fundraising programmes and advises art charity trustees on sponsorship. "Before entering into the partnership, a defensible position should have been established about why it was important."

Mark Stevenson, the futurist and author of We Do Things Differently, believes in contrast that, although charities are trapped into consequential decisions by systemic problems in society – "the argument that ‘we can’t afford to do things so charities must look after it’" – they should be making every effort not to facilitate the system.

"The world is massively dysfunctional and falling down around our ears," he says. "Democracy, climate change, mental health, employee disengagement and mass inequality are all intertwined, and it’s because we have systems of institutions and assumptions about the ways the markets work together.

"By helping fossil-fuel companies maintain their licences to operate, by facilitating cheaper tickets to Shakespeare, or whatever, you’re still bolstering the business model of a company whose mission is to destroy the planet."

It is not enough to argue that you are "doing the right things with the wrong people’s money", he adds. "What message does this behaviour send?"

Refusing donations can be a powerful way for charities to send a signal to beneficiaries and supporters about their principles. In its fundraising policy, Greenpeace says it does not accept funding from "corporations, political parties, governments or the European Union", arguing that independence is vital if the organisation is to be effective in its campaigning work. In 2016, the medical humanitarian organisation Médecins Sans Frontières announced that it would no longer accept funds from the EU and member states, in protest against "damaging deterrence policies" and hostile attitudes towards refugees arriving across Europe, a decision that might have cost it an estimated £44m a year based on what it received from the EU at the time.

"There is nothing remotely humanitarian about these policies," said Jerome Oberreit, international general secretary of MSF at the time. "It cannot become the norm and must be challenged. MSF will not receive funding from institutions and governments whose policies do so much harm."

Médecins Sans Frontières is among the charities that refuse to accept funding from EU member states in protest over hostile policies towards refugees arriving in Europe 

Yet while it stands that every charity should be against causing harm, the practicalities of where to draw the line can send them plunging into another moral maze. "What about the National Lottery?" MacQuillin asks. "Should charities not work with it because gambling causes harm? Is it important for your values code to state that you will never work with a tobacco company, irrespective of whether it conflicts with the cause of your charity?"

The risk, he continues, is that fundraisers and decision-makers can end up creating a hierarchy that ranks certain partnerships and situations as more harmful than others, an approach that lacks sophistication.

Financial pressure

It would also be short-sighted to draw those lines without also acknowledging the immense financial pressure many charities face. William Booth, the Victorian founder of the Salvation Army, is believed to have said "the trouble with tainted money is t’aint enough of it". In an age of continuing austerity, and with research suggesting that individual donations are in decline, how much money should third sector organisations be ready to turn away?

"As a fundraiser, I feel really concerned that if we are not building better, more consistent approaches to organisational policies on ethics, we could be in danger of making the arts unfundable to corporate sponsors," Cause4’s Wright says. In contrast to the RSC, the British Museum continues to partner with BP despite public protests and the resignation of a trustee in the past year. Why? "Support from the corporate sector is essential for museums and arts organisations in times of reduced funding," a spokesperson tells Third Sector. "This support means we can successfully plan exhibitions in the long term and deliver public benefit for millions of people."

Stevenson takes a dim view of this, accusing the charity of being "neither inventive enough to find other sources of funding, nor willing to put its weight behind that. It’s morally indefensible in the long term."

Yet the unavoidable reality is that charities need money to survive and refusing it could be actively in conflict with their charitable objects. Smaller charities, in particular, rarely have the luxury of refusal if money is on hand. Mary Rose Gunn, founder and chief executive of the grant-maker The Fore, says: "Generally, the ethics of acceptance isn’t something smaller charities even consider. By the time it reaches them, the money is often already in the sector and can hardly be given back. It’s money they desperately need."

A lot of charities don't have the appropriate defences in place when it comes to these decisions, which leads to them withdrawing from relationships rather than defending them

Michelle Wright, chief executive, Cause4

Gunn is right that returning money deemed in retrospect to be bad is even more complex than deciding whether to take it in the first instance. The response of the Great Ormond Street Hospital Children’s Charity to the scandal involving the Presidents Club in 2018 is the most obvious case. When the Presidents Club’s notorious annual charity fundraising dinner was exposed as a hotbed of sexual misconduct, with some of the all-male attendees subjecting hostesses to groping, lewd comments and requests to join them in their bedrooms, the hospital charity found itself at the heart of the furore as a long-term beneficiary of the trust.

"Many charities don’t have the frameworks, the tools or the theory to deal with these issues," MacQuillin says, pointing out that, although you can find multiple books on ethical operations in industries such as journalism or marketing, there is nothing of this kind when it comes to fundraising.

The charity initially announced that it would return more than £500,000 of donations it had received from the Presidents Club between 2009 and 2016. But after experiencing a backlash from supporters and consulting Charity Commission guidance, the charity reversed the decision just months later.

"There are really only three ways you can return money that has already been spent: take it out of the reserves, fundraise for it or make it up by cutting beneficiaries’ services," MacQuillin says.

"A key principle of ethics is that you should not cause harm. If you are damaging beneficiaries, or staff by making them redundant, it’s not only contrary to ethical principles, but causing suffering to people for something they didn’t do. This is a real risk of ignoring consequentialism when thinking about ethical choices."

Charities are legally required to have a gift acceptance policy that should, in theory, protect them from ethical quandaries, but many of the examples to do with bad money suggest they are rarely sophisticated enough.

"A lot of charities don’t have the appropriate defences in place when it comes to these decisions, which leads to them withdrawing from relationships rather than defending them," Cause4’s Wright says.

So what policies do charities have in place? Third Sector reached out to more than 10 of the UK’s largest fundraising charities to enquire about their values codes when it came to gift acceptance or refusal; all but two of them declined to speak on the subject.

‘We consider donations carefully’

Offering her thoughts, Francis Milner, executive director of philanthropy and partnerships at Cancer Research UK, says maintaining the trust and confidence of supporters is vital for the charity’s work and an important factor in donation acceptance. "We consider all donations very carefully and don’t accept any gifts from organisations that conflict with our core purpose to beat cancer," she says. "We assess each donation and partnership on a case-by-case basis through a partnerships decision-making board, and regularly review our due-diligence process."

Alzheimer’s Research UK also places beneficiaries front and centre, deputy chief executive Ian Wilson explains, with specific policies that "take into account factors such as whether an organisation’s products or services could increase the risk of dementia or potentially hinder the charity’s progress".

With beneficiaries at the heart of a charity’s best interests, establishing how they feel about donations from or partnerships with potentially controversial donors is one of the best practical steps it can take in shaping policy.

And always bear in mind how those decisions could affect beneficiaries in the long term. In the aftermath of the arms, alcohol and tobacco furore, Comic Relief divested from these stocks and pledged not to give money to these areas in the future. The charity’s annual income from investments subsequently fell by more than £2m and in 2015 the charity’s finance director said the financial loss had caused a far greater impact than the public disapprobation. Had the charity considered its position more carefully, a member of the charity’s investment review panel said, "it probably wouldn’t have chosen to divest, especially in a rising market".

Unnatural as it might seem to begin any bad money decision by freeing it from the concepts of "right" and "wrong", it could be the best choice for your organisation. "This should not be based on gut feeling," MacQuillin says. "If you have decided what your moral values are, you don’t need an ethicist to persuade you otherwise. But if you need a policy to work with those values, you can’t make it up as you go."

So would you take on bad money? Now is the time to figure that out.

Yes or no: Practical considerations for creating a robust gift acceptance policy

1 Lay the foundations

Consider how your gift policy will relate to your other governance documents and policies, including whether or not these documents already limit or prohibit certain kinds of donation. Ensure consistency across your policies and think about how often the final product will require reviewing.

2 Choose your leaders

Fundraisers are the obvious choice for people to lead on creating a gift acceptance policy, but, depending on the size of the organisation, other people might need to be involved, including lawyers or finance professionals. Bear in mind that the final approval must come from the charity trustees.

3 Seek expert support where necessary

As Ian MacQuillin (right) points out, the more grounded in ethical theory your gift acceptance policy, the more robust it will be in delivering positive outcomes. Involving ethicists or people with a clear understanding of ethical theory can be a great help if policy leaders are struggling to establish a clear stance.

4 Agree on transparency

Does your organisation plan to make the policy public, and what are the potential implications for doing so? On the one hand, opting for transparency can send out useful messages regarding trust and instil confidence in beneficiaries. However, the Institute of Fundraising guidance warns that publishing a policy could lead to questions about the rationale and discussion of individual cases.

5 Be agile and responsive

Adopting a clear policy is not without risk, so ensure you have contingency plans for any problems that could arise. The IoF suggests tasking someone with establishing a list of "what ifs" for a range of situations and being conscious of anyone who could be unhappy with a decision resulting from the policy, such as staff, the donor or other stakeholders. Finally, always be ready to review and update your policy if required.

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