1. National Localized Cause Marketing

According to the 2013 Cone Communications Social Impact Survey, Americans want companies to support issues that affect the quality of life locally (43%) more than nationally (close behind at 38%) or globally (20%). Companies are increasingly developing national cause marketing campaigns that allow their local retail stores to choose their own community-based nonprofit organization to support within a unified and nationally-branded campaign.

Structuring a multi-state, localized campaign requires significant planning and coordination to ensure success and compliance by all participants. Companies must ascertain that the charities selected by the local retail stores are appropriate to the brand. They must ensure that the partner organizations are in compliance with all applicable charitable fundraising regulations.  In the past the charities needed to educate companies new to cause marketing that charitable fundraising regulations may be applicable to their campaigns (e.g., the company may need to be registered as a commercial co-venturer in certain states and comply with advertising disclosure requirements). The growing trend of developing charitable campaigns involving numerous local charities flips the roles; it is often the national companies which are familiar with knowledge of the applicable regulations while the smaller local charities are typically unaware of such requirements.

When a national company invites small, community-based nonprofits to participate in a cause marketing campaign, the company often has to introduce fundraising compliance concepts to the local charity partners (e.g., the need for the charity to be registered to solicit contributions in the state where the campaign will take place, which is typically the state where the charity is located).  Many of these small charities aren’t aware they need to be registered to solicit funds or to benefit from a fundraising or cause marketing campaign.  Newer charities may not understand the request for documentation confirming its state charitable fundraising registration status and provide IRS determination letters and Certificates of Incorporation instead.  On a positive note, because of the unique opportunity to partner with a national company, bring in new supporters, and increase awareness about the work they are doing locally, the charity partners are usually willing to take the steps required for compliance.

Conducting a national localized cause marketing campaign can mean dealing with compliance issues with dozens, if not hundreds, of charity partners.  Building a detailed compliance schedule and set of procedures, along with appropriate contract templates (which may require some customized state-specific compliance provisions where applicable), will help ensure a smooth roll-out of the campaign across retail stores nationwide.

2. Grassroots, Community Interest Fundraising

There is a lot of energy that charitable organizations can harness from local, national, and virtual communities that share a common interest.  Such niche groups can form strong bonds, whether around a popular form of exercise (think spin cycling or Zumba^® classes) or online gaming. Plugging a charitable campaign into the shared activity can drive both awareness and funds to charitable causes in big ways.  The use of social media to engage these shared interests communities may be one reason why these grassroots fundraising efforts are on the rise.

Grassroots, community interest fundraising often begins at an experimental level, with individuals who are part of the interest group presenting a new fundraising opportunity to a potential charity partner. When the campaigns are successful, they can be replicated regionally or nationally across multiple sites.  This model is frequently structured to benefit a particular national charity.

Here are a few legal compliance issues to be considered when undertaking a scalable grassroots fundraising campaign:

• Who is legally responsible for conducting the fundraising activities? Charities must determine if they are a passive beneficiary of a voluntary fundraising effort or the legal owner of the fundraising campaign.  National charities often do not want to take responsibility for a new fundraising idea developed outside of the organization (until the concept takes off!).  If the concept proves successful enough to replicate nationwide, the charitable beneficiary may need to consider taking control and ownership of the campaign in order to ensure effective and efficient execution, including legal compliance.
• Who will own the intellectual property relating to the campaign? If the campaign is a coordinated fundraising effort to benefit one specific charity, the charity generally needs to maintain control over the campaign’s trademarks and other IP in order to maintain quality control and protect the organization’s reputation.
• Is any legal entity or individual being paid to provide advice and counsel on fundraising activities, or to directly solicit contributions?  These campaigns often start out being organized by individuals within a local or virtual community on a voluntary basis, but as campaigns begin to grow and take on new levels of complexity, it often becomes practical to compensate someone to manage it.  Fundraising efforts may happen at different levels simultaneously.  For example, the solicitation of corporate sponsors and the recruitment and management of individual participants engaged in peer-to-peer fundraising in various regions of the country.  If an individual or entity who is not an employee of the nonprofit is paid to advise or assist with these fundraising efforts, they may need to register as a fundraising counsel or professional fundraiser in the states where the charity and individual/entity are located, and potentially in other states where their fundraising efforts are targeted.

Engaging communities locally and harnessing grassroots social networks can be a powerful driver of awareness and source of funds for social good. Careful planning is required for compliance and success.

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1.         Clearly Describe the Promotion

 Companies should clearly disclose the following key terms of any cause marketing promotion:

a.       the name and mission of the charity receiving a donation;

b.      the benefit the charity will receive from each purchase of the product or service;

c.       any flat donation, minimum guarantee, or donation cap;

d.      any consumer action required for the charity to receive the donation; and

e.       the start and end dates of the campaign.

Many groups have already adopted the above disclosures as part of existing best practices in the cause marketing industry, most of which were previously established by the Wise Giving Alliance. The Attorney General recommends that these key promotional terms be displayed in a clear and prominent format and size, and close to the text used in marketing the promotion. The Attorney General has also put forth a template “donation information” label for disclosing key promotional details on products or websites. While standardizing the disclosure of material terms may be a helpful tool in providing consumers with consistent disclosures, companies may find it challenging to implement the recommended label format within the available product packaging space.

2.         Allow Consumers to Easily Determine the Donation Amount

 Companies should indicate that a fixed dollar amount per unit purchased will be donated to charity, to enable consumers to easily determine their charitable donation. If the campaign is not based on a set donation per unit sold, the Attorney General recommends using a fixed percentage of the sales price rather than vague statements such as that “profits” or “a percentage of proceeds” will be donated. This recommendation is also in line with existing best practices, and will hopefully help companies focus on not merely providing a truthful disclosure, but one that allows consumers to evaluate the actual impact of their purchase.

3.         Be Transparent About What Is Not Apparent

The Attorney General recommends that companies disclose all facts related the cause marketing promotion that are not apparent to the consumer, such as:

a.       Where a flat donation has been or will be paid to the charity, make clear that consumer action will not trigger a donation.

b.      Make clear if the intended donation is an in-kind donation rather than a cash contribution, such as donating a book to a children’s literacy organization for every purchase made.

c.       Where a ribbon, color, logo, or other indicia associated with a charitable cause is used in connection with a cause marketing campaign, the Attorney General recommends that the company clearly disclose whether a consumer’s purchase will trigger a charitable donation. If cause marketers are required to affirmatively state that no charitable donation will be made whenever an awareness symbol is used, this recommendation could have the effect of discouraging charitable awareness campaigns.

d.      Where there is a set minimum guaranteed donation, there should be enough products available for sale to comfortably exceed the minimum donation.

e.       Where there is a set cap on the donation, make sure the market is not flooded with products.

4.         Ensure Transparency in Social Media

Companies conducting cause marketing campaigns via social media are encouraged to clearly disclose all terms of the social media campaign, including campaigns where a charitable donation is made without the purchase of any products or services, such as where a consumer “likes” a Facebook page, or follows a company’s Twitter feed. This recommendation moves beyond the typical focus on campaigns in which consumers purchase a product to benefit a cause. The Attorney General also recommends that companies provide a means for consumers to track the campaign’s progress in real-time, and alert consumers to the campaign’s end. This recommendation may be challenging to implement in promotions involving product sales (e.g., due to returns and other sales reconciliations).

5.         Tell the Public How Much Was Raised

 The Attorney General recommends that cause marketers and charities disclose the results of their campaigns on their websites soon after the completion of any cause marketing campaigns.This represents a newly-articulated industry best practice.This requirement could discourage companies from experimenting with innovative cause marketing campaigns for fear that post-campaign reporting will reveal poor sales results.

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The key to a smooth transition is making sure the surviving entity is properly registered in all the states where it is providing services before the completion of the M&A transaction, and ensuring proper review of any contract restrictions regarding contract assignments or any other change in ownership. This requirement applies to all of the regulated fundraiser categories — professional solicitors (e.g., telemarketers or any other entity directly soliciting funds for nonprofits), fundraising counsels (e.g., direct mail companies or other companies that advise or assist in fundraising campaigns but that do not themselves solicit funds), and even commercial co-venturers (companies offering sales promotions in which a portion of their sales proceeds will be given to a charity). Yet fundraising compliance is a detail that is often overlooked by traditional M&A attorneys because they do not regularly advise their clients on charitable solicitation laws. In many cases, the surviving, unregistered entity mistakenly believes that the registration of the dissolving entity carries over into the surviving entity.

Some states will pardon the compliance oversight so long as the surviving entity comes into compliance as soon as it becomes aware of the requirements. Other states are not as forgiving, and good faith oversight followed by self-initiated remedial efforts may not be enough to save the entity from paying financial penalties or entering into voluntary settlement agreements. Although voluntary consent agreements with state agencies generally do not concede any violation of state law, they nevertheless become a blemish in the surviving entity’s permanent record because they must be disclosed to other states as part of the annual registration renewal process. For companies whose core business is the provision of fundraising services, a temporary injunction from providing its services in even one state can cause significant harm, so it is critical for such companies to account for fundraising regulatory compliance as part of their business transition.

This article was originally published in the June 12, 2012 eWire newsletter of the Association of Fundraising Professionals, and can be downloaded at http://www.afpnet.org/ResourceCenter/content.cfm?ItemNumber=11780.

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