Pennies to the Dollar for Charities: Is Telemarketing Really Free Speech?

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September 15, 2012; Source: Washington Post

Our apologies to those who believe that paying commercial telemarketers through the nose is good for the charitable sector and defensible as charitable free speech. Some of us think that’s bunk. 

Despite the regular reports from state attorneys general about telemarketers who deliver pennies on the dollar for the charities they represent, it seems the increasing private market ethos in the nonprofit sector is hitting fundraising, with defenders such as Richard Steinberg and Dan Pallotta arguing in favor of different, higher – much higher – fundraising rates than the sector typically accepts (though Pallotta points out that when he argues for 50 to 100 percent fundraising rates, he is arguing for “maximum efficiency,” not inefficiency).

Regardless of the merits or shortcomings of the business rationale for high fundraising costs that Steinberg and Pallotta espouse, it has been hard for us to accept much of the telemarketing expenditure ever since the Supreme Court’s consideration of Madigan v. Telemarketing Associates, in which nonprofits lined up behind the telemarketer working for a really dubious veterans group called Vietnow, delivering truly pennies on the dollar for the organization’s purported programs. Whether you buy any of the nonprofit admin and fundraising ratios, Vietnow’s expenditure of $118,000 of its $3.2 million budget in 2001 – that’s all of 4 percent, folks! – was beyond the pale. We recall nonprofits defending the telemarketer not on the Steinberg/Pallotta grounds of business necessity and investment, but on free speech grounds.

This article from the Washington Post highlights some of the more extreme examples of telemarketers raising money for charities but keeping the bulk for themselves, such as InfoCision Management delivering only 22 percent of its take for its client, the Diabetes Association, in 2011, and apparently nothing in 2010 for another client, the American Cancer Society (InfoCision kept all of its fundraising for ACS plus $113,000 in fees). 

The Post quotes a number of critics of the telemarketers:

James Cox, a professor at the Duke University School of Law: “If that’s what they do systematically, then they’re obtaining money under false pretenses…I don’t just think it’s incredible. I’d be surprised if it isn’t criminal.”

Naomi Levine, executive director of the George H. Heyman Jr. Center for Philanthropy and Fundraising at New York University: “I’m amazed at that…I didn’t know about it. It’s deceitful…Even for them to engage in a program like that is shocking to me…And I’m in the field. So how can you expect donors to know that?”

Greg Donaldson, a senior vice president at the Cancer Society, suggested that the low proportional benefit of charities like his from telemarketing campaigns is like offering below-market prices to consumers at retail stores, attracting charitable shoppers, so to speak, “to engage people in long-term meaningful relationships.” That’s the free-speech defense: that it’s OK for the telemarketing campaigns to deliver little or nothing because they develop relationships for the charities with people, they provide charitable information to potential donors, etc.  Don’t be confused, but the big charities citied in the article defended InfoCision and other telemarketing contracts in which the charities might make little or nothing, and in part they referenced each other for comparison. We all do it, they basically said. 

The Post didn’t talk to other InfoCision clients such as Citizens United, the plaintiff in the case against possible restrictions in its secret political fundraising, and the Republican National Committee, the latter paying the firm $115 million between 2003 and 2012.  Don’t take that as political bias.  We’re sure that there are liberal-leaning companies doing this as well, and for the most part, the telemarketers are politically agnostic. They are politically active, however.  Complaining about “the most pressing issue…[as] excessive governmental regulation,” the founder of InfoCision was a vigorous opponent, no surprise, of the Federal Trade Commission’s plan for a National Do Not Call Registry. 

If there’s a shocking new element to the Post story, it is in the information showing how the charities report conflicting, contradictory information on what they get from the telemarketers in their filings with the IRS and with various state agencies. One commentator said, “the industry standard is that donors are kept in the dark about contracts with charities.”  It would seem that public agencies – and the public at large – is kept in the dark as well.  She suggested that donors “wouldn’t contribute anymore if they knew the truth.” But if this is only a marketing strategy, a loss leader tactic to capture names and build relationships for future donor pitches, why misrepresent the numbers to the IRS and to the state AGs? –Rick Cohen

  • brian gibney

    The amounts retained by private fund raising firms has been a problem for a long time. I do not understand a charity’s willingness to allow its name to be attached to these campaigns. When a donor (eventually) discovers that a relatively small proportion of his/her donation actually makes it to the intended charity they may be quite dissapointed and may be turned off from donating again. Greater disclosure on the part of private fundraisers as to the level of their fees would be welcome. However, ultimately nfps should avoind getting involved with these organizations in the first place. The potential damage to a specific nfp’s reputation and that of the nfp community as a whole does not seem worth it.

  • Daniel Borochoff, CharityWatch

    Greg Donaldson of the Cancer Society comment that the low proportional benefit of charities like his from telemarketing campaigns is like offering below-market prices to consumers at retail stores is not a good analogy from a donor’s point of view. A better analogy would be if a consumer bought a box of crackers in a store and when he got home and opened it found out that it was only 10% full. The consumer will feel ripped off just as the donor will if he finds out that only 10% of his donation is spent on the intended prgrams service and the rest is eaten up by fundraising expenses.