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Organizations like nonprofits and academic institutions that rely on donations need to be hyper aware of the importance of due diligence. Screening current and potential donors for political and financial vetting is a crucial step in any donor-funded company, but even the most extensive checks can sometimes have pitfalls.
If a team accepts money from an organization or individual that ultimately backfires and garners negative public reception, there are plenty of ways to react and perform damage control as to not lose trust or take hits to the overall reputation.
In this article, we outline how institutions can respond to and prevent donor scandals and how the right technology makes this even easier.
When donor scandals happen, they pose a threat to an institution’s reputation. Not only do current donors and customers become more wary, but the public at large might develop a distrust for the organization, especially if things aren’t handled well.
The Whitney Museum of Art offers a telling example of how a donor’s negative news coverage can quickly cause a PR firestorm. In 2019, Warren B. Kanders, the Vice-Chairman of the museum’s Board of Directors, became the target of heated protests due to his ownership of Safariland—a manufacturer of law enforcement and military supplies, including tear-gas grenades that had reportedly been used against migrants at the United States-Mexico border.
Kanders had not personally fired tear gas at migrants, nor had he broken any laws through his ownership of Safariland, but his involvement in the ongoing border conflict became a point of contention for everyone from donors to artists. Several months of protests culminated in eight artists withdrawing from the prestigious Whitney Biennial exhibition, which led to Kanders and his wife resigning from their respective positions on the board and other museum committees.
This type of public news can negatively reflect on an organization—not only do they risk losing current relationships, but they might become seen as a place that does not thoroughly vet important donations. The loss of artists for the Whitney was just one of many ramifications, like declines in donations or a poor public image, that could happen because of a donor scandal.
MORE: Do you know your donors? The importance of donor due diligence to mitigate risk
Kanders’ resignation from the Whitney is an example of a potential response to this type of scandal, but it does not always need to look like personnel change. In any response, it’s important to acknowledge the seriousness of the negative news situation and the impact on the nonprofit's reputation by releasing statements, both internally and externally.
That first step underscores the importance of transparent communication with stakeholders. Staff, donors, volunteers, and beneficiaries all deserve to be brought up to speed on major donor issues as quickly as possible.
The next swift step should be collaborating with the board and legal advisors to manage the crisis effectively. This could mean ultimately severing ties with the problematic donor if necessary. A non-biased review board should investigate into the issue and determine the future relationship for the donor and institution, and if they deem it important to cut ties, that act should happen as quickly as possible.
Once the immediate actions are taken, institutions should work toward tightening up their donor due diligence process and understanding what went wrong. That means finding ways to actively scan headlines for the names of new and old donors, employing intensive screening methods and always being on top of sanction lists. Pinpointing where in the process needed more scrutiny will help to secure the organization better in the future.
Sometimes, negative feedback is inevitable, but often, it’s a lack of thorough research or up-to-date dossiers that leads to donor scandals. Working with a trusted third-party tool and increasing the scope of each search window can help to maximize this type of security.
MORE: How to use media monitoring to your advantage in nonprofit fundraising
After a new due diligence system is in place, institutions can focus on rebuilding trust among donors, supporters, and the public. One way to achieve trust is by offering visibility into the due diligence process so that stakeholders understand that the institution is doing everything in its power to prevent a repeated scandal.
Similarly, teams can showcase the organization's commitment to transparency and accountability by giving more glimpses into the back end of the company. One example could be hiring a team for due diligence and announcing that new internal shift to all stakeholders via a newsletter. Keeping donors and the public aware of all the ways the organization will avoid donor scandals is vital to rebuilding trust.
Finally, organizations can build trust by sharing success stories or testimonials from beneficiaries to showcase the positive impact of the nonprofit's work. For instance, if a nonprofit aims to provide healthcare access to disenfranchised people, the organization could create a social media or newsletter campaign that highlights the stories of real people who received care because of the nonprofit. Turning the focus away from one donation and onto the beneficial part of the work can create a shift in mindset that begets more trust and inspiration, rather than leaving onlookers feeling skeptical and concerned.
MORE: Why your nonprofit needs to be talking about ESG
Third-party tech tools achieve due diligence processes that are practically fool-proof. Tools like Nexis Diligence+™, combined with a donor research tool like Nexis® for Development Professionals, provide regular legal checks, new alerts, donation history, and other key parts of a donor’s profile that allows companies to see the bigger picture and thoroughly vet the donation.
To get a better idea of why donor due diligence is crucial for your organization’s success, check out our recent e-Book “Create the Full Picture of Your Donor Prospects”.