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Why Donor Due Diligence Is Crucial For Your Nonprofit's Success

June 13, 2023 (6 min read)
Do your donor due diligence to protect your organization from unnecessary scandals and costly consequences.

We’ve all seen the evidence on the nightly news and in social media feeds.

When a person closely associated with a charitable organization becomes the subject of a scandal, the organization’s reputation can be tarnished too. And this isn't just people who work with your organization--this can include anyone associated with your organization, from high-value donors to corporate sponsors to celebrity spokespeople. 

Some issues are so public, you can easily make decisions about who to get into a partnership with. Others, however, you won't know until a scandal is uncovered that could have been avoided if you did your research beforehand. That's why adding due diligence to your donor research workflow is paramount to the protection of your organization. And this is when a diligence tool can make your life 10x easier. 

In this article, we'll explain why donor due diligence is important, things you need to monitor for, and how to do due diligence that would protect the reputation of your nonprofit. 

Why donor due diligence is important

When negative news surfaces, donors lose trust. Corporate donors may withdraw support. The financial fallout of reputational damage can devastate your ability to fundraise to further your mission. survey found that 63% of people say that trusting a charity is essential to spur giving. As such, a scandal that alludes to a lack of transparency or a misalignment of values can be a death-blow for a nonprofit organization. 

Case in point: When a cheating scandal embroiled the brand ambassador of one well-known cancer nonprofit, the organization lost a major corporate sponsor—one that helped the organization raise $100 million. In addition, in just a three-year period, the nonprofit saw revenue decline from $47 million to less than $17 million. That's a big cost for not doing a simple due diligence check. 

This devastation could have been avoided if the nonprofit severed ties with the brand ambassador when they learned of the scandal--or if they could have prevented the partnership in the first place. 

Growing demand for environmental and social transparency 

As in the Financial Services sector, there is a growing call from high-value donors that organizations are transparent about their environmental, social, and governance (ESG) initiatives. This is especially true as younger generations become more prominent donors as both Gen Z and millennial donors place a high value on environmental and social justice.  

Fortunately, most nonprofits--by the nature of the type of work they do--are aligned with these values. But, partnering with donors, corporations, or spokespeople who undermine those values can be damaging to your reputation and organization. So, it's essential that you include ESG due diligence to your research and communication plans to share with your supporters that you are walking the walk as well as talking the talk. 

MORE: Why nonprofits should treat Gen Z donors as an investment

Protecting your reputation with donor due diligence pays dividends

The survival of your organization depends on having a positive reputation. Not only does a positive reputation give credibility behind your mission, but it also allows you to expand your reach and make more of an impact--which likely is your goal in the first place. 

Furthermore, cultivating trust within your donor base and in your community can lead to:

  • Winning more donors
  • Inspiring confidence in your organization’s ability to achieve its mission
  • Encouraging community collaboration
  • Turning donors into champions for your cause
  • Attracting passionate employees and volunteers

All of these benefits can bolster your organization and increase the reach of your cause. However, this can be tarnished if a scandal arises because you don't do the necessary donor due diligence. As Warren Buffet famously said, “It takes 20 years to build a reputation and five minutes to ruin it.” So, it's even more important to continue to do due diligence--even if you're established as one of the most trusted names in your field. 

That said, it is possible to get caught unawares even if you've taken every precaution and done the research on your partners. But  having a solid reputation makes it more likely that your donors give you the “benefit of the doubt” if and when a crisis does arise—especially if you’ve been proactive about mitigating reputational risk and handle the crisis with transparency. By putting together a solid donor research, prospect screening, and due diligence process, you can better protect your reputation and your ability to move your mission forward. And, your community will respect you more for owning up to your mistakes and being transparent. 

MORE: 6 quick tips for qualifying potential donors

Efficient donor research and due diligence demands the right tools

As a development professional, you probably wear many hats. Donor research is just one of many tasks you need to accomplish in a day. Adding due diligence to the mix can feel overwhelming, especially if you rely on open web search. Instead of finding relevant information quickly, you have to dig through results that are destined to surface promoted content first.

The challenge is made even greater because of the amount of misinformation, disinformation, and out-of-date data available on the open web. You can spend an excess amount of time just verifying sources of information to determine its reliability.

Instead of conducting an inefficient open web search for donor research and due diligence, consider platforms built for your intended purpose. Look for a due diligence solution that features a comprehensive collection of sources—all in one place. The best solutions will include: 

  • News: General news helps you stay alert to trends, but for mitigating reputational risk, you’ll want the ability to narrow in on negative news. Given the increased focus on environmental, social and governance (ESG) commitments, it’s also useful to have the option to narrow to ESG news. Not only can this help you identify donors who might NOT be a good fit, but it can also help you identify prospects who align with your own mission.
  • Sanctions, watchlists and PEPs lists: Geo-political volatility like we’re currently experiencing means that sanctions and PEPs (politically exposed persons) are changing rapidly. Doing business with a sanctioned individual or entity could do more than put your reputation at risk; it can lead to regulatory risk and fines.
  • Legal news: This type of news can help you see if an individual or entity has a litigious past that could put your organization in jeopardy.
  • Company and executive information, including beneficial ownership: When it comes to corporate sponsors, you need to look beyond the entity itself. For example, a company may have hidden beneficial owners who might not be a good association for your nonprofit. Likewise, corporate hierarchies can show tangential relationships that could prove problematic or another likely corporate sponsor, but the only way you’ll know is to do your due diligence.

Beyond offering these and other types of sources, make sure that the platform you choose offers both pre-and post-search filtering so that you can quickly narrow down results to what matters most. You should also consider the sharing capabilities, such as the ability to set up Alerts for ongoing monitoring of key individuals and organizations. With due diligence, it’s also important to have report-building capabilities so you can maintain an audit trail of your work.

MORE: How to use media monitoring to your advantage in nonprofit fundraising

Use Nexis Diligence+™ and Nexis® for Development Professionals for next level donor research

If adding another step to your donor research sounds like just adding more work to your already full plate, that's where Nexis can help. Our industry-leading slate of research tools can help you source prospects and make sure they pass a due diligence test. 

Sign up for a 7-day free trial of both Nexis Diligence+ and Nexis for Development Professionals and get started on next-level research today.