7/5/2017 6:00 PM | 0 Comments

Finding new and creative ways to generate funds and raise awareness is essential for a nonprofit organization. One way to simultaneously achieve both of these goals that have been surging in popularity in recent years is through cause-related marketing, or partnering with a for-profit company in a mutually beneficial relationship.  

The phrase “cause-related marketing” originated with American Express in 1983. That year they partnered with the Statue of Liberty’s Restoration Fund, promising to donate one cent to the foundation every time someone used their American Express Card. The results of the campaign were undeniable for both organizations; the Restoration Fund received over $1.7 million, and American Express saw significant increases in card use from current cardholders and new applications. A new way of doing business had been born. 

Today, cause-related marketing is more important than ever to both nonprofit and for-profit organizations, as more than $2 Billion was spent in the industry in 2017. For-profit companies view cause-related marketing as not just charitable giving, but as a legitimate strategy to gain customers and differentiate their products. Nonprofits enjoy increased awareness for their cause and an influx in cash flow. What’s not to love? Well, for nonprofits, in particular, there are a number of potential drawbacks to consider before committing to a cause-related marketing campaign. Learn more about protecting yourself in a for-profit partnership with our advice. 

Weigh the Risk

Many companies are looking to integrate cause-related marketing into their business plan. However, the risk with this type of relationship usually falls on the nonprofit partners. In cause-related marketing, nonprofits are putting their most substantial asset, their name, at risk, or their hope for financial support could cloud their exercise of due diligence. One of the first things to consider is the principles of the company you may partner with, and the concept of the campaign. Do their values align with yours? Does the proposed marketing tactic make sense for your cause? While many cause-related marketing campaigns are successful, there have been some that have backfired because of misaligned views. 

When a for-profit company uses a nonprofit name to increase revenue and add to corporate profits, the conditions of payout are much different than in a philanthropic exchange. Often, a corporation will press to have its name or products appear prominently in the nonprofit’s media outreach efforts. When a nonprofit allows itself to become an advertiser for a company, they risk being seen by the public as having sold its good name to a for-profit brand, or worse, having deceived the public by condoning an unworthy product. This erosion of public trust can be detrimental to your organization.

In addition, cause-related marketing campaigns between nonprofits and for-profit companies are subject to registration, contract, and disclosure requirements in many states. They often have potential federal tax implications on the beneficiary nonprofit, so it’s crucial to realize what is at risk and take steps to protect your board members, employees or volunteers. 

Protect Yourself

There are several steps a nonprofit organization can take to protect itself when considering a partnership with a for-profit corporation. Here are some more important considerations to remember when partnering with a company: 

  • Examine the company’s ads, verify all statements and figures released to the press and check that in the past, allocation of funds has been as promised to partners and the public.
  • Your name is your most valuable asset and it should not be underpriced.
  • Cause-related marketing is a business deal and differs from philanthropy.
  • Ensure that payment and use of your name are on your terms, and control all uses of your name. All promises should be in writing.
  • Federal and state regulations may apply to cause-related marketing transactions. Ensure that you are in compliance with all applicable laws. State laws may pose a particular challenge, as solicitation campaigns must abide by the laws in every state where funds will be raised.
  • Check every deal you make with an accountant and an attorney.
  • As the nonprofit, you bear most of the risk. For this reason, you should carefully consider the financial cost of the relationship.
  • Establish an organization-wide policy for cause-related marketing ventures, and build on it as your organization gains experience.

Transferring Risk

Beyond taking these preventive steps, it is important to ensure that you are properly covered should you become involved in litigation for breach of contract or breach of duty. A Directors’ and Officers’ (D&O) insurance policy serves this purpose and it is fundamental for all nonprofit organizations. Volunteer statutes do not suffice to fully protect the organization from liability. 

It is important to protect your organization by making smart decisions when partnering with for-profit organizations. To learn more about our services for nonprofit organizations, contact us on our website, call us at (800) 333-7234, or email us at customerservice@easterninsurance.com. 

This Risk Insights is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice. © 2010, 2013 Zywave, Inc. All rights reserved.

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