When Good Donors Go Bad

by Robert I. Evans and Avrum D. Lapin

What would you do if you were the executive director, the campaign chair, or board member of a reputable nonprofit organization and a wealthy individual steps forward promising a multi-million dollar gift? In all likelihood, you will accept the gift graciously and then transmit warm gratitude to the donor. Depending on the size of the gift, you may probably offer a prominent, permanent naming opportunity to memorialize the support.

Sounds like a straightforward process that hopefully occurs regularly at nonprofits around the world. But what happens if that same donor becomes a national headline due to immoral, untoward, or even criminal behavior? What if that well-intentioned man or woman even goes to jail because of some bad doing? Has this individual used his or her benefaction to your organization as an “inoculation” against bad press or an attempt to rehabilitate their public image? Regardless, this prospective or current donor certainly has moved from an upstanding individual to a person with a stigma that reflects badly on the mission and/or purpose of the organization.

Would you remove the name from the donor wall? Would you refund the dollars received?

This is a very realistic ethical dilemma facing nonprofits all-too-frequently and unfortunately most nonprofits do not have formal policies that prepare them to be proactive and respond to difficult situations that they may confront. Most agencies do not anticipate heart-wrenching and embarrassing situations, perhaps also expecting that Jewish donors “speak to higher authorities” where good donors would not become “tarnished” citizens.

Perhaps the egregious example where association with a particular individual may tarnish or actually harm an organization would be Bernard Madoff. He is now incarcerated for life for his involvement in a $65 billion Ponzi scheme that affected thousands of victims and hundreds of nonprofits. Before being convicted, he and the people who were associated with him donated to various prominent charities in and out of the Jewish world, including Hadassah, The Lincoln Center, The Robin Hood Foundation and The Special Olympics. In 2003/2004, he himself donated over $10 million to various diseases, including lymphoma research.

We can argue that some good did come from someone bad but the question still needs to be raised about the ethical, moral and legal obligations of these (and other) charitable organizations in returning the donations and removing formal recognition. Who would deny that the funds were ill-gotten but the organizations that benefitted put the monies to presumably good, important purposes. There is no question that many Jewish organizations benefited from Madoff’s donations, including Yeshiva University, where he was an officer and sat on the University’s board, and where scholarships resulted for deserving students and facilities were built for important educational programs.

No question that positive recognition resulted at the time of the gifts for the Madoff’s and the dollars given served good purposes. The Madoff case is not the only one that calls these issues into question. Therefore, even though some time has elapsed since the Madoff scandal broke, we remind Jewish leaders about the messes that needed to be cleaned up and ask aloud: what to do if individuals make large gifts where public recognition is part of the “package” but where they misbehave and do real and irreparable harm to others?

Remember Michael Milken, a man who was notoriously known as “The Junk Bond King,” and was convicted of 98 counts of securities fraud over twenty years ago, has served time for his crimes and has since returned forcefully to the world of philanthropy, with the expectation of public recognition? Most people do not recall that his career as a philanthropist preceded and now follows his time spent in a Federal penitentiary.

Milken donated millions of dollars to various charitable causes, including rescue missions, educational institutions, medical research organizations and over $1.4 million to the Jewish Federation of Los Angeles. Today the Milken Jewish Community Center and the Milken Community High School, let alone which, together with the Milken Family Foundation, make a fundamental impact on the education of children, the Jewish content of families and communities, and the operation and success of nonprofits across the globe. They all carry the ominous family name.

There are undoubtedly dozens of other examples of Jewish nonprofit organizations having received donations from prominent and philanthropic individuals with questionable or checkered backgrounds.

We may all have opinions on how these donations should be handled but we want to offer several concrete action steps that nonprofits need to consider … anticipating the possibility that they may – someday – receive a gift from a tarnished donor.

The lesson learned: each nonprofit should write a formal policy immediately to reaffirm how they will react to a donor’s misbehaviors and the possibility of negative impact an organization’s reputation. The organization’s Board should reaffirm these policies annually. In addition, we encourage nonprofits to include a simple clause in the documents accepting the gift to allow for situations where it would be acceptable to remove the donor’s name from plaques, web sites, or other forms of public recognition.

The obvious implications about preventative steps should not hinder legitimate donors from participating in your fundraising efforts … unless they themselves are worried about their own bad activities.

We have visited various Jewish institutions that proudly display permanent plaques that call attention to generous donors. In almost all instances, institutions intend to feature gifts in perpetuity, thereby justifying certain two-way commitments between institutions and donors who love them. Sometimes, however, donors and institutions forget that the recognition is a two-way street.

One place that we visited many years ago stands high in our memories because Velcro held the donor plaques in place. While the original intent of the institution was to allow for flexibility, the resulting message served as a disincentive for donors looking for permanence. Therefore, we suggest that written gift acceptance policies and well-developed gift acceptance correspondence address all eventualities, especially covering four essential points:

  1. How much of a pledge must be paid prior to the donor’s name being publicly and permanently recognized?
  2. Donations made by individuals convicted of any wrongdoing must be addressed.
  3. Under what circumstances can an institution address the removing of a donor from recognition systems?
  4. If an institution removes a donor’s name, what will it do relating to the funds received (or owed)?

By having everyone sign on the dotted line, especially for large gifts, an organization is protecting everyone’s best interests and while most donors are generous, honest and well-intentioned, situations develop that call for high ethical standards along with appropriate institutional actions.

Are you prepared?

Robert I. Evans, Managing Director, and Avrum D. Lapin, Director, are principals of The EHL Consulting Group, of suburban Philadelphia, and are frequent contributors to eJewishPhilanthropy.com. EHL Consulting works with dozens of nonprofits on fundraising, strategic planning, and non-profit business practices. Become a fan of The EHL Consulting Group on Facebook; TWITTER: @EHLConsultGrp