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29 September 2020

14: Fundraising through commercial partnerships – some practical tips

Fundraisers have, for a number of organisations, returned to the streets, and charities have found innovative ways to engage with donors in recent months. However, there is no doubt that times remain tough, and that local lockdowns, social restrictions and the collective tightening-of-belts continue to impact and challenge fundraising efforts.

Capitalising on commercial tie-ups (whether existing or prospective) to supplement private donor income remains an area for exploration for generating new income streams. These have the advantage of raising funds and potentially raising the charity’s profile at relatively low cost to the charity. However, they also come with a degree of risk. As with any other form of fundraising, the opportunities presented need to be evaluated properly at the outset so that both parties are clear what they will be taking away from (and contributing to) the relationship, and what steps need to be taken to ensure the arrangements are compliant from a regulatory perspective.

For businesses wanting to support charities either in the short or long term, or to set up an appeal, further information can be found in our blog on commercial partnerships and charities. Set out below are some practical points for charities to consider when engaging with commercial partners (which may also be useful for potential commercial partners to read).

Practical points to consider

One size doesn’t fit all

There are multiple ways of engaging with corporates – from engaging with a CSR programme where support is provided through boots on the ground, to more complex affinity and sponsorship arrangements. The key to success, however, is in ensuring that both parties are clear at the outset about what they want to achieve – is it just hard cash? Or would volunteer support be more useful – and what they are willing (and able) to put into the relationship. Whilst the temptation will often be to ‘get the deal done’ (particularly where the offer appears to be time critical), a better dialogue upfront – where each party considered what success would look like – can provide a better (and more efficient) result.

Cash is king (but not always)

It’s not always about cash, but if this is the charity’s priority then it needs to be discussed early on.

Immediate response to the pandemic has involved all sorts of community and business involvement (from sourcing PPE to volunteering opportunities for furloughed staff) and there are numerous avenues to explore. This might involve looking for new partnerships, or reviewing existing arrangements to see whether new ways of working might be more beneficial going forward (for example, there may only be so many rooms which need re-decorating). There are also longer strategic issues to be considered as we start contemplating the post-COVID-19 environment and needs of beneficiaries.

Dotting the i’s – Awareness of the rules

Charities and corporates must also be aware of the rules on commercial participation and professional fundraising where a charity enters into a commercial partnership to raise money, as set out in detail in the Commission’s Guidance and Fundraising Regulator’s Code. These are underpinned by the provisions of Part II of the Charities Act 1992 and The Charitable Institutions (Fundraising) Regulations 1994 but there are also associated rules which may apply, including those relating to advertising, methods of fundraising (eg telephone, door to door, digital etc) and data protection, amongst others.

This means understanding at an early stage what type of arrangement is proposed (what will the parties give / receive and how will they do it) and then entering into a suitable written agreement. This can sometimes be a steep learning curve for the corporate, which might simply want to impose standard terms and conditions and not appreciate the charity’s regulatory position.

Overall, the rules are intended to safeguard the charity, promote transparency, and give donors a fair indication of the extent to which the charity will benefit from the arrangements. Although the legal rules apply to the commercial partners, the regulatory onus is on the charity to get things right. As the Charity Commission’s 2016 joint alert with the Fundraising Regulator, made clear:

‘Professional fundraisers and commercial participators are responsible for ensuring that the specific legal rules that apply to them and the arrangements they make with charities are followed. However, the Commission’s view is that, to comply with their charity law duties, trustees must also ensure that their arrangements with these fundraisers are in line with these rules. Failure to do this will generally amount to misconduct and mismanagement of the charity’s affairs.’

Charities should also remember that the regulators expect the same approach even if the arrangement may technically fall outside the legal rules – the essential principles of protecting the charity and consumers remain.

As well as getting the rules right upfront, charities should be aware that they can also be subject to reporting requirements on their fundraising – see the Fundraising Regulator’s recent report on compliance here and its updated guidance on the fundraising reporting requirements.

Reputation Management – what are the risks?

Charities must ensure they are comfortable to be associated with the proposed corporate partner and have identified the potential risks involved with the partnership. How will arrangements be monitored and managed once the agreement has commenced?

The governance code (the Code), which represents the standards to which charities can expect to be held, sets out recommended practice to protect the reputation of charities and ensure that conflicts of interest and loyalty are identified and managed – both points to be considered carefully in any commercial partnership.

Increasingly, charities are also under pressure to extend ethical considerations to their relationships, to ensure their commercial partner’s operations align with the charity’s aims and values. It is therefore essential to carry out adequate checks before leaping into anything – including checks to understand the ethical standards applied by proposed partners. Going forward, the Code is likely to be amended to incorporate elements of the ethical principles developed by NCVO, so this area is worth keeping under review.

Aside from the initial checks, arrangements should also be kept under review and particularly so when the relationship is long standing. As The Royal Shakespeare Company found in 2019, even successful relationships with the potential to bring significant ongoing benefits to the charity, can be a casualty of changing times. In that case, the RSC terminated a long-standing commercial partnership with BP in response to opposition to the charity having links with the international oil giant. Whilst opinion over this decision may have been mixed, it serves as a warning to ensure all aspects of a proposed relationship have been considered – and that the charity is able to terminate the relationship in such circumstances.

Think about tax

Typically arrangements with commercial entities include permitting the commercial party to use the charity’s name and logo as part of publicising the arrangement and, from the corporate’s perspective, associating them with the charity’s brand. It is therefore essential to understand what benefit, if any, the corporate will receive from the relationship – whether this is increased profile (the bigger the charity ‘brand’ in context the greater the potential uplift), active advertising services from the charity, or other services.

Sometimes, commercial partners query paying to use a charity’s name or logo (even though those same partners would not contemplate anyone using their name or logo for free). From their point of view, they are giving the charity money it would not otherwise have. However unless the arrangement is a straight donation (which, in some cases, the corporate may decide is preferable) the corporate will also be benefitting, whether via association, or more overtly eg through services provided by the charity. A key finding through the Commission’s case work and research is that charities often fail to recognise the value of their name and reputation and, as a result, don’t take adequate steps to protect them before entering into a commercial agreement. Charities therefore need to be aware of how their brand might enhance the reputation of the partner, and equally how the association with the corporate might affect their own reputation and relationships with other stakeholders.

Any elements of the deal which might constitute taxable supplies (for example, licensing the charity’s name and logo) are likely to attract direct tax and / or VAT and so need to be considered carefully and understood. Early engagement with tax advisers can be helpful to identify risk, and, once clear, it is essential to include these matters in a written agreement so that the parties are clear where any VAT liabilities lie. Understanding the tax aspects will also be helpful in any subsequent review of arrangements by HMRC eg to show that the Charity has attributed appropriate value to any licence of its name / logo.

Take advice (where you need it)

If you are not sure which rules apply or the best way to structure the arrangements, take advice – this may be legal advice, but (as above) may include tax advice. It can be more cost and time effective to take advice at an early stage to avoid going down a rabbit hole at a later date when expectations have already been set.

Communication, and more communication

Whatever is being discussed, the charity needs to end up with an arrangement it wants and needs.

For example, where a more complex arrangement is in the offing, it is worth considering whether the third party might be happy to give a straightforward donation in return for a simple acknowledgement. This is particularly the case where the third party is unfamiliar with the regulatory landscape in which charities operate, and the associated time and cost involved in getting over the line. Keeping an open dialogue can be essential.

Charities should also be alive to the increasing plethora of digital options and the potential amplification of fundraising initiatives to a wider audience – adding a digital strategy to their planning in this area (if not already) is worth considering. This might, for example, include partnerships with digital platforms to raise funds as well as how best to leverage existing relationships.

Final thoughts

Post-COVID-19, and given the immediate and ongoing economic impact of the pandemic, there are well-founded concerns that corporates may look to decrease their spend on CSR programmes and associated fundraising efforts as they cut jobs and reduce shareholder dividends.

However, there is still scope for successful charity tie-ups and these may remain attractive for corporates, particularly where investing in the community is hard wired or where the association with charity may be helpful in raising their own profiles, in turn driving up sales or services. Charities should, therefore, remain open to these opportunities, whilst ensuring that the association is in their best interests, and all parties are clear on what is involved.

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