Hawaii, which requires companies to file a written consent form at least ten (10) days before a charitable sales promotion begins, has recently begun to enforce its statutory late filing fee of $20 per day (up to $1,000 maximum penalty) for failure to timely file a written consent.  In order for the written consent to be timely filed, it must be “fully executed” by both parties through an electronic approval process. A delay in obtaining either party’s electronic consent can mean late fees will begin to accrue.

While not new, companies should be also be aware that South Carolina regularly imposes administrative fines of $10 per day for late filing of campaign reports, up to a maximum fine of $2,000 per report. Illinois, which requires companies to register under their charitable trust law to conduct charitable sales promotions, has been enforcing its $100 late filing fee for campaign reports.

While California 1 has the statutory right to impose a late fee of $25/month for registration statements or campaign reports, we have not observed this late fee being regularly imposed.

To avoid incurring late fees and penalties, companies should ensure that they are monitoring their filing deadlines and planning ahead in order to avoid getting hit with significant and unanticipated financial penalties.

For a general overview of the laws regulating commercial co-ventures and charitable sales promotions, please read Do Good And Sell It Well: An Overview Of Cause Marketing Regulation on Engage for Good’s website.

1 Registration in California is not required if certain contract and related compliance requirements are met, including transfers of payments every 90 days. However, note that some companies engaging in online campaigns may need to register as a charitable fundraising platform in California beginning on January 1, 2023. For more information, see the post California Enacts New Law to Regulate Charitable Fundraising Platforms.

The post What are the Penalties for Making a Late Filing of CCV Registrations and Campaign Reports? first appeared on Staging Perlman and Perlman.

The new law defines a “charitable fundraising platform” as “any person, corporation, unincorporated association or other legal entity that uses the internet to provide an internet website, service, or other platform to persons in this state, and performs, permits, or otherwise enables acts of solicitation to occur.”  The broad definition of charitable fundraising platform applies to most consumer-facing websites that facilitate the receipt of online donations, with limited exceptions.[1] It also applies to websites that run multiple promotions advertising that a portion of the purchase price from the sale of goods or services will be donated to specified charities, as well as websites or platforms that voluntarily invite customers to add a donation during the check-out process, or that encourage individuals to take certain actions to trigger donations.  According to one legislative analysis, examples of charitable fundraising platforms include Amazon, Benevity, Charity Navigator, CrowdRise, eBay, Facebook, GoFundMe, Google, GuideStar (Candid), Lyft, Overstock, and PayPal.

The bill also regulates platform charities, which are charitable organizations that facilitate acts of solicitation on a charitable fundraising platform.

Key New Requirements
The bill contains a number of new requirements applicable to charitable fundraising platforms and platform charities, including the following:

1. Registration and Reporting. Charitable fundraising platforms and platforms charities must annually register and submit financial reports to the California Attorney General’s office. Additional regulations addressing the content of the registration and annual report forms and the manner and timing of the filings will be issued by the Attorney General.[2]

2. Required Disclosures. The new law will require charitable fundraising platforms to clearly disclose certain information, including: (1) a statement about who will receive the donations; (2) if applicable, a statement that a recipient charity may not receive donations or grants of recommended donations, with an explanation identifying the circumstances under which a recipient charity may not receive the funds; (3) the length of time it takes to send the donation or a grant of the recommended donation to a recipient charity; (4) the fees or other amounts (if any) deducted from or added to the donation or a grant of the recommended donation; and (5) whether the donation is tax-deductible or not. The new law permits some, but not all, of these disclosures to be provided through a conspicuous hyperlink, so long as the disclosure is conspicuous when the hyperlink is selected.

3. Written Consent of Charity Beneficiaries (and a Limited Exception). The law generally requires that a charitable fundraising platform or platform charity obtain the written consent of any recipient charity before using its name in a solicitation, but provides that such written consent is not needed if all of the following circumstances are met: (1) the platform only includes certain information about the recipient charities on the platform, as set forth in the new law or future regulations (e.g., the recipient charities’ name, address, telephone number, internet website, EIN, registration number with the California AG’s office, NTEE Code, and publicly available information from the recipient charity’s tax or information returns filed with the Internal Revenue Service or the California AG’s office); (2) the platform conspicuously discloses before persons can complete a donation that the recipient charity has not provided consent or permission for the solicitation, and has not reviewed or approved the content generated by individuals engaging in peer-to-peer charitable fundraising, when applicable; (3) the platform promptly removes any recipient charity from its list or any solicitation regarding the recipient charity upon written request by the recipient charity; and (4) the platform or platform charity does not require that a recipient charity consent to any solicitations as a condition for accepting a donation or grant of a recommended donation.

4. Soliciting or Receiving Funds Only for Charities in Good Standing. A charitable fundraising platform or platform charity may only facilitate solicitations or the receipt of donations for the benefit of charitable organizations in good standing.  “Good standing” means the platform charity or other recipient charity’s tax-exempt status has not been revoked by the Internal Revenue Service or the California Franchise Tax Board, or is not prohibited from soliciting or operating in California by the Attorney General.

5. Segregation of Funds; Accounting of Fees. Charitable fundraising platforms and platform charities must hold charitable funds raised in a separate account or accounts from other funds belonging to the platform or platform charity, and must promptly ensure that donations and grants of recommended donations are sent to recipient charities with an accounting of any fees imposed for processing the funds.

6. Prompt Distribution of Donations/Grants. In addition to the requirement for platforms to disclose the amount of time it takes for donations to be sent to recipient charities, the Attorney General is authorized to establish regulations regarding the maximum length of time a platform or platform charity may take to send the donated funds, taking into consideration various facts and circumstances.[3] For platforms that make donations or grants based on purchases or other activity performed on the platform, the platform must send donations or grants of recommended donations to the recipient charities no less frequently than on a quarterly basis and subject to any minimum amounts, which may not exceed ten dollars ($10).  In addition, donations or grants must be sent after four consecutive quarters regardless of any established minimum amount, unless the recipient charitable organization is not eligible to receive the funds (which ineligibility must be disclosed pursuant to the statutory disclosure requirements).

Avoiding Duplicative Registration and Compliance Obligations
Recognizing that some charitable fundraising platforms could meet the definition of one or more other regulated fundraising categories — namely, commercial fundraisers (e.g., telemarketers), fundraising counsels (e.g., direct mail companies), and commercial coventurers (e.g., retail businesses advertising that the purchase or use of their goods or services will benefit a charitable organization) — the law provides the following clarifications to avoid such overlap:

1. Fundraising Counsel: If an entity meets the definition of both a fundraising counsel and a charitable fundraising platform, it will only be a charitable fundraising platform.

2. Commercial Fundraiser:
If an entity meets the definition of both a commercial fundraiser and a charitable fundraising platform, it will only be a commercial fundraiser when the entity, for compensation, performs any of the following acts of solicitation:
(i) Direct mail solicitation, excluding electronic mail or messages;
(ii) Estate gift or estate planning solicitation;
(iii) In-person solicitation through a fundraising event, door-to-door or other public spaces, or a vending machine or similar equipment that does not use a person to perform the solicitation;
(iv) Noncash solicitation;
(v) Nonincidental acts of solicitation that are not internet based, including solicitation through print, radio, or television;
(vi) Solicitation involving receiving something of value, or a chance to win something of value, in connection with a donation; or
(vii) Telephone solicitation.

3. Commercial Coventurer: An entity that meets the definition of both a commercial coventurer and a charitable fundraising platform by listing one or more recipient charities to receive donations or grants of recommended donations made by the platform based on purchases made or other activity performed by persons who use the platform will be only a commercial coventurer when the acts of solicitation through an internet website, service, or other platform to persons in the state are for six or fewer recipient charities per calendar year.[4] Entities that undertake charitable sales promotions or other activities that trigger donations on the internet for seven or more recipient charities per calendar year will be a charitable fundraising platform.

During the annual conference of the National Association of Attorney General (NAAG) and the National Association of State Charity Officials (NASCO) held on October 13, 2021, NASCO President, Yael Fuchs, noted that while she could not advise whether any specific states were planning to introduce similar legislation to AB 488, NASCO does have a Crowdfunding Working Group that has been following the California bill closely, and that the various state agencies are watching to see whether and how California’s law enhances regulatory oversight of online fundraising activities.

The new law goes into effect on January 1, 2023.  Beginning on January 1, 2022, the Attorney General is authorized to establish rules and regulations necessary to administer the new law.

[1] Exceptions include a charity’s own website, vendors that solely provide technical or supportive services to such platforms (e.g., domain hosting services or payment processing services), and sponsoring organizations of donor-advised funds that do not list or name recipient charities for solicitation purposes on its platform to individuals other than its donor-advisors. Additional clarifications for determining when an entity is a charitable fundraising platform when it meets more than one regulated fundraiser category is discussed later in this article.

[2] The law also signals that the Attorney General may issue regulations that would increase reporting efficiency by allowing partnering charitable fundraising platforms or platform charities to submit an annual report on behalf of other charitable fundraising platforms in a consolidated fashion.

[3] The considerations affecting the maximum length of time for funds to be distributed to recipient charities include the acts of solicitation being performed, the number of donations made through the platform, who the donations are made to (e.g., the platform, platform charity, recipient charities, or peer-to-peer fundraisers), whether the recipient charity has provided consent for a solicitation, whether further verification information is requested to prevent fraud, and whether donations are sent to alternate recipient charities.

[4] California does not require commercial coventurers to register with the state if they enter into a written agreement with each beneficiary charity signed by two charity officers, distribute funds to the charity every 90 days throughout the promotion, and, and provide an accounting with each payment.

The post California Enacts New Law to Regulate Charitable Fundraising Platforms first appeared on Staging Perlman and Perlman.

Are you looking for answers to legal questions that arise in cause marketing and corporate partnerships?  If so, look no further!

Last year, Selfishgiving.com founder and blogger  Joe Waters and I distributed a five-question survey to businesses and nonprofits regularly engaged in cause marketing and corporate partnerships, asking them to share their top legal compliance questions and challenges.  After reviewing the survey responses, we decided to create a series of blog posts to address the most common corporate partnership legal compliance questions covering four issue categories: (1) Advertising Disclosures; (2) Registration and Reporting Requirements; (3) Contracts; and (4) Unrelated Business Income Tax (UBIT).   I hope you will find these FAQs useful in helping to navigate the legal and regulatory issues that arise as your company or charity engages in corporate partnerships.

Click on the FAQ headers below to read the answers to each question, which are posted on SelfishGiving.com, and sign up for Joe’s informative and entertaining weekly email newsletter, which has all the latest trends and strategic advice about cause marketing and corporate partnerships!

Part 1: Advertising Disclosures

1. Are cause marketing advertising disclosure “best practices”  required by law? Some of our corporate partners think they are just “suggestions.”
2. What if a company insists on structuring a campaign where the donation is based on a percentage of its profits, rather than a percentage of the purchase price?
3. Have any companies gotten into trouble with regulators for failing to include certain information in their cause marketing advertisements?
4. Advertising disclosure problems only present a real legal risk to the corporate partner, not the charity, right?
5. Can the company simply state on the hang-tag or store signage, “10% of the purchase price will be donated to ABC Charity, see www.company.com/ABCCharity for details,” and then include the website URL where the minimum guarantee and/or donation cap can be found?

Part 2: Registration and Reporting Requirements

Company FAQ

1. Our company is conducting its first ever cause marketing campaign. I heard that we may need to file state registrations. How do I know if I need to register, what does it entail, and how long will it take?  Note: The answer to this includes a chart on the state registration and reporting requirements applicable to companies acting as commercial co-venturers.
2. I operate a small e-commerce business in Massachusetts that sells clothing online, and would like to run a promotion in which the company will donate $5 to a local, nonprofit homeless shelter for every special edition T-shirt sold through our website. Does my company need to register nationally? What, if anything, does the nonprofit need to do?  Note: The answer explains how to determine the parties’ fundraising compliance obligations specifically in the context of an online cause marketing promotion.
3. Our company’s cause marketing campaign launched last week and we just found out we are supposed to register in certain states as a commercial co-venturer! Are we going to face fines or other penalties?

Charity FAQ

1. Our charity was asked to be the beneficiary of a company’s charitable sales promotion, but we’ve never engaged in a cause marketing campaign before. What do we need to be aware of before we proceed with this opportunity?
2. Our nonprofit is already registered nationally, and discloses all of its CCV partners as part of our annual charitable solicitation registration renewals, so we should be set with our CCV-related compliance, right?  Note: The answer includes a chart on the state reporting requirements applicable to charities that have entered into a CCV agreement.
3. Our charity was approached by a start-up company that wants to conduct a cause marketing campaign to benefit our organization. When we told them they may need to register with certain states and obtain bonds, they were concerned about the cost and burden of compliance. We don’t want to lose the opportunity to build a partnership with this company. What can we do?

Part 3: Contracts

1. We are entering into a cause marketing promotion in which our charity will receive a portion of the proceeds from the sale of each Sellco product. SellCo sent us a draft contract to sign. It seems to describe the promotion the way we discussed it. Should we go ahead and sign it?
2. What provisions should be included in our cause marketing agreement? Note: The answer includes a 15-point cause marketing contract checklist!
3. Is there a way to streamline the preparation of cause marketing agreements so they are compliant with all 50 states’ laws as well as for online sales?
4. Our corporate partner wants to enter into a multi-year relationship that includes a significant financial commitment, and will involve numerous customer activations.  Only the details for the first activation have been solidified. How do we draft an agreement to cover this type of arrangement?

Part 4: Unrelated Business Income Tax (UBIT)

1.  My organization, Charity Corp., has a corporate partner, Cool Products Co., that is conducting a charitable sales promotion in which it will advertise that it is donating a portion of the purchase price from sales of a particular product to Charity Corp.  Cool Products has asked to promote their sales campaign to our members and donors through email and social media. I heard that charities aren’t allowed to promote these types of campaigns because it might subject the charity to a tax called UBIT.  What is UBIT, and why and when is it a potential problem? How do we avoid creating taxable income?
2. How can our organization appropriately communicate about a corporate partnership to our donors/members/social followers without crossing  the line into marketing for the corporate partner?
3. The UBIT rules make our corporate partnerships team feel constrained in our partner cultivation strategy. What options does our organization have to provide value to our corporate partners?

The post Key Legal Issues in Corporate Partnerships first appeared on Staging Perlman and Perlman.

Three Key Benefits of Establishing a Corporate Foundation

Provides Consistent Funding for Charitable Programs
A corporate foundation can be a vehicle to build up a charitable reserve in years of higher profits, allowing for a steady flow of charitable grants to organizations in leaner years.[1]  Companies can donate appreciated assets or make a large infusion of cash to establish an endowment. Corporate foundations can be used to fund grants to public charities, pay employee matching grants, or administer scholarship programs for employees’ family members.

When grants are made directly out of a corporate giving department, the funds may be required to be expended during the period for which they are budgeted.  This reduces the control the corporation has over the strategic timing of grants, including support of larger charitable projects.  It should be noted, however, that many companies simply fund their foundation with the same amount as they grant out each year. When considering the compliance obligations that come with the operation of a tax-exempt entity (see below), a company with this type of funding and grant-making strategy may not find that a corporate foundation provides sufficient value vis-à-vis the regulatory burdens.

Accomplishes Strategic Programmatic Objectives
Companies are increasing their focus on issues that align with the companies’ brand(s) and the philanthropic concerns of their customer base.  Financial institutions, for example, may emphasize financial literacy and inclusion issues, while athletic and outdoor gear companies may align their charitable giving towards healthy living and environmental protection initiatives.  In many instances, companies want to not only make strategic grants, but also to operate their own programs that further their charitable objectives. Having a dedicated charitable entity through which the program will operate can help the business maintain its charitable mission focus.

Companies that decide to establish corporate foundations must ensure that they do not use charitable assets to improperly benefit the business.  Companies should review any such initiatives with legal counsel to safeguard against violations of the IRS’s rules prohibiting self-dealing.[2]

Allows One Charitable Entity to Receive Steady Contributions Triggered by All or a Portion of Sales of the Company’s Goods or Services
A number of companies have formed corporate foundations that receive donations triggered by customer sales. Through this structure, the charitable cause becomes part of the brand identity. The IRS, recognizing that payments to charities can, in fact, benefit a business’s bottom line, issued a General Information Letter in 2016, stating that a new group of socially conscious companies formed as “benefit corporations” may treat payments to charitable organizations as a business expense rather than as a charitable donation so long as the payments “bear a direct relationship to the taxpayer’s business and are made with a reasonable expectation of a commensurate financial return.” The General Information Letter therefore clarifies that benefit corporations can take unlimited business expense deductions on their charitable contributions as opposed to limiting such deductions to the standard 10% cap for corporate donations to charitable organizations.

While IRS regulations do provide other advantages that come with the operation of a corporate foundation, such as facilitating employee matching grants and scholarship programs, today, a number of independent public charities exist that manage such programs for companies, obviating the need to form a separate foundation for this purpose.  As such, these charitable programs no longer seem to be key drivers for companies to form corporate foundations.

Three Reasons Companies May Not Want to Establish a Corporate Foundation

Meeting the Compliance Obligations of Corporate Foundations Can Be Costly and Time-Consuming
A corporate foundation is a separate legal entity, whose board members owe a fiduciary duty to act in the best interest of the foundation.  In addition, a separate annual financial report must be filed with the IRS.  Corporate foundations that fundraise, either by being the beneficiary of charitable sales promotions conducted by their founding company, or by soliciting customer donations, may need to register to solicit charitable contributions in up to 38 states, each requiring annual renewal.  The state registration process also requires the foundation to prepare and file audited financial statements, adding to the compliance burden.

Companies should evaluate whether the anticipated annual donations and the sought-after social impact outcomes are significant enough to warrant taking on the cost of compliance.  In many cases, the same results could be achieved through a direct relationship with one or more existing charities, wherein the partner charities are responsible for their own compliance.

The Self-Dealing Rules Can Be Challenging
The IRS prohibits private foundations from engaging in certain financial transactions with certain “disqualified persons,” a category which includes the founding company.  For example, the company’s provision of goods or services to the foundation at a significant discount would be a violation of the self-dealing rules (although donating such goods or services is permitted).  Companies must carefully navigate any financial transactions, including shared expenses, to ensure that the corporate foundation’s charitable assets are not used in a manner that violates the self-dealing rules.

Certain Grants Require Burdensome Oversight Obligations
International grants and grants to non-charitable entities to support charitable activities may be undertaken by corporate foundations, but the federal tax code requires the foundation to follow special grant oversight procedures.  Foreign grants also require additional oversight.  Today, a number of charities serve as charitable giving vehicles through which donors (including corporations) can make such grants, and will undertake the required grant oversight, while the corporation can receive the full tax-deductible benefits. The fees charged by these third party charities to provide grant administration and oversight services may be less than the costs of operating an affiliated foundation, and come with the benefit of staff trained in the IRS’s requirements and best practices for grantmaking.

Companies Can Achieve Their Social Impact Objectives Using Strategies That Work Alongside, or in Place Of, a Corporate Foundation

Direct Corporate Giving
Companies can make direct tax-deductible donations to 501(c)(3) tax-exempt charities, either in the form of restricted gifts (documented through a grant agreement) to support a specific charitable purpose or program, or unrestricted grants. Companies are also uniquely positioned to donate significant volumes of in-kind goods to organizations that will distribute them to individuals, families, or organizations in furtherance of charitable purposes.  Sponsorship agreements allow the company to connect its brand to the brand of a charitable partner and its programs. Many longstanding businesses strategically utilize direct corporate giving alongside the work of their corporate foundation. Walmart recently rebranded the collective corporate giving efforts of the company and its foundation under the new philanthropic name, Walmart.org.

Cause Marketing
Cause marketing campaigns, whereby the company advertises that the sale of its goods or services will result in a donation to a charitable organization or cause, or otherwise engages its customers to take actions to support a cause, can be conducted to benefit an unrelated charity or a company’s own corporate foundation.  Partnering with a reputable independent charity allows the company to benefit from a charity’s strong reputation and proven record of making a real impact on a charitable issue. During the last decade Subaru of America achieved success by donating $140 million to four national charities and hundreds of local nonprofits as part of its annual Share the Love cause marketing campaign.

While less common, a few companies have made their own corporate foundations the beneficiary of cause marketing campaigns, and either fund the foundation’s own charitable program or support other charities addressing specific causes through strategic grants. Since 2000, the Ralph Lauren Corporation has sold a line of pink products to benefit the Pink Pony Fund, a program of the Polo Ralph Lauren Foundation focused on fighting cancer.

Collaborations and Joint Ventures with Established Nonprofits
Companies can collaborate with existing nonprofits to generate social good without forming their own nonprofit entity. This collaborative strategy is increasingly evident in companies’ corporate social responsibility (CSR) reports, which often highlight partnerships with nonprofits as a core strategy for fulfilling their CSR objectives.  Given that nonprofits often have expertise and on-the-ground implementation capabilities on social and environmental issues, this strategy makes sense. In 2015, American Diabetes Association launched a joint marketing and communications initiative with the Hispanic television network Telemundo, aimed at improving overall health and wellness for Latinos in the United States. These types of collaborations are particularly successful because they leverage each partner’s core strengths in order to achieve their shared charitable and social impact objectives.  Companies have also made strategic grants to fund research that will hopefully lead to more sustainable and responsible business practices.

Determining whether a corporate foundation will provide good value for a company ultimately depends on the company’s overall objectives, and should take into account the benefits and challenges of, and alternatives to, operating a corporate foundation.  For this reason, performing a strategic assessment on whether to form a corporate foundation is a worthy upfront investment.

[1] Corporate foundations classified as private foundations under the Internal Revenue Code must distribute a minimum amount annually, equal to approximately 5% of their net investment assets each year, which must be used for charitable purposes, typically in the form of charitable grants.

[2] The IRS has carved out benefits to the company that are “incidental and tenuous” from the self-dealing prohibition, such as through positive goodwill and recognition received by the company arising from the shared name, but how that rule applies in various contexts should be carefully reviewed with legal counsel.

The post Should Our Company Establish a Corporate Foundation? first appeared on Staging Perlman and Perlman.

Layered on top of these market drivers are journalists and the media, who investigate and report on specific instances of harmful business practices by companies and entire industries. Athletic gear company, Nike, experienced a major public scandal in the 1990s when media reports revealed abusive labor practices at factories contracted to produce Nike apparel. Nike began conducting factory audits in the early 2000s, and published a detailed report of its findings. Nike has publicly acknowledged its past failures and now publicizes their ongoing commitments, standards, and audit data as part of the company’s CSR reports.

But do CSR efforts actually pay off?  A recent research study looked at the impact of linking executive compensation to CSR criteria (known as “CSR contracting”) among all S&P 500 companies and found that this practice led to an increased long-term orientation, an increase in firm value[1], and an increase in social and environmental initiatives. On average, CSR contracting also led to companies cutting emissions by nearly nine percent, increasing green patents by three percent, and receiving a five percent higher CSR rating. These findings demonstrate that CSR efforts do, in fact, benefit society while strengthening firm value.

A company’s CSR strategy should not be equated with its corporate philanthropy or giving program. Corporate philanthropy focuses on charitable contributions, through donations of money, goods and services, as well as employee volunteer time, however, it does not generally change how a company — at its core — does business. CSR, by contrast, affects a broader group of stakeholders through the actual operation of the business, including customers, employees, shareholders, communities, and the environment. Yet it’s not just for-profit businesses that drive CSR; the nonprofit sector plays a vital role in CSR implementation. Given that nonprofits are, by their nature, exclusively dedicated to promoting and supporting charitable and educational objectives, including publicly beneficial social, economic, and environmental objectives, it should come as no surprise that nonprofits often play an integral role in driving CSR strategies.  At the same time, the tax-exempt status of nonprofits creates certain constraints on how they can support businesses as they move towards practices that are more socially and environmentally responsible. As such, knowledgeable legal counsel can help ensure a successful collaboration. This article highlights three different roles nonprofits play in helping companies achieve their CSR goals, and highlights the legal structures and parameters in which they operate.

1. Advancement of Ethical and Responsible Business Practices

The most recognized CSR strategy involves the advancement of ethical and sustainable business practices. This includes a company’s business practices with respect to the environment, labor practices and human rights, business ethics, and supply chain management. A few legislative efforts have been undertaken to push companies towards more socially responsible business practices, including the United Kingdom Modern Slavery Act 2015 and the California Transparency in Supply Chains Act of 2010 (and similar laws are being considered in Australia and Hong Kong). These laws require large retailers and manufacturers to disclose on their website their voluntary efforts taken to eradicate slavery and human trafficking in their supply chains. Unfortunately, companies can comply with these laws by simply stating that they do not undertake any verification, audits, certification, internal accountability, and training in order to mitigate the risk of human trafficking and slavery. As such, many believe these legislative efforts are insufficient to achieve their otherwise laudable goals.

By contrast, nonprofits are helping companies improve their business practices by articulating clear, objective standards for ethical and sustainable business practices, and conducting independent assessments of company practices against those standards. Consider the well-established LEED (Leadership in Energy and Environmental Design) green building rating system for building design, construction, operations and maintenance. The LEED certification standards were established, and are maintained, by the U.S. Green Building Council, a 501(c)(3) tax-exempt organization. A separate but related entity, Green Business Certification, Inc., a 501(c)(6) tax-exempt organization, administers the LEED certification program, performing third-party technical reviews and verification of LEED-registered projects.  Other well-known certification or verification programs operated by nonprofits include Fair Trade Certified, CDP (carbon footprint disclosure); The Non-GMO Project (non-GMO food supply), and Marine Stewardship Council (sustainable seafood certification). Another nonprofit, Verité, whose mission is to provide the knowledge and tools to eliminate serious labor and human rights abuses in global supply chains, provides assessments and training that focus on safe, fair, and legal working conditions for workers within business supply chains.

501(c)(3) tax-exempt nonprofits are viewed as trustworthy administrators of third party standards for ethical and sustainable business practices thanks to their legal DNA – U.S. tax-exempt nonprofits are organized (and must be operated) to further charitable and educational  purposes, not for private benefit. As such, they are prohibited from using their income or earnings to benefit private interests. Nonprofits can advocate for business practices that minimize harm to people or the environment, but only within the constraints imposed by IRS regulations.

2. Sustainability Reporting and Company-Wide Assessments

As companies work to advance ethical and responsible business practices, they also want to share successes publicly with their stakeholders, but because CSR reporting is purely voluntary, how do we know if companies are truly being good corporate citizens? A global nonprofit, Global Reporting Initiative (“GRI”), pioneered sustainability reporting in 1997, and today, they are the most widely adopted global standards for sustainability reporting.  Sustainability reporting is critical to providing transparency, and therefore public accountability. Sustainability reporting helps companies measure, understand, and communicate their economic, environmental, social and governance (“ESG”) performance. The reports also help companies set goals to continue improving their sustainability practices across economic, environmental, and social impact standards.

While organizations like GRI are creating uniform standards for reporting across ESG standards, other organizations like U.S.-based nonprofit B Lab, require a business to undergo an actual assessment of how significant a company’s current impact is across social impact areas.  Certified B Corporations must achieve a minimum verified score on B Labs’ B Impact Assessment—a rigorous evaluation of a company’s impact on its workers, customers, community, and environment—and make their assessment transparent on bcorporation.net.  [Disclosure: Perlman & Perlman, LLP is a Certified B Corp.] Athleta, a wholly-owned subsidiary of Gap, recently obtained B Corp certification.  According to Athleta’s press release announcing its B Corp certification, 40% of Athleta apparel is made of recycled and sustainable materials, and they are on track to meet their goal of 80% by 2020.

Some nonprofits are not waiting for companies to opt in to being assessed against their standards, and are instead publishing reports based on publicly available information. Environmental Working Group has been doing this for years at the product level through its Skin Deep Cosmetics Database, which combines product ingredient lists with information from more than 60 toxicity and regulatory databases to provide safety ratings for tens of thousands of personal care products. At the company-wide level, Know the Chain is helping companies and investors to understand and address forced labor risks within their global supply chains. Formed in 2013 by nonprofit, Humanity United (which is part of the Omidyar Group), Know the Chain was originally established with the goal of documenting compliance with the California Supply Chain Transparency Act. Today, Know the Chain focuses on benchmarking current corporate practices across key sectors where forced labor is particularly acute, including information & communications technology, food & beverage, and apparel and footwear, with the goal of driving corporate action while also informing investor decisions. The benchmarks are based on the disclosures of policies and practices used by select large companies. Know the Chain aims to use data and market forces to drive a “race to the top” that creates “brand reward for leaders and brand risk for laggards,” and ultimately encourages companies to adopt standards and practices that protect worker’s well-being.

3. Building Charitable Giving Into the Business Model

While sustainability reporting and assessments focus primarily on business operations, a growing number of companies have built corporate citizenship directly into their core retail sales and marketing strategy. TOMS became popular because of its “Buy One, Give One” business model, donating a pair of shoes to a person in need for every pair sold, distributed through its partnerships with global humanitarian organizations. On May 7th, TOMS announced a major overhaul of its giving model.  Based on the premise that the problems facing our world today are more complex than ever, TOMs has decided that, in addition to providing for basic human needs including shoes and clean water, TOMS is asking customers to join them in “taking a stand” on critical issues. As such, when you purchase a TOMS product, you can also pick an issue area that you stand for, such as ending gun violence, equality, mental health, or homelessness, and your purchase helps direct TOM’s giving (carried out in the form of impact grants that support sustainable and innovative strategies and solutions on leading social issues).

Food product company, Newman’s Own, recognized by its tagline, “All Profits to Charity,” has charitable giving embedded into its ownership structure — 100% of the business is owned by Newman’s Own Foundation. Newman’s Own Foundation, whose mission is “to use the power of giving to help transform lives and nourish the common good,” uses the profits to support a variety of charitable organizations. Newman’s Own’s ownership structure is supported by legislation enacted in February 2018 that allows 501(c)(3) tax-exempt private foundations to own 100% of a business under certain conditions. The foundation is now working to promote the “all profits to charity” concept by providing resources and support to other companies that have committed to donating all of their profits to charity.

A more widely adopted model of giving, albeit less deeply embedded in a company’s business structure or strategy, involves entering into a formal commitment to give a portion of company profits to charitable causes. One of the biggest advocates of this model is 1% for the Planet, a 501(c)(3) tax-exempt public charity that encourages businesses to commit to donating 1% of total sales across the company’s operations to support environmental causes.  The organization’s 1200+ members, which includes environmentally conscious brands like Patagonia, give directly to approved nonprofits, and 1% for the Planet provides third party certification of their fulfillment of this giving commitment. They also help companies identify environmental organizations that will make the greatest impact and align with corporate giving goals.  In exchange for upholding this giving commitment, members receive the right to use the 1% for the Planet logo in their marketing.

Companies looking to push their CSR efforts to the next level should be aware of the unique resources available through the nonprofit sector to help them establish and achieve corporate social impact goals. Similarly, nonprofits cannot ignore the significant effect that businesses have on the social and environmental issues they were created to address, and should consider ways they can help companies improve their impact on those issues. Given the strong consumer, investor, and employee demand for corporate social responsibility, there is no better time for companies and nonprofits to work together to help businesses operate more sustainably and responsibly.

[1] The study uses Tobin’s Q to determine firm value, and is a ratio of the market value of total assets to the book value of total assets.

The post The Hidden Engine Driving CSR? It’s the Nonprofit Sector… first appeared on Staging Perlman and Perlman.

• failing to properly oversee its commercial co-venturer, Harris Originals of New York and related entities collectively doing business as “Harris Jewelry,” which advertised on its website and retail stores that for each teddy bear purchased in the promotion, a specific amount of money would be donated for the express purpose of sending care packages to service members;
• failing to maintain the donated funds as restricted funds as they were designated for a particular purpose;
• using donated funds for purposes other than those expressly represented as the charitable purpose of OTA;
• spending funds on non-charitable purposes; and
• engaging in unfair, false, misleading, or deceptive solicitation and business practices.

According to the settlement, OTA acknowledged that it failed to oversee Harris Jewelry’s “Operation Teddy Bear” by failing to request an accounting of the numbers of bears sold or any other information in order to determine that the per-bear dollar figure sent to OTA was accurate.  The settlement further notes that OTA failed to provide Harris Jewelry with information on how the funds donated by the company were used, or how many care packages were sent to service members.

The settlement further notes that the funds donated were improperly expended on non-charitable purposes and states that OTA spent funds and took other actions without any discussion, approval, or oversight by its Board of Directors, in violation of the Boards’ statutory fiduciary duties.

As part of the settlement, OTA will cease operating and wind down its operation and OTA’s chief executive Mark Woods is barred from serving as a fiduciary or soliciting for any nonprofit. The agreement will assess civil penalties and requires OTA to continue to provide assistance, as needed, in the states’ continued investigation of Harris Jewelry.

The investigation was by led by New York and Tennessee, joined by executive committee states Nevada, North Carolina, and Washington and participating states California, Delaware, Georgia, Hawaii, Idaho, Illinois, Kansas, Louisiana, Maryland, Pennsylvania, and Virginia.

The multi-state enforcement action is a wake-up call for charities to make certain that they are actively overseeing charitable sales promotions conducted to benefit them. The following steps should be taken to meet these requirements:

• Ensure that each cause marketing relationship is subject to a written agreement;

• require the co-venturer to provide a written accounting with each payment made to the charity to certify that the correct donation amounts are being transferred based on the terms of the promotion;

• review the co-venturer’s advertisements to ensure that the language accurately reflects the terms of the promotion, including how donated funds will be used; and

• guarantee that donations are actually used for the purposes as specified in the advertising of the promotion.

Given a trend towards communicating specific consumer impact in cause marketing campaigns (often structured as 1-for-1 campaigns, in which the purchase of each item triggers a specific charitable impact), charitable sales promotions are increasingly generating restricted donations.  Thus it’s critical for charities to undertake the proper procedures to account for and expend these donations in accordance with the stated restrictions, and to ensure that company advertisements are correctly stating how funds will be used by the organization.  In our Nonprofit Times article, 5 Things That Are Making Regulators Buzz, my colleague Tracy Boak and I highlighted the solicitation and use of restricted gifts as a leading area of regulatory scrutiny.

Nonprofit boards must also provide proper oversight over their organizational activities and expenditures.  While the settlement agreement does not provide much detail on OTA’s governance problems, nonprofit governance is also a key area of regulatory scrutiny, with states increasingly seeking to hold nonprofit boards accountable for the organizations’ violation of state charitable solicitation laws.

This enforcement action is significant in that it apparently is the first multi-state regulatory activity involving cause marketing in almost two decades. The last such collective activity undertaken by the states was issued in 1999 in a report issued by the Federal Trade Commission (FTC), and sixteen State Attorneys General and the District of Columbia Corporation Counsel. It discussed regulatory concerns regarding false advertising, unfair and/or deceptive trade practices and consumer fraud arising from commercial-nonprofit product advertisements, with a particular focus on implied endorsements and exclusive relationships.

In 2012, the New York Attorney General’s Charities Bureau issued “Five Best Practices for Transparent Cause Marketing,” providing guidance to companies and charities on ways to ensure consumer transparency in their cause marketing campaign disclosures.

Does the OTA settlement represent the first of many more regulatory enforcement actions focused on cause marketing activities that may be coming down the pike?  Or does it simply highlight the first of several multi-state enforcement actions arising out of the new federal and state enforcement initiative named Operation Donate With Honor, which focuses on fraudulent solicitation activities purporting to benefit veterans and military service members?  We shall see.  In the meantime, we will continue to monitor state and federal regulatory enforcement efforts affecting charities and companies engaged in cause marketing and other fundraising activities, so please stay tuned.

The post Sixteen States Enter into Settlement Agreement with Charity Involved in Unlawful Cause Marketing Campaign first appeared on Staging Perlman and Perlman.

• Which cause marketing practices are regulators most concerned about?
• What are the biggest do’s and don’ts in drafting (and placing) campaign details and disclosures?
• When should I reach out to my legal counsel on a new or potential cause marketing campaign?

I answer these questions and more in The Ten Commandments of Cause Marketing Law Infographic, presented by Joe Waters‘ Selfish Giving blog, and Episode 152 of the CauseTalk Radio Podcast.

I had a lot of fun working with Joe on this infographic. As the leading blogger on all things cause marketing, Joe came up with a fun format for presenting the key cause marketing legal  issues in a visually engaging way. And since lawyers have a hard time explaining all the nuances of the law in as few words as can fit into an eye-catching infographic, Joe, along with Cause Marketing Forum’s Megan Strand, gave me the chance to go deeper into each of the Ten Commandments during a 1/2 hour podcast.

I hope you enjoy this audio and visual journey into the Ten Commandments of Cause Marketing Law!

The post The Ten Commandments of Cause Marketing Law first appeared on Staging Perlman and Perlman.

1. National Localized Cause Marketing

According to the 2013 Cone Communications Social Impact Survey, Americans want companies to support issues that affect the quality of life locally (43%) more than nationally (close behind at 38%) or globally (20%). Companies are increasingly developing national cause marketing campaigns that allow their local retail stores to choose their own community-based nonprofit organization to support within a unified and nationally-branded campaign.

Structuring a multi-state, localized campaign requires significant planning and coordination to ensure success and compliance by all participants. Companies must ascertain that the charities selected by the local retail stores are appropriate to the brand. They must ensure that the partner organizations are in compliance with all applicable charitable fundraising regulations.  In the past the charities needed to educate companies new to cause marketing that charitable fundraising regulations may be applicable to their campaigns (e.g., the company may need to be registered as a commercial co-venturer in certain states and comply with advertising disclosure requirements).  [See my comments on this issue in an earlier blog post]  The growing trend of developing charitable campaigns involving numerous local charities flips the roles; it is often the national companies which are familiar with knowledge of the applicable regulations while the smaller local charities are typically unaware of such requirements.

When a national company invites small, community-based nonprofits to participate in a cause marketing campaign, the company often has to introduce fundraising compliance concepts to the local charity partners (e.g., the need for the charity to be registered to solicit contributions in the state where the campaign will take place, which is typically the state where the charity is located).  Many of these small charities aren’t aware they need to be registered to solicit funds or to benefit from a fundraising or cause marketing campaign.  Newer charities may not understand the request for documentation confirming its state charitable fundraising registration status and provide IRS determination letters and Certificates of Incorporation instead.  On a positive note, because of the unique opportunity to partner with a national company, bring in new supporters, and increase awareness about the work they are doing locally, the charity partners are usually willing to take the steps required for compliance.

Conducting a national localized cause marketing campaign can mean dealing with compliance issues with dozens, if not hundreds, of charity partners.  Building a detailed compliance schedule and set of procedures, along with appropriate contract templates (which may require some customized state-specific compliance provisions where applicable), will help ensure a smooth roll-out of the campaign across retail stores nationwide.

2. Grassroots, Community Interest Fundraising

There is a lot of energy that charitable organizations can harness from local, national, and virtual communities that share a common interest.  Such niche groups can form strong bonds, whether around a popular form of exercise (think spin cycling or Zumba^® classes) or online gaming. Plugging a charitable campaign into the shared activity can drive both awareness and funds to charitable causes in big ways.  The use of social media to engage these shared interests communities may be one reason why these grassroots fundraising efforts are on the rise.

Grassroots, community interest fundraising often begins at an experimental level, with individuals who are part of the interest group presenting a new fundraising opportunity to a potential charity partner. When the campaigns are successful, they can be replicated regionally or nationally across multiple sites.  This model is frequently structured to benefit a particular national charity.

Here are a few legal compliance issues to be considered when undertaking a scalable grassroots fundraising campaign:

• Who is legally responsible for conducting the fundraising activities? Charities must determine if they are a passive beneficiary of a voluntary fundraising effort or the legal owner of the fundraising campaign.  National charities often do not want to take responsibility for a new fundraising idea developed outside of the organization (until the concept takes off!).  If the concept proves successful enough to replicate nationwide, the charitable beneficiary may need to consider taking control and ownership of the campaign in order to ensure effective and efficient execution, including legal compliance.
• Who will own the intellectual property relating to the campaign? If the campaign is a coordinated fundraising effort to benefit one specific charity, the charity generally needs to maintain control over the campaign’s trademarks and other IP in order to maintain quality control and protect the organization’s reputation.
• Is any legal entity or individual being paid to provide advice and counsel on fundraising activities, or to directly solicit contributions?  These campaigns often start out being organized by individuals within a local or virtual community on a voluntary basis, but as campaigns begin to grow and take on new levels of complexity, it often becomes practical to compensate someone to manage it.  Fundraising efforts may happen at different levels simultaneously.  For example, the solicitation of corporate sponsors and the recruitment and management of individual participants engaged in peer-to-peer fundraising in various regions of the country.  If an individual or entity who is not an employee of the nonprofit is paid to advise or assist with these fundraising efforts, they may need to register as a fundraising counsel or professional fundraiser in the states where the charity and individual/entity are located, and potentially in other states where their fundraising efforts are targeted.

Engaging communities locally and harnessing grassroots social networks can be a powerful driver of awareness and source of funds for social good. Careful planning is required for compliance and success.

The post Trends in Fundraising & Cause Marketing – Local and Grassroots Engagement first appeared on Staging Perlman and Perlman.

CASL applies only to a Commercial Electronic Message (“CEM”).  A CEM is broadly defined in the law as an electronic message (including email, text, or voice messages) that encourages the recipient to participate in a commercial activity, regardless of whether there is an expectation of profit.  A message is a CEM if one of its purposes is to promote or otherwise offer a product, good, service, business or gaming opportunity.   Therefore, even if one purpose is to seek a donation, the message is still a CEM if it includes any of these commercial elements.

Therefore, if your organization is sending email that only asks for a donation and does not include any other promotions, then consent is not required and CASL does not apply at all.  However, if the request for a donation also includes other commercial promotions (ie. “Please visit our Christmas gifts catalogue by following the link below”), then consent is required.

CASL prohibits anyone from sending a CEM without express or implied consent.  Implied consent is assumed if there is an “existing business relationship.”  Generally, there is an existing business relationship if in the last two years the recipient purchased goods or services from the sender.  Implicit consent from a non-business relationship may be inferred from a prior donation to, or volunteer work performed for, a registered Canadian charity, or membership in a club, association or voluntary organization. Even if you have implied consent, you will eventually have to obtain express consent.  For contacts made before July 1, 2014 implied consent expires on July 1, 2017.  For contacts made after July 1, 2014, implied consent expires two years after initial contact.

The truly burdensome aspect of the new law is that consent may not be requested by email.  Instead, requests for express consent should be made by paper or orally, or by checking a box on webpage visited by the party giving consent.  The burden is on the sender of CEMs to demonstrate consent, and records should be kept accordingly.  To obtain express consent under CASL the recipient must actively opt-in (no pre-checked boxes).  The request for express consent must contain information on the purpose for consent, identify the sender (name, address/phone number or email) and notify the recipient that consent can be withdrawn.

CASL also regulates the content of CEMs.  Each CEM sent to recipients must contain the following information: the identity of the sender; contact information of the sender (mailing address and telephone number, email address,

or web address); and an unsubscribe mechanism that is valid for a minimum of 60 days after the message is sent.  If an organization receives an unsubscribe request, it must act on the request within 10 business days.

Organizations are also responsible for ensuring that any third party sending electronic messages on the organization’s behalf are complying with CASL. Contracts between the organization and the third party should include the requirement that the third party be compliant with CASL.

American charities are at a distinct disadvantage in complying with the law because a major exception that is carved out for Canadian charities does not apply to American charities.  Specifically, the regulations do not apply to CEMs that are sent by or on behalf of a Canadian Registered Charity and whose primary purpose is to raise funds for that charity.  However, in order to be a Registered Charity, the charity must actually reside in Canada.  No equivalent exception has yet been granted to charities in the United States which are officially recognized by the IRS or the states.

CASL contains other exceptions, including those relating to family and personal relationships, intra-organization messages, and referrals.  However, confusion and controversy around whether an exception applies can be avoided by obtaining and documenting express consent.

CASL includes significant penalties for non-compliance (up to $10 million per violation for an organization and up to $1 million for an individual). Directors and officers of a corporation can be liable, if they directed, authorized, assented to, acquiesced in, or participated in the commission of the violation.

For more information on CASL, its application and its requirements, please refer to the Government of Canada’s website regarding Canada’s Anti-Spam Legislation at http://fightspam.gc.ca.

The post Sending Email to Canada? Think First. Canada’s Anti-Spam Law Requires Prior Consent in Many Cases first appeared on Staging Perlman and Perlman.

Below is a summary of the key tips provided by NASCO.

NASCO’s Tips for Charities:

1.  “Protect your brand.”  Charities should consider establishing a policy regarding who can fundraise on their behalf, and a process for potential fundraisers to seek authorization.

2.  “Research your charity’s online fundraising presence.” Third-party fundraising platform websites allow charities to carry out their own fundraising campaigns, but many websites also allow individuals to set up peer-to-peer fundraising campaigns without the involvement (or knowledge) of the charity.  (These websites typically partner with a tax-exempt donor-advised fund to receive and receipt donations, and then distribute the donation to the donor’s recommended charity.)  If your charity does not want to be included on a fundraising platform, contact them to request that your organization be removed from the website.

3.  Carefully research fundraising platform policies before using one.  Make sure you understand what kind of fees will be deducted, how donor information will be used by the website, when and how contributions will be sent to the charity, what type of fraud prevention measures are in place, and what kind of accounting a charity can obtain from the website.

NASCO’s Tips for Donors:

1.  “Make sure you are donating to a legitimate charity.”  Confirm that any email or text message solicitation you receive is legitimate by contacting the charity or visiting its website. Be wary of “look-alike” websites (i.e., a website created to look like a real charity’s website) and sound-alike charities (i.e., a charity with a name very similar to that of a reputable and well-known charity).  Before donating, research the legitimacy of a charity through websites like the IRS’s search tool of organizations eligible to receive tax-deductible contributions, Guidestar, and various charity watchdog websites.

2.  Take appropriate steps before initiating or donating to a peer-to-peer fundraising campaign.  Individuals who want to set up a peer-to-peer fundraising campaign should contact the charity to obtain permission to use their name beforehand. In addition, donors should make sure that the donation will go directly to the charity and not to the individual supporter. Donors should make sure they understand what fees will be charged and/or taken out of the donation, and how their personal information will be used by the website.

NASCO’s Tips for Fundraising Platforms:

1.  “Conduct basic due diligence to discourage potentially fraudulent uses of your platform.”  This includes verifying on the IRS website that charities included on the platform are tax-exempt and eligible to receive tax-deductible contributions, and that the charities are registered to solicit donations wherever they are required to do so.  Confirm that any person claiming to work for a charity actually does, and that any bank account information provided is that of the charity and not of any individual.

2.  Obtain written permission from each charity before collecting funds for it. NASCO notes that “[a]t least 38 states require express/written permission from a charity before its name is used in connection with a solicitation.”

3.  Educate charities and their donors who use your website by having clear and transparent terms and conditions for using the platform.

• Clearly disclose what type of vetting will be done before a charity can participate on the website.  Fundraising platforms should make sure this is clearly set forth in their FAQs or other webpage describing how the platform works.
• Be transparent about donation transfer policies and practices. This includes any transaction fees, the portion of the donation that the charity will actually receive, any minimum thresholds that must be donated before funds will be disbursed, and how often funds will be transferred.
• Promptly comply with any request from a charity to be removed from the website. Include contact information specifically for charities to ask questions or report fraud.

4.  Implement anti-fraud measures.  Establish and implement policies and procedures that will help detect and deter fraud, and review and fix flaws in the procedures as they become known.

5.  Be aware of, and comply with, any applicable fundraising regulatory requirements. Depending upon the type of services provided and how your fundraising platform works, “[y]ou may be classified as an unregulated vendor, or a moderately regulated commercial co-venturer or professional fundraising consultant/fund-raising counsel, or a more actively regulated commercial fundraiser/ professional solicitor.”  Make sure you understand your legal status, and comply with any applicable registration, reporting, and contract requirements.

NASCO’s tips on internet and social media fundraising provide plenty of guidance for charities and fundraising platforms to consider, but one issue it does not directly address is when a state has jurisdiction over a charity or fundraising platform whose fundraising activities are carried out on the internet.  Stay tuned for my next blog, which will review state charity regulators’ current guidelines on when state registration and reporting requirements are triggered by internet-based fundraising activities, and highlight some of the legal and practical considerations that nonprofits, fundraisers, and fundraising platforms face when trying to apply them.

The post State Charity Regulators Offer Tips on Internet and Social Media Fundraising first appeared on Staging Perlman and Perlman.