Once again, the Israeli nonprofit organization Magan David Adom (MDA) and it’s American supporting charity, American Friends of Magen David Adom (AFMDA), are in the news after all five members of AFMDA’s executive board resigned, stating that they “refuse to abdicate or compromise in any way our fiduciary duty to AFMDA and its donors.”

Second, which side is right or wrong is of secondary importance.  Regardless how the situation plays out in the near or distant future, organizations can learn RIGHT NOW from the very public debates raging between the American and Israeli arms.

Specifically, the core issues — defining roles, trust, and independence — are the same faced by all international organizations, and, as such, can provide a constructive case-study for nonprofits, their board members, and their donors.

(While I generally refrain from talking about specific groups so as to avoid accidentally tarnishing an organization’s reputation, in this case, after articles in the Forward, The Jewish Week and eJewish Philanthropy, I think it’s safe to say that the cat is out of the bag.)

1. DEFINING ROLES

The resigning board members argue that Israel’s MDA views AFMDA as purely a fundraising arm. – Forward

Let’s be very clear: establishing a “Friends of” Charity is not just about creating a PO Box in the United States. Rather, a “Friends of” Organization is about finding like-minded individuals that share a similar passion for a charity’s mission and believe that Charity X is the best way to address this particular issue.

Said somewhat differently, creating a supporting charity abroad is about empowering individuals outside of the organizational framework and arming them with the appropriate tools so they can promote your cause; hopefully, raising a heck-of-a-lot of money in the process.

The relationship a foreign charity has with its American Friends is similar to the relationship any nonprofit has with its Board Members.  This point is addressed most excellently in an articleby Hildy Gottlieb. The following short excerpt doesn’t do it justice:

Board Members and FriendRaising:

The point of engaging the community (which is really what FriendRaising is all about) is an engaged community…Friends will not let anything bad happen to your work. They will help in ways you never dreamed possible. They will want to see good things happen, and will work like the devil to be sure nothing bad happens.

Friends share all their gifts with the organization, and are thrilled that the organization sees value in those gifts! They give what they have, whatever that is – and yes, quite often, it is even money. But it is not only money. It is usually far more.

The only road to sustainability is to engage the community in your work, to turn that community into an army of friends achieving something amazing together, spreading the roots of ownership of your mission and vision throughout the community, so the community would not dream of letting that mission die.

When two sides do not agree on their particular roles there will undoubtedly be tension. It is best to address these issues early on so as to avoid them becoming a much larger issue in the future.

2. TRUST

The Israeli group has argued that AFMDA is holding a huge cache of money that donors believe is going directly and immediately to Israel, while in actuality is it waiting — at times, for years — for approval by the American body…Another factor contributing to the mistrust that some AFMDA officials harbored toward their Israeli counterparts is an ongoing criminal investigation in Israel against the CEO of MDA. – Forward

And, of course, a cornerstone for a good friendship is trust.  And the trust should flow in two directions:

• The American Friends should trust that the beneficiary (a.k.a. the foreign charity) is using the money wisely and responsibly to forward the common mission in the best way possible.
• The Foreign Charity should trust that its American Friends are supporting it — especially monetarily — in the best way possible.  This means that the foreign nonprofit trusts the methods used by the American charity to fundraise, hire staff, and publicize/market the organization etc.

If either of these trusts breakdown, a situation like what MDA is experiencing now is the inevitable result.

3. INDEPENDENCE (AND COMPLIANCE)

But on January 19, all five members of AFMDA’s executive committee resigned, warning that the renewed partnership could come at the heavy price of lost independence and possible abdication of the American group’s legal responsibilities as a charity certified in the United States. - Forward

…The leadership of Magen David Adom (MDA), and some of the members of AFMDA’s Board of Directors, do not appear to share our commitment to our roles as responsible and independent fiduciaries, exercising sound judgment in full compliance with the letter and spirit of American laws and donor expectations. – eJewishPhilanthropy

An American nonprofit’s need to be independent stems primarily from the I.R.S..

As such, foreign organizations looking to establish an American Friends of Organization in the States need to understand that the American charity must demonstrate control and financial accountability. If the U.S. nonprofit is thought to be a simple puppet of the foreign organization, the I.R.S. can remove tax-exempt status and/or levy fines.

Two key points from a previous post exemplify the level of control the U.S. Government is expecting:

• Grants should be reduced to a written agreement signed by both the charity and the grantee. In addition to requiring periodic reports, charities should perform routine, on-site audits of grantees.
• The I.R.S. insists that charities must demonstrate that it exercised an independent decision about the use of its donations and that the funds sent abroad further the charities’ own purposes.

It is important to note that the due diligence done by a “Friends Of” is not a reflection of distrust as mentioned above, rather its inherent responsibility to the government scrutinizing the charity and to its donors.

A foreign nonprofit looking to establish a “Friends of” charity in America must realize that it is not opening a branch or satellite, rather a separate entity.  If the parent organization cannot appreciate this distinction, a “Friends of” Organization  might not be the best solution for the charity; there are, after all, other types of entities that can help transfer donations abroad.

IN CONCLUSION

Let us not be naive and think that Magen David Adom is the only organization to have problems of control, independence, and fiduciary responsibility. Just the opposite, many international nonprofits have similar issues but will continue to avoid addressing them because they are “fortunate” enough not to be in the limelight. (And this, by the way, is the real danger, though, not the subject of this post.)

As I mentioned above, this piece isn’t about blame or deciding which side is right. As far as I’m concerned, both sides — and especially the charity’s beneficiaries — come out behind.

I heard Martin Brookes, CEO of New Philanthropy Capital in the UK, explain at a recent conference that he can only offer people the lessons he’s learned from the mistakes he has made.  It is my sincere hope — and perhaps the only silver lining in this whole mess — that other organizations take note of MDA’s recent struggles and learn from them.  (From my mouth to God’s ears.)

Tizku Lemitzvot,

Shuey

Disclaimer: This blog houses my personal opinions and is for informational purposes only — not advice. As charity laws can be quite complex, please refer all questions to qualified and licensed professionals. Read the full disclaimer.

To the best of my knowledge, Judaism, Christianity and even plain-old, agnostic ethics advocates giving someone a second chance.  But is this true with nonprofit organizations? Does a charity that has made mistakes and lost our trust deserve our donations in the future?

This question was inspired by an article in CNN Money by Allan Chernoff entitled, “Is the American Cross Worthy of our Donations?”

Haiti’s catastrophe has triggered an outpouring of support for the American Red Cross, which has raised more than $203 million for its Haiti Relief and Development fund in just three weeks, far more than any other charitable organization.

But, is the American Red Cross worthy of such generosity given its mixed record of performance during the past decade?

In short, the article explains that recent years have seen local American Red Cross chapters victims of embezzlement, the organization attempt to defer donations earmarked for a Word Trade Center Relief Fund for other purposes, and the charity blamed for poor coordination of relief efforts after Hurricane Katrina.

With the millions rolling into The American Red Cross, I’m forced to wonder exactly at what stage a charity washes itself clean of previous wrong doing? When is a rehabilitated nonprofit worthy of our donations?

My answer: It depends (so sue me for being non-committal).  The following are my thoughts on the subject:

Trust

“American philanthropy is built on trust,” said Kathleen McCarthy, director of the City University of New York Center on Philanthropy (the quote was taken from the above Chernoff article).  Charity is like every other relationship on the planet, its all about the trust.  A nonprofit that ruins this trust might just have burnt their bridge – permanently and with no questions asked.  However…

Change

Has the organization undergone real change?  Beauty is skin deep, but mismanagement can seep into the core.  It is a definite red flag if the charity still has the same practices and oversight in place that led to previous disasters.  However, if a nonprofit has undergone change – including but not limited to changing directors, board of directors, procedures, transparency – than maybe a re-examining of the embargo is warranted.

Case in Point: The Red Cross hired a new CEO, Gail McGovern, in 2008.  She promises that “we are [The Red Cross] excellent stewards of every single dollar that we raise” and that 91% of a donation goes to supporting programs with only 9% covering various  overhead.  This last fact is confirmed by Charity Navigator (again, check the above article).

Connections/Experience

Charities (specifically those that support causes abroad) spend much time and effort developing contacts and perfecting methods to deliver their support in the most efficient way possible.  It is quite possible that a new or different charity might lack the experience and contacts to properly render a particular charitable service.  Lack of options could, conceivably, thrust a donor back into the arms of an institution he or she once abandoned.

Case in Point: I have opened bank accounts for wronged donors who were convinced they could do it better than the charity that they just stopped supporting.  It has killed me seeing these same donors squander resources as they fumble around trying to build new infrastructure and reinvent the wheel.  Many in this last category have eventually closed shop realizing their mistake to go at it on their own (A better choice might be to try to change the organization from within).

Bureaucracy

It could be that despite the change in management or sworn promises, an institution’s murky organizational structure and red tape cannot guarantee a true change. If so, the best option is to run, and run fast.

Case in Point: A colleague of mine was hired by a large institution as their fundraiser, a new position created at the behest of one of the board members.  The CEO/Founder refused to change his M.O. and did not allow this new employee access to the information that was necessary to do his job.   Needless to say, after some time on the job, the person quit.  And this is one example of many, which I know of first hand.

To Err is Human, To Forgive is Divine

Maybe everyone does deserve of second chance, if for no other reason than because each one of us has made mistakes in the past; mistakes that we have probably taken to heart and earnestly tried to correct.

When feeling Christian enough to take this leap, I would only suggest that a donor require the organization in question to earn back his or her trust, maybe starting with a smaller donation and increasing the amount as the charity proves itself worthy.

So where does that leave us?

1. I’m not a believer that one mistake should condemn a nonprofit forever. If the need arises and the opportunity presents itself, a donor should consider giving again under some of the guidelines mentioned above.
2. I’m also a firm believer that witnessing a problem, you can either sit on the sidelines or become part of the solution. If a donor honestly feels that this organization is the right man for the job, then it might be incumbent upon him or her to try to change the direction/policy/behavior of a particular charity be becoming involved. Yes, sometimes doing good or doing the right thing actually requires more effort than writing a check (scary, but true).
3. Charities need to realize that giving charity, for many people, is a way to make donors feel better about themselves. This feeling can be easily be gotten from simply donating to another charity. A nonprofit that makes it harder for someone to donate (from either a moral, strategic or technical point of view) can quickly lose out – and they shouldn’t be surprised.
4. Charities that have undergone true change should have the guts to let people know. Being honest and letting potential donors know that the organization is under new management is one of the best hopes of luring back previous supports.

So what do you think?

Tizku Lemitzvot, [May you continue to merit doing good deeds]

Shuey