Q: I am the chairman of an organization that has been presented an opportunity the board believes to be truly win/win. We would like to offer a service to our members that we think they would value. The service provider would give us fees both for promoting it to them and for any sales that might result. The members would win because they would have discounted access to something they can use. The organization would win because we would be getting extra income. And, the service provider would win because she would be making sales to a market she would not otherwise have access to. But, we want to make sure we properly handle this and any similar ventures that might present themselves in the future so that we maximize the benefits and don’t find ourselves in hot water. Any advice you may have on how to structure or word this opportunity would be appreciated!

 

A: Nonprofits have taken advantage of offers like these for many years. Affinity programs – branded credit cards, insurance programs and discounted telephone services – are probably the most common. However, just because they have been around a long time, doesn’t mean you should just move forward. Some opportunities are better than others. My advice, therefore, is more in the form of presenting issues you might want to consider before making your decision.

First, do you have a policy regarding the acceptance – or the solicitation – of such offers? If not, I suggest crafting one before making your decision about this offer. Even if you do have a policy, you might review the considerations listed below to ensure that it properly protects your organization. A strong policy will make the decision more objective and hopefully more sound.

Some considerations:

  1. Will you accept offers to promote the products or services of members as well as non-members? If so,
    • Does your conflict of interest policy cover this situation?
    • Could the arrangement ever be construed as private inurement? If so, how will you protect the organization from such a claim?
    • Will the terms differ based on whether the offer is extended by a member or
    • How will you handle the grumbling – or worse – when you allow one member to offer his/her services and turn down another?
  2. Will you require bids or just vote the proposal up or down based on the first vendor to approach your organization with this type of product or service?
  3. How will you determine what is a fair and equitable cut? Are you building in the value of your brand?
  4. What type of products and services are you willing to promote? Are there any total non-starters?
  5. What role will the image of the product or service play in your decision? (I know one organization that offered its members burial plots. It was a valuable offering, but it didn’t do a lot for the image of the organization.)
  6. Do your members join your organization for the products and services you provide? If not, how are your members likely to react to these promotions, especially if you begin offering quite a number of them? How will you respond to members that are unhappy about receiving unsolicited offers?
  7. How will you handle the mailing list to protect your members’ privacy? Will you allow members to opt out of receiving such offers?
  8. Are you willing to pay Unrelated Business Income Tax (UBIT) and/or sales tax or will you limit any offers to products or services that are directly related to your mission?
  9. How will you ensure that the products or services are legitimate?
  10. How will you respond to complaints about any products or services that were sold with your “endorsement”?
  11. Who will serve as the banker and record keeper?
    • If it is your organization, what will that cost in time and person-power? (Remember, this will take away from mission-related activities.)
    • If it is the service provider, how will you ensure that you are being properly compensated?
  12. Will you have/want to audit the transactions? Will you make enough to cover this cost, let alone see a profit?
  13. How will you determine if this opportunity is truly worth the effort?
  14. Could your organization make this money – or more – undertaking something different?

I’m sure your board will come up with additional issues when it sits down to discuss these. Some of those issues might be specific to the product or service being offered at the time. While time-consuming, this is an important exercise. Making the choices that determine the future for the communities you serve (and your members are one of your communities) is, according to my friend and colleague Steve Bowman of Conscious Governance in Australia, what governance is all about.

One caveat: If you decide to move forward on this or another venture, do not mail out the solicitation using your nonprofit indicia. The postmaster has the right to open one of your mailers. If he or she determines that the offer is actually benefitting a for-profit business or an individual that is not authorized to mail at the nonprofit standard rate, the postal service will come after your organization to recoup the difference in postage fees and you could permanently lose your ability to mail at the discounted rates.

 

COMMENTS

“Fabulous column on a really difficult issue that few tackle with such a clear head! Make that one easy to find on your website for a long time.”

– Jane Garthson
Garthson Leadership Group
Canada

“Yikes!! What a great article… Having had many of these offers come my way over the years to be considered as both a volunteer board member and as a nonprofit staff member..your comments are very insightful on this topic. You also provide a way more detailed analysis that is needed than most organizations go through in looking at these offers… Thanks again for an interesting and useful article.”

– Pat Morris
Director of Development
The Y of Greater Miami