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US: Charity’s Share From Shopping Raises Concern

by Stephanie StromNew York Times
December 13th, 2007

Shopping has become virtuous, especially at this time of year. Buy a “Better World” scarf at American Eagle Outfitters, and the retailer says $10 of the $19.95 price will go to one of three charities. Buy or lease a BMW this month, and participating dealers say they will give $25 to the Make-A-Wish Foundation.

Consumers these days can benefit a variety of charities with their purchases. Or can they?

Increasingly, nonprofit experts are beginning to question one of the fastest-growing sectors of giving, the practice of building a donation into the purchase of items as varied as fine jewelry and Always feminine products.

They point out that such giving is unregulated and, in most cases, unaccountable — and no one knows who, if anyone, is claiming a tax deduction for it.

“It’s virtuousness as a marketing gimmick run amok,” said Lucy Bernholz, founder and president of Blueprint Research and Design, a consulting firm for nonprofit organizations, who has coined the term “embedded giving” to describe the phenomenon. “The potential for it to be a scam is huge.”

In many cases, charities and their corporate partners are unwilling to discuss the specifics of their embedded-giving programs, declining to answer questions about how much is raised and even where exactly the money is going.

Sometimes charities do not even know they are supposed to be receiving donations. For instance, some beneficiaries of an embedded-giving program in a holiday catalog from Barneys New York found out they were listed only after they were contacted by The New York Times.

The World Wildlife Fund, a major charity that works to preserve and protect animals and the environment, was among them. John Donoghue, its senior vice president, was disconcerted to learn that his organization was among a number of charities named as beneficiaries of items bought from Barneys’ “Have a Green Holiday” catalog.

“Unfortunately, just like Barneys shoppers, we’re in the dark as to how or if Barneys and the manufacturers will fulfill their commitment to donate a portion of the proceeds from these products to W.W.F.,” Mr. Donoghue said.

Experts say such loose arrangements mean that donors cannot be sure where their money is going.

“In most cases of embedded giving, the donors will have even less idea of where their money goes than they do when they give to many large charities,” said Timothy N. Ogden, chief knowledge officer at Geneva Global, a philanthropic consulting firm. “Rather than donors getting closer to what is needed and how their money is used, they’re getting farther away.”

The start of embedded giving can be traced from the early 1980s, a time when American Express developed an effort to raise money for the restorations of the Statue of Liberty and Ellis Island by donating one penny for every purchase charged to its credit cards, generating $1.7 million.

Experts say companies and charities have embraced it wholeheartedly, though no one keeps track. Companies feel the programs burnish their images and may help them sell more products. Many charities believe the programs make it easier for people to donate because the transaction occurs as they go about their everyday business.

But some worry that embedded giving could end up eating away at larger, more direct charitable contributions. Donors, they say, will feel they are making donations all the time and be less likely to write out big checks at the end of the year. “Once purchasing and giving are conflated, the consumer is likely to conflate retailers and charities,” Mr. Ogden said.

Probably the most successful program of this kind is (Product)RED, which was created with the backing of Bono, lead singer of U2. The organization raises money for the Global Fund to Fight Aids, Tuberculosis and Malaria through companies like Apple, Gap and Motorola, which donate part of the sales price of designated items. It has pulled in $51.7 million since it began last year. Unlike many other programs, however, a detailed contract exists between the seven companies that have signed contracts to use the (Product)RED brand. Typically up to 50 percent of profits go directly to the Global Fund, and buyers can see how much the effort is raising on the Web.

But in most cases, embedded giving raises more modest amounts. The World Wildlife Fund garners $2 million to $3 million a year from such programs done in partnership with 22 companies. Its seven-year relationship with Build-a-Bear Workshop, for instance, has raised $1.5 million, according to the fund.

Mr. Donoghue said the benefits of embedded giving can reach beyond money. For instance, he said the fund can influence the use of more environmentally sound commodities and products through its choice of partners.

And the deals can vastly expand the group’s reach. “For us to have 100,000 cool girls walking around wearing panda-branded T-shirts that have appeared in a circular that goes to 50 million people and is paid for by a corporate partner has a communications benefit we could never afford on our own,” he said.

The wildlife fund has a contract with Chaser Merchandising, which puts the organization’s panda brand on T-shirts. J. C. Penney is selling the shirts with a promise to give $1 of the proceeds to the fund, or a guaranteed minimum of $50,000.

Still, the fund is working to promote more direct types of giving. It had no idea that it was listed in the Barneys catalog, which states that Maria de la Rosa, an Italian home décor company, will donate “a portion of the proceeds” of the purchase of a $150 cosmetics bag to the wildlife fund.

Unlike the case this year, Barneys had a contract to use the World Wildlife Fund name in last year’s holiday catalog, and the organization had to wait “quite a long time” before it was paid what it was due, Mr. Donoghue said. “It wasn’t the easiest relationship,” he said.

Dawn Brown, a spokeswoman for Barneys, said that the onus to hammer out a deal with a charity was on the manufacturers whose products were featured in the catalog and that the company had reminded them of that obligation last week, after it learned from The Times that some charities were unaware of the program.

The BBB Wise Giving Alliance recommends that charities participating in embedded giving spell out how much money in a purchase will go to them. It also recommends that they spell out the duration of each campaign.

But in many cases this does not happen. In the Barneys catalog, the jewelry designer Sharon Khazzam promises “a portion of the proceeds” from the sale of a $9,100 diamond and moonstone “world” necklace to the Edible Schoolyard, a program run by the Chez Panisse Foundation, the foundation started by the celebrity chef Alice Waters.

Ms. Khazzam said in an interview that 10 percent of her gross receipts would go to the Edible Schoolyard. No contract governs her pledge, however.

Carolyn Federman, director of development for the Chez Panisse Foundation conceded there was no way for the organization to know whether it was receiving its due, but she said she trusted Ms. Khazzam.

Still, she said, most embedded giving programs are hardly worth it.

“We have people call and say they want to do this or that to benefit the foundation all the time, and we turn them down because we know what they want is to leverage your name,” Ms. Federman said.

Far more people encounter embedded giving on the grocery store checkout line, when the clerk asks them whether they would like to tack on $2 or $3 onto their bills for a specific charity.

Personal experience with such programs has caused Jack Siegel, a tax lawyer and charity governance expert, to question whether state charity regulators should be taking a closer look at them too.

“I wonder, are these charitable solicitations that would require registration with state attorneys general?” Mr. Siegel said. “You’re supposed to register if you say the money you’re raising is for a good cause.”

He started questioning embedded giving on a visit to a Whole Foods store when he was asked to donate to a breast cancer charity and refused.

“The checkout clerk then started to grill me about why I didn’t want to,” he said. “And I honestly think she handled my bananas more roughly than they usually do.”

Fred Shank, a spokesman for Whole Foods, said the chain had a policy instructing clerks not to become pushy if customers decline to give. He said the company used a computerized scanning system to track the donations.

At least grocery customers are told where their dollars are supposedly going. Some retailers just promise to give part of sales to good causes generally.

For instance, Hanna Andersson, the children’s clothing company, promises to give “a portion of the profits” from the sale of its Day for a Sleigh long johns to “organizations that provide support to kids in need.”

Alison Polenz, vice president for marketing at Hanna Andersson, said she could not provide details about how much the company gave and to whom.

“If we put a number out there, we want it to be something we are able to live up to, and we can’t always guarantee that,” Ms. Polenz said. “It’s not meant to be vague or not sharing with the customer.”

Embedded giving is also popular online. One of the best known programs, iGive.com, makes money every time a consumer who has signed on as a member shops at one of the more than 680 retailers in its network.

The site lists 39,000 “causes” that members can give to. The list is generated by members, and iGive makes it clear that not all causes are bona fide charities. One cause listed, for example, asks for money for a son’s college fund.

When an iGive member makes a purchase, the retailer gives iGive a percentage and puts a percentage into the member’s iGive account. The member then uses that account to make donations. Since it was founded in 1997, iGive has sent $2.9 million to the various causes on its list.

But members can also direct the money back to themselves, although Robert Grosshandler, the founder of iGive, says that happens rarely.

Still, some of the details, like how much each retailer pays Mr. Grosshandler, remain blurry.

Ms. Bernholz, the consultant, said embedded giving was becoming so widespread that it was starting to resemble a tax. “Maybe it’s all good,” she said. “But if it is, we should be counting it, and we’re not.” 



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