Due Diligence: The Time is Now

Due Diligence: The Time is Now

Every day it seems there’s a new scandal in the headlines about a nonprofit and a board member. Or a current or former donor. Mid-June was the end of 10 weeks of protests against the Museum of Modern Art in New York; activists protested against “toxic philanthropy” including the ties of board members to Jeffrey Epstein and more. In the UK, there have been protests against museums for accepting gifts from BP and other oil companies.

So how can nonprofits avoid these kinds of protests and headlines? The answer is due diligence or in other words, risk assessments. It’s something that some organizations have been doing, notably in the United Kingdom, but many organizations may not have considered it or only did it in special circumstances.

Now with greater scrutiny of nonprofits and their boards and donors, nonprofits should think more seriously about implementing due diligence for their board members and donors, both current and prospective, and any potential award nominees.

Alyce Lee Stansbury of Stansbury Consulting, explains that due diligence is looking to answer the following questions: “Do we have shared values? And is this a good fit? Is your donation to us going to reflect well on our nonprofit? And is our nonprofit’s work going to reflect well on you as a donor?”

But it’s more than just asking questions. Having a formal policy for due diligence will give you the road map to deal with potential issues that may come up and hopefully keep your organization out the headlines. Association of Advancement Professionals (AASP) and APRA both have recently published best practices and toolkits (links in the additional materials section).

But one of the key areas that nonprofits should consider is having specific policies related to gift acceptance and board service. A gift acceptance policy should be the gold standard to which all gifts are measured. This can mean everything from what kinds of gifts can be accepted to situations where the nonprofit may consider returning a gift if information comes to light.

For instance, Stansbury notes that in her early career she was working at a statewide drug prevention company when Tropicana approached them to give a gift. But at the time, Tropicana was owned by Seagram’s, which sold alcohol. The organization decided that it was a conflict to accept the money and declined it.

Every nonprofit is going to have different gift acceptance policies, depending on its mission. No one size fits all in this situation.

Board policies are also a must. These policies need to outline the roles and responsibilities of board members, board terms, and more. In an interview last year, Hardy Smith of Hardy Smith Consulting noted that board members have fiduciary and governance duties, so there are significant repercussions if these duties are not met.

But nonprofits may want to dig deeper and look at the conduct of its current board members, not just the nominees. Stansbury notes that she’s been seeing nonprofits including a clause about how to remove board members (outside of term limits) or even what to do if a board member is convicted of a crime. But she asks what do you do about a board member who has been arrested but not convicted of a crime?

Gift acceptance and board policies are just a starting place. Figuring out responsibilities, timelines, etc. are all part of implementing due diligence process at your organization. And it’s a process that should ideally involve lots of folks. Leadership should develop the policies and make the decision regarding questionable gifts/board members. Donor relations can be the keeper of the policies and bring up possible issues.

Prospect research also plays a special role in doing the research to uncover the possible risks to the organization. We can use our suite of tools to look into the backgrounds of potential donors and board members to your organization and communicate our findings in an effective way.

While it takes careful time and thought to craft a due diligence policy and implement it, the repercussions are larger. “I think people are paying more attention to this than they ever did before. Much of this information is publicly available,” Stansbury concludes, “There’s a greater likelihood that it could backfire on them if they’re not doing their due diligence.”

Additional Resources

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