Setting the Stage to Work with a Corporation
Setting the Stage to Work with a Corporation
Anita Drummond is legal counsel for nonprofit and social impact organizations at Venable LLP, an Humentum Industry Partner.
If your NGO is turning to corporations for support, set the stage for engagement on your own terms. Corporate engagement can come in many forms: traditional philanthropic funding, in-kind services and goods, marketing, and collaborative efforts. No matter the form support takes, NGOs should consider adopting principles of engagement that guide leadership and staff. Because NGOs are tax-exempt charities, it is also important to define which models best fit your organization and to adopt tools to implement your engagement strategy.
Principles of Engagement
Whether your goal is to increase revenue, engage the public, or change behaviors, your organization is well served if it adopts common principles for engagement with corporations. Leadership and staff will be able to deliver more successful and consistent outcomes.
Principles commonly are developed by leadership, anticipating questions from staff and corporations.
What are the outcomes your NGO wants from corporation engagement? By having a shared vision of the mission outcomes, staff and leadership know how to steer negotiations to the right types of activities. While “advancing the mission” is fine, are there specific mission outcomes that corporations are particularly posed to support? A clear statement of your NGO’s intentions can provide a guidepost for discussions with corporations from the first connection.
For instance, many NGOs enter relationships looking solely for philanthropic giving. In many cases, a company will offer very restrictive contributions that are more difficult for an NGO to use. Your organization may be unwilling to let a company limit the geography or prescribe the expenditures for a narrow set of activities. Principles can clearly state the intention of a corporate gift program and articulate minimum standards for accepting contributions.
While corporate cash gifts are an important goal, your organization may embrace other activities that can leverage a company’s resources. An NGO can use corporation resources to:
- Increase public awareness of your organization;
- Provide expertise to serve your mission;
- Contribute goods that serve your organization or its constituents;
- Engage company employees or customers in a giving campaign; and
- Change public or corporate behaviors to advance your mission.
All of these may take a little more care in negotiating. By example, a technology company may have expertise and offices in countries where you work and want to provide free services for some type of public acknowledgement. Such a collaboration would ideally include a well-structured services agreement with fees waived or reduced and clarity on recognition. In cases of increasing public awareness, an NGO may enjoy a new audience through a company’s customers, such as exposure on their platforms with consumer surveys or action alerts. The charity must take care to control its own brand and messaging to serve its mission in a written licensing agreement.
Without a doubt, negotiating models beyond basic philanthropy can be tremendously valuable so long as your organization stays within its own principles and legal considerations.
What are the requirements of every engagement? Corporations are accustomed to negotiating with other for-profit companies, and often contracts are suited for that marketplace. However, a charity has a special role in serving a public good that can be protected with certain principles.
Principles an NGO may consider adopting for every corporation engagement include:
- The benefits must directly serve an existing need of organization that will advance the mission.
- The benefits must not significantly offset opportunities or compromise other work of the NGO.
- Costs, including the commitment of internal resources and external costs such as taxes, must be outweighed by measurable benefits.
- The engagement will not significantly risk other relationships with governments, funders, or communities.
- The relationship will be transparent to the public.
- Statements will be factual regarding the funding levels, scope of engagement, commitments, and outcomes.
- All transactions between the parties will be in full compliance with the law.
- Certain transaction types are not permitted.
- Certain industries or company profiles will not be engaged.
- The NGO independently controls all mission-related work and its brand and retains the right to publically comment on the company.
- The charity retains the right to withdraw if it decides in its discretion that the engagement no longer serves it mission.
Models of engagement
Principles will take into consideration different types of engagement. The most common models of engagement are philanthropy, marketing, and collaborations of other types. Each has its own legal implication. An NGO is wise to vet the various models, determine if some are preferable to others, and establish basic requirements, such as minimum payments and adoption of standard agreements.
For philanthropy, a gift is only a contribution if the transfer of funds is complete, remains under the charity’s discretion and control, and includes no more than insubstantial return benefits to the donor. While simple on its face, many gift agreements from corporations can become complicated. Being alert to promises of marketing benefits or allowing undue control by the company is important. For corporate gifts, terms can be drafted to meet the Internal Revenue Code safe harbor rule for qualified sponsorship payments and remain a gift. Gifts of in-kind goods and services may bring tremendous value to your mission. In addition, an analysis should be completed of other implications for your organization, such as import-export laws and product liability. Experts can help analyze how the terms meet your principles, affect the classification of the revenue as a gift, and trigger other legal implications.
Marketing is a common engagement with corporations. Many times the arrangement involves licensing the NGO’s logo to a company for placement on products and services. Many corporate giving offices are part of the company’s marketing department. The give and take with marketing staff should be complemented with tax and legal counsel about the treatment of income. Carefully drafted and managed agreements can minimize tax liability for a charity. In addition, enticements to purchase goods or services with a promise to give to the charity are regulated under many state laws. These charitable sales promotions require registration and financial reporting in some states.
Collaborations with corporations can take many forms. A tax-exempt organization’s goal is to achieve a mission outcome while minimizing tax liability and not providing private benefits to a company. For example, if an NGO and company want to share expertise to develop new programs or methods to advance a mission, legal consideration would be given to intellectual property ownership, licensing, commercial uses by either the company or charity, joint venture structure, and tax implications.
Each type of engagement can be best navigated with a common procedure in your NGO to assure it meets your principles and receives the right vetting and approval.
While principles are effective in guiding an organization toward an engagement, some internal procedures can make implementation easier. In addition to principles, you may want to consider adopting procedures that express:
- Purpose and types of models that are acceptable;
- Mandatory criteria for each type of engagement, such as commitment requirements depending on the type of engagement or the revenue or exposure minimum depending on the size and scale of company;
- Types of industries or companies that are preferred or prohibited;
- Due diligence requirements for companies, including conflict of interest review;
- Standardized contracts and method for making exceptions;
- Process for approval, such as cross organizational committee or a single leader;
- Monitoring and reporting from staff to leadership with analysis of success and failure; and
- Crisis management plan, including how to address bad publicity about company.
An investment in developing thoughtful principles, a list of acceptable models, and procedures can result in a strong corporate engagement program.