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Gates, Buffet and the Philanthropy of the Super Rich: A Model for Corporate America?
An editorial by Mckenzie Lock
Editor, EthicsWorld

Over the past few weeks, the world’s two richest men, Bill Gates and Warren Buffet, announced their decisions to donate most of their wealth to charity. Their choices are bold, generous, and unfortunately, all too rare. However, as socially conscious role models for the business world, Gates and Buffet fall short.

On June 15, 2006 Bill Gates, founder and Chief Software Executive of Microsoft Corporation, the largest software company in the world, and the richest man in the world according to Forbes Magazine, announced his intention to leave his position as Chief Software Executive in order to devote himself fully to the pursuit of philanthropy. More specifically, Gates plans to work full-time for his foundation, the Bill and Melinda Gates Foundation, which focuses on education and on health issues in the developing world.

Within two weeks of Gates’ startling announcement, Warren Buffet, Chairman and Chief Executive of, Berkshire Hathaway Inc. (a corporate conglomerate with major holdings in some of America’s largest companies and highly invested in the insurance sector)., announced that in July 2006, he would begin to give away 85% of his wealth - estimated to be U.S. $44 billion - to charity, most of it to the Bill and Melinda Gates Foundation (Gates and Buffet have been friends since 1991).

Gates’ and Buffet’s decisions raise questions about the relationship between philanthropy and capitalism. Much of the U.S. media response to the news has been to promote the duo as role models for corporate America, specifically the wealthiest within it - the CEOs, Chairmen and owners looking to give back to the society that has made them so rich. However, as commendable as their actions are, by funneling their money elsewhere, whether in terms of region or problem, Gates and Buffet have avoided the issue of business ethics, an area in which I believe they could make a far more lasting impact.

The idea of the businessman “repenting” for his affluence, is not a new one; the concept can be traced back to the original “robber barons” of the late 1800s to mid-twentieth century: Henry Ford, John D. Rockefeller, Andrew Carnegie and the Cornelius Vanderbilt, who, famous for their willingness to either lie, cheat, steal or intimidate their way to the top, retired from cut-throat entrepreneurship to charity, creating foundations of massive wealth that have since made, and continue to make, serious contributions to the social causes they engage. Since Gates’ and Buffet’s announcements several articles have appeared in the media comparing the two to Carnegie and Rockefeller. These men, like Ford and Vanderbilt, were “pioneers of industry” whose innovative and aggressive business strategies changed the way we think about making money. In a recent interview in Fortune Magazine, Warren Buffet said that he, “…agreed with Andrew Carnegie, who said that huge fortunes that flow in large part from society should in large part be returned to society.” 

And while our economic landscape has changed significantly since Carnegie’s foundation made its first grant – with new laws and standards regulating, guiding, and, in some cases, tempering the way we do business – more modern examples of the super-rich “giving it away” can be found.

For example Ted Turner, the media mogul most famous for founding CNN and TBS gave $1 billion in Time Warner stock to United Nations causes creating the United Nations Foundation in 1998. George Soros, the wildly successful financial speculator investor, founded the Open Society Institute in 1993, which now funds democracy-promotion projects all over the world. Like Carnegie, Ford and Rockefeller many of these men are pioneers within their industries. And like their predecessors, they are likely to leave us with two legacies -  one of charity and one of aggressive profit making.

But which legacy is more lasting? Which has a greater effect and can one really cancel out a life of greed – because to achieve the level of profits we are talking about, greed is a must - by a subsequent commitment to philanthropy?

The answer is no, at least normatively speaking. In the case of the robber barons, the influence these original “masters of the universe” had on our capitalist system - the values, precedents, and business practices they helped establish, did far more to lastingly shape our economic way of life, and by extension, our society than their did their retroactive charities.

In his book, “Profit with Honor” Daniel Yankelovich (See Ethical Leadership), names “seven deadly norms” that have contributed to the surfeit of corporate scandals we see today – for instance, “win for myself,” “gaming the system is good sport,” “conflict of interest is for wimps” - many of which get their cue from the precedents key business leaders have and continue to set. And when applied to the decision making procedures that take place within modern companies these norms translate into real consequences for their stakeholders – whether they be employees, communities, shareholders or the even the environment.

Regulations have changed vastly and the way Americans do business has adapted to them, but the same cutthroat, bottom-line thinking remains. Obviously Bill Gates and Warren Buffet cannot be compared to the Rockefeller or Carnegie neither in their lines of business nor in the manner they carry it out. Clearly differentiations need to be made according to industry. But in searching for role models for the average multi-billionaire it is important to realize the enormous amount of power they possess not only within their own companies but also within corporate America as a whole. It is how they wield this power within the business world that I believe has more potential for change than what they do with their money outside of it.

If the CEO of company X wants to improve health in the developing world, why not make sure that the companies X contracts abroad pay their employees enough to provide their families with nutritious meals, let alone sufficient healthcare. Moreover, why not start at home and provide their 39.5 hour a week part-time employees or temps (Microsoft came under fire for allegedly exploiting its temporary workers in the late 1990s) with health care and other basic benefits? Likewise, if a closely watched investor wants to improve public health, why not ensure that he is investing in companies that are taking these steps (particularly those in the manufacturing industry, into which Berkshire Hathaway has bought heavily)? 

The issue points to a broader problem in American thinking – which is the dramatic distinction we make between money-making and charity. For the most part, Americans and certainly American businesses seem to view philanthropy and profit-generation as inhabiting two separate realms of life, which, if we are lucky, overlap. We expect that they will occasionally form mutually beneficial partnerships, which are often crafted to serve the PR interests of the corporations that fund them. But whether the partnerships between charities and businesses are shallow or deep, long-term and committed, Americans seem to accept that their existence is much like an alliance between apples and oranges, two fundamentally different institutions working, at least most of the time, towards radically different, often incompatible goals. Thus, we understand that their unions are necessarily tenuous.

This is a flaw in our thinking that the model of “get rich, no matter what, in order to do good later” exemplifies perfectly. Andrew Carnegie, who spent a lifetime exploiting his workers, in order to relinquish most of his wealth to charity, justified his actions by arguing that the laws of the marketplace were unstoppable. He believed it was far superior to maximize profits as much as possible for later redistribution in the way he preferred than to change than to make his business more socially responsible at the time. In his July 4, 2006 New York Times Op-Ed David Nasaw, comparing Buffet’s and Gates’ philanthropic style to Carnegie’s, points out the problems in this way of thinking: “Is society served by permitting so much capital to be accumulated by so few? Should we have to rely on the usually unfulfilled hope that fortunes of this magnitude will be put to a good cause? What becomes of a society that must rely on "gifts" from a handful of socially conscious billionaires to save its schools, cure disease and alleviate poverty?”

Mr. Nasaw’s questions are important ones. Within the realm of wealth and power we are discussing, the distinction between personal and corporate ethics is a weak one and the decisions of those with this power have profound implications for social good. While this argument is futile when applied to the typical businessman, whose personal beliefs are often defenseless against the powerful force that is corporate culture, most multi-billionaires have enough clout within their own companies to make it their business how that company treats its employees, contractors and the communities within which it works.

Research has proven the importance of the tone at the top in establishing ethical corporate cultures (See Ethical Leadership). Business leaders at this level of success have to ability to shape business practices in powerful ways. In many cases they can with minimal effort change the lives of millions for the better. It is clear that many of the social problems so many NGO’s battle against are caused or exacerbated by unethical business systems. By focusing more of their energy on business ethics, I believe the Gates and Buffets of the world could not only do more good, but also help prevent many of the problems their philanthropies aim to solve.

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Apologies and Major Charitable Gifts Highlight Korean Corporate Responses To Scandals.

The family that controls South Korea’s largest car maker, Hyundai, has pledged to donate US $1bn to South Korean charities in an effort to win public goodwill as the company faces a mounting corruption scandal, according to an article in the Financial Times on April 20, 2006.  Two other very high profile corporate cases have seen similar responses in Korea.

Hyundai is accused of using slush funds to bribe public officials and win political favors. In a public apology, Hyundai’s vice-chairman said, “We deeply apologize for not taking social responsibility and causing concerns to the public. We will fully cooperate with the ongoing prosecutors’ investigation and humbly accept the outcome.” The company also pledged to create an ethics committee, composed of outside directors and experts, whose goal will be to improve corporate management and transparency.

Hyundai’s apology and donation follow by two months a decision by Samsung, South Korea’s largest multinational company, to donate US $1bn to charity following a string of corruption cases. That same day, Lone Star, the US private equity fund that owns half of Korea Exchange Bank (KEB), issued its own public apology for the allegedy fraudulent behavior of the former head of Lone Star’s Korean office, Steven Lee. It promised a $105 million donation to “Korean society.”

The three cases, while different in many details, illustrate a growing trend in Korean society: companies facing public anger are seeking to restore public trust by admitting wrongdoing, apologizing publicly and ‘repaying’ society through charitable donations. 

The popularity of this response underscores the importance of public support in doing business in South Korea. According to the article, for example, while LoneStar refuses to take responsibility for Mr. Lee’s actions (Mr. Lee admitted to illegally wiring about US $15 million out of South Korea into family members’ accounts), its aggressive PR campaign is designed to counteract any damage that a bad image could cast on its recent purchase of KEB. Lone Star denies allegations that it purchased the bank for an artificially low price and evaded taxes. Amid mounting public pressure for the company to pay taxes on its profits, says the article, the Lee scandal knocked LoneStar off its “moral high ground,” which it may need if it is to stave off legal action over the KEB purchase.

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Goldman Sachs’ Environmental Philanthropy Sparks Shareholder Protest

“No one who makes it into the board room of a place like Goldman is unfamiliar with the time-honored strategy of gaining influence by showing interests in the CEO’s interest, be they golf or global warming.”

-New York writer Judith Dobrzynski on the editorial page of The Wall Street Journal

A recent charitable gift from Goldman Sachs has sparked a debate over the decision- making process behind, and even the overall validity of, corporate philanthropy. On April 4, 2006 the Wall Street Journal published an editorial by Judith Dobryzynski, which accused Goldman Sachs’ Board of Directors of letting the personal interests of its CEO influence its philanthropic decision-making at the expense of its shareholders.

Her criticism was sparked by Goldman’s recent gift of 680,000 acres of land in Chile to the Wildlife Conservation Society (WCS). The gift has come under criticism because Goldman CEO, Hank Paulson is an active environmentalist, who has personally donated substantial sums of his own money to environmental causes. Mr. Paulson sits on the Board of the Nature Conservancy, which works with the Wildlife Conservation Society, while his daughter sits on the Board of the WCS. Shareholder critics such as Steven Milloy, an executive at the Free Enterprise Action Fund, have maintained that Goldman’s  philanthropic policies are anti-growth, and intended to promote the personal causes of Mr. Paulson while damaging shareholders. 

On April 10th, two letters to the Editor of the Wall Street Journal defended the company’s actions. First, Paul Newman, founding co-chair of the Committee to Encourage Corporate Philanthropy, which involves some of America’s largest companies, argued that beyond its charitable merits, corporate philanthropy is good for business and its significant stakeholders, including employees, shareholders and customers. He asserted that philanthropy initiatives improve workforces by instilling in employees a sense of pride in their companies. This, in turn, encourages a corporate culture of teamwork, and leadership, and improves reputation, recruiting and retention. Moreover, philanthropy positively affects the way the media, government and consumers perceive companies, thereby building customer loyalty, engendering business development efforts, and mitigating the affects of negative news. Moreover, by improving the social and economic conditions of the areas in which they operate, corporations will increase their business with those communities.

In a second letter to the Journal, Goldman Board member John H. Bryan upheld the Board’s actions as a model of good corporate governance. He explained that management (Mr. Paulson) came to the Board with a recommendation and from that point on took no part in the decision making process, which included a “thorough evaluation process aided by an independent expert from the Yale School of Forestry.” He also noted that, at their annual meeting, an overwhelming majority of shareholders agreed to the resolutions supporting the company’s environmental policies.

However, according to Dobrzynski, the Board’s claim that its decision was “independent” is irrelevant to the issue. She pointed out that Board members had to have been well aware of Mr. Paulson’s environmental undertakings and that, “no one who makes it into the Board room of a place like Goldman is unfamiliar with the time-honored strategy of gaining influence by showing interest in the CEO’s interests, be they golf or global warming.”

Moreover, she added, while philanthropy is often used as a business strategy for “branding” a company, CEOs still wield incredible influence. All too often, she pointed out, corporate charities are more closely allied with the social aspirations of executives than with the benefit of shareholders.

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Gates Foundation to Triple Aid
For TB Research Over Decade

Photo courtesy of Getty Images

The Bill and Melinda Gates Foundation said it will triple its funding commitments for tuberculosis research to $900 million over the next decade.

Speaking on January 28, 2006 from the World Economic Forum in Davos Microsoft Chairman Bill Gates launched a new campaign by the Stop TB Partnership to draw greater attention and money to the fight against tuberculosis. The partnership is seeking $56 billion over the next 10 years, or triple the amount of funding in its current TB plan, to step up efforts to bring tuberculosis under greater control by 2015.

The Gates Foundation released the following detailed statement:

A 10-year plan to cut tuberculosis cases and deaths by half could save more than 14 million lives over the next decade, according to the Stop TB Partnership, an international network of public and private groups working to end tuberculosis as a public health problem by 2050.

Speaking from the World Economic Forum in Davos, Switzerland, Stop TB's executive secretary Marcos Espinal outlined the plan during a press conference with Britain's Chancellor of the Exchequer Gordon Brown, Nigerian President Olusegun Obasanjo, and Bill Gates, co-founder of the Bill & Melinda Gates Foundation.

Stop TB's blueprint, which builds on the success of the group's previous five-year plan, calls for developing new tools to fight tuberculosis as well as expanding access to existing treatment. The partnership already has had remarkable success with an inexpensive drug regimen called DOTS, or directly observed therapy, short-course.

The Campaign So Far
Since its founding in 2000, Stop TB has helped establish DOTS programs in the 22 countries with the highest number of tuberculosis cases, doubling the number of people treated from 2 million in 2000 to more than 4 million in 2005. At the same time, spending on TB control in those countries increased from $800 million to $1.2 billion. The partnership's Global Drug Facility has provided more than 5 million patient treatments. And several countries with high rates of TB, including India and China, are close to reaching the group's goal of detecting 70 percent of tuberculosis cases.

If the new Stop TB plan is put into practice, some 50 million people will receive DOTS over the next 10 years. That number includes 3 million who have both TB and HIV and 800,000 who are infected with forms of TB that don't respond well to drugs available now. "This plan is important because it shows how much we can do with the tools we have today," said Dr. Peter Small, the Bill & Melinda Gates Foundation's senior program officer for tuberculosis and a member of the Stop TB coordinating board. "But it's also the case that our current tools are antiquated and inadequate, and in the long run we will not be able to win this battle without new tools."

A Familiar Foe Kills 2 Million a Year
A contagious disease caused by bacteria that most often attack the lungs, tuberculosis kills about 2 million people each year. Most of the deaths are in Southeast Asia and Africa. But tuberculosis is active worldwide and is a particular problem in Eastern Europe. Drugs in use for more than four decades can cure the disease. A childhood vaccine against tuberculosis has been available for more than 75 years. "This is a disease with a huge impact that is completely treatable and preventable," said Dr. Small. "It's not that we can't do something about it, it's that we've chosen not to."

The Fight Against TB
In recent years, the fight against TB has been hampered by two developments. Because HIV weakens the immune system, people who have the virus that causes AIDS are much more likely to become ill with tuberculosis than those who are HIV-negative. TB is the leading cause of death among people with HIV/AIDS. In addition, many strains of the bacteria that cause tuberculosis have become resistant to the standard TB drugs. Some strains, called multi-drug resistant, are immune to the effects of more than one drug.

Needed: New Tests, Treatments, Vaccines
While expanding existing treatment is essential to end tuberculosis, Stop TB's new plan goes farther. If enacted, the plan will lead to new diagnostic tests and treatment regimens, as well as a more effective vaccine against TB:

  • By 2010, the plan will foster the development of easy-to-use diagnostic tests that can detect active cases of TB with a high degree of accuracy. By 2012, it calls for a test that will identify people who are infected but don't yet have the active disease—a condition called latent TB. The century-old diagnostic method now in use misses about half of cases.

  • Within the next five years, the plan projects the development and adoption of new and shorter drug treatment regimens. It calls for the first new TB drug regimen in 40 years to reach the market by 2010 and a new, one-to-two month treatment schedule to be adopted soon after 2015. Currently, treatment takes six-to-eight months.

  • Within a decade, the plan provides for development and introduction of a new, safe, effective, and inexpensive vaccine against TB.


According to Stop TB, reaching these goals will require $56 billion over ten years—$47 billion for expanding access to treatments already available, and $9 billion for research and development of new diagnostic tools, drugs, and vaccines. The total number is $31 billion more than the amount Stop TB estimates will be spent if current funding trends continue. The investment, the group insists, would have a profound effect on the number of tuberculosis cases averted and lives saved.

"With tuberculosis, there's a pretty clear path from action to outcome to lives saved," said Dr. Small. "It's quite clear if the plan is executed, it will save 14 million people and lead to the treatment of 50 million people."

What's being done now?
Organizations supported by the Bill & Melinda Gates Foundation are working to develop better diagnostic tests, more effective vaccines, and new treatments for tuberculosis. The campaign seeks to spend $47 billion for tuberculosis control measures and $9 billion for research and development. The Stop TB Partnership is a multinational group of governments, organizations, and individuals and operates at the World Health Organization. "This is a very tough disease," Mr. Gates said at a press conference in Davos. "It is going to take all of us -- the private sector, the pharmaceutical companies, philanthropy, governments in the countries that have the disease to participate as well."


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Reducing Global Policy - Engaging the Global Enterprise
 A 2003 Statement by the Research and Policy Committee of the Committee for Economic Development (CED)

This landmark study reviews the numerous ways in which corporations contribute to economic development in the world’s poorer countries. It notes that  “corporate engagement” covers a range of concerns, from setting higher environmental, ethical, and workplace standards in normal business operations, to charitable programs targeted at improvements in health, education, and other aspects of human development.

The report provides insights into these diverse issues, including the charitable work of multinational corporations. The scale of such giving is formidable. The report contains numerous examples in this area, including the following three:

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IBM: "It's not just good deeds, it's good business"

In 2000, the value of IBM’s philanthropic donations exceeded $120 million and consisted of cash donations, community service, and computer equipment. IBM’s major focus, however, remains on education programs. Of the $126.1 million that IBM contributed through its global contributions program and community relations activities, 70% was devoted to education. Two of IBM’s most prominent efforts in this area are its Reinventing Education grant program and its KidSmart Early Learning Program.

Reinventing Education. The $45 million Reinventing Education program is the centerpiece of IBM’s commitment to improved education. Through the grant program, IBM works with school partners around the globe to develop and implement innovative technology solutions to address education’s significant problems. Beginning in 1994, IBM established sites to support fundamental school restructuring in nine states around the United States, and in 1997, issued 12 additional grants, replicating the most successful elements of the original sites. Building on the success of the program within the United States, IBM has launched sites internationally in developing countries such as Brazil, Vietnam, and Singapore. At each site, IBM contributes the funds, researchers, and technology necessary to modernize school systems. In Singapore, IBM
collaborated with the Ministry of Education in a public-private partnership combining increased technology in schools with advanced teacher training and professional development. Evaluations from the Center for Children and Technology and from the Harvard Business School give Reinventing Education credit for a noticeable positive impact in school participants.

KidSmart Early Learning Program.  The KidSmart Learning Program is an effort by IBM to provide preschool-aged children with access to, and familiarity with, computers. In the program, IBM has worked with the United Way of America to bring over six thousand Young Explorer workstations—personal computers designed specifically for preschool children—to nonprofit daycare centers and pre-schools in over 1000 locations throughout the United States. Since the program’s inception in 1998, over 1 million benefited from exposure to computers; the vast majority of these children come from low-income families who would otherwise be unable to gain access to new technologies and the Internet. Again, IBM is building on its success by bringing KidSmart to developing countries such as Peru, Thailand, and South Africa.

Source: IBM, Community Relations, available at http://www.ibm.com/ibm/ibmgives

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 Fighting HIV/AIDS: Volkswagen and Daimler-Chrysler

Fighting HIV/AIDS: Volkswagen Do Brasil

Brazil has one of the hightest rates of HIV/AIDS infections in South America, with 540,000 reported cases of HIV and 18,000 deaths from AIDS. Of the 330,000 children orphaned by AIDS in Latin America, more than one-third live in Brazil. Unsurprisingly, AIDS has a significant negative impact on the productivity of Brazilian firms through hospitalization, absenteeism, and shortened life expectancies. To combat the negative impact of AIDS, Volkswagen do Brasil launched an AIDS Care Program in 1996 aimed at reducing the spread and effects of the disease. Volkswagen quickly found that it was far more profitable to educate and treat its employees than to recruit and train new ones and the program quickly raised the quality of life for Volkswagen factory employees. The AIDS Care Program focuses both on prevention and treatment. Volkswagen uses the communication channels available within the company to educate workers about the dangers of AIDS and how to prevent the disease. Condom dispensers were also installed in factory bathrooms. The firm provides free medical treatment, clinical support and confidential counseling to workers already infected with HIV. This includes company-provided anti-retrovirals and other cutting-edge prescription drugs. Along with constructing a clinic to treat its workers, Volkswagen also provided a mobile care unit that visits the homes of workers to ill to travel to the clinic. Treatment extends to workers’ families and retired employees as well; while Volkswagen employs 30,000 workers, there are over 100,000 Brazilians on the company health plan.

By 1999, Volkswagen was able to quantify significant positive results from the AIDS Care Program. Hospitalizations among employees were reduced by 90 percent and AIDS-related costs were cut by 40 percent. Volkswagen also noted a high participation in the program, greater disease prevention, and better quality of life for employees and their families. Volkswagen’s efforts in fighting the AIDS epidemic earned it the Excellence in Corporate Response award from the Global Business Council on HIV/AIDS in 1999.

Source: The Global Business Coalition on HIV/AIDS available at http://www.gbcaids.com

 

Fighting HIV/AIDS - Daimler-Chrysler

In 2000, Daimler-Chrysler instituted a similar AIDS workplace strategy at its operations in South Africa, where it is expected that the portion of the population infected with HIV will reach 25 percent by 2006. The company’s multi-faceted strategy involves collaboration with trade unions, service providers, and government to reduce the spread and impact of AIDS through education, prevention, and treatment.

Following a two-day conference for employee representatives and other stakeholders, Daimler-Chrysler implemented an education and prevention program that includes training 132 employees as peer-educators, promoting voluntary testing and counseling, and educating employees in the use of condoms. This portion of the AIDS program will extend into local communities through health education and awareness campaigns, improving community health care centers, and training traditional healers, medical doctors, and health workers in education, monitoring, and treatment.  Daimler-Chrysler has also pledged to provide free prescription drugs to employees already infected with HIV/AIDS and to provide health care for employees suffering secondary infections as a result of AIDS. The firm’s program is unique in that it focuses on testing and evaluation, using baseline research, surveys and other assessments to ensure that company policies are appropriate and effective. It was the first industrial employer in South Africa to offer antiretroviral therapy. Daimler-Chrysler’s CEO, Jurgen E. Schrempp, was recently appointed as Chairman of the Global Business Coalition on HIV/AIDS in recognition of the company’s prevention and care program.

Source: The Global Business Coalition on HIV/AIDS

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Focus Group on Non-Profits
Charities Enjoy Public Support - But Ethics a Key Issue

Public support for philanthropy in the United States is strong, according to a new survey, but individuals providing donations are often concerned about the ethics of charitable organizations. On October 24, 2005, Public Agenda, a New York-based institution engaged in public opinion and civil society, released “The Charitable Impulse" – a study based on findings from six focus groups of diverse donors to charities, as well as interviews with a range of senior executives from not-for-profit organizations. The report leaves no doubt that scandals have a major impact on charitable organizations and that donors have long memories for institutions that attract media attention due to their unethical actions.

The report notes that, “Many donors say they have had some negative experiences with charitable giving. Most clearly remember the problems or scandals in charities they once supported . . . [and] said that when that happened, their trust was broken forever.”

The authors of the report, Ana Maria Arumi, Ruth Wooden, Jean Johnson, Steve Farkas, Ann Duffett and Amber Ott said that in focus group discussions, “Donors easily recalled the problems and the bad press associated with groups like the United Way and the Red Cross and not a few reported that they had personally ‘felt burned.’”

The study, undertaken with the support of the Kettering Foundation and the Independent Sector, is important in seeking to highlight public attitudes toward charities in an era when institutional ethics has become so prominent in the U.S. national media. To provide this context, the report begins by noting, “Over the past decade, there has been no shortage of headlines about illegal, unseemly and disgraceful dealings in nearly every aspect of American life. The often-spectacularly unethical behavior of some business, government and religious leaders has drawn intense media coverage and heightened public attention to human failing and corruption in all these sectors. So, when reports about ethical lapses in the nonprofit world appear, it is not surprising that they have the ring of truth."

“The events of September 11 focused extraordinary attention on the charitable sector. Given the huge outpouring of contributions, volunteers and human interest generated by the crisis, it was probably inevitable that mistakes would be made, judgments second-guessed and communications mangled. The troubles of the American Red Cross – accused of raising money for one purpose (helping 9/11 victims) and using it for another – has become emblematic of credibility problems in the voluntary sector. And the Red Cross dust-up is not the only controversy in the nonprofit sector to attract public attention. Tales of high salaries and high living by some nonprofit CEOs, the rise of Internet giving and scams associated with it, the glitz and ingenuity of money-seeking tactics for both legitimate charities and hucksters, high valuations of donated properties, and other tax avoidance schemes have all raised questions. The Senate Finance Committee is currently considering legislation to address these abuses and will be issuing recommendations shortly.”

The report includes the views of a range of non-profit organizational leaders who recognize there may be a need for greater oversight of the sector. They suggest that federal reform should focus on strengthening rather than fundamentally overhauling how non-profits are regulated. The report contains findings that suggest that U.S. public support for charitable organizations remains very high, despite some high-profile scandals. In conclusion, the report underscores the importance of donors perceiving organizations' communications as both honest and credible. It notes that, “During the tsunami disaster, the international charities were very diligent in explaining to donors how their money would be used. In several of the focus groups – without prompting – several participants expressed great respect for Doctors Without Borders who announced that they had received enough donations for tsunami relief and they would not be accepting any more contributions except for projects in other parts of the world. This had a powerful effect on the groups, reminding us all that “honesty is the best policy” after all in the hard work of serving the public interest.”

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