By Naomi Nix, Chicago Tribune reporter
September 4, 2013
Most days, they are easy to spot. Wearing brightly colored vests, the canvassers stand on Chicago sidewalks, quick to pose a question to passers-by:
Do you have a minute for children in the developing world?
What might not be as easy to see is that some of these fundraisers are employed by for-profit companies, which earn millions of dollars each year for persuading strangers to give to charity.
The controversial practice has caught the attention of some regulators and charity watchdogs who worry that paying a middleman for fundraising may be inefficient, and that donors could be misled, swayed by a passionate in-person appeal without understanding who they are talking to and where their money is going.
"People ought to know upfront what portion of their contribution is going to wind up helping the charity," said Daniel Borochoff, president of CharityWatch, which evaluates charities' financial efficiency. "They shouldn't be pulling the wool over the public's eyes."
But nonprofits defend the practice, saying in-person appeals successfully recruit people who have never donated before to become monthly sponsors. Beyond the donations, charities say there is an intangible benefit in getting the word out about their organization.
"It's enabling us to engage with a group of donors that we haven't previously been able to engage with," said Anne Marie Borrego, a spokeswoman for the Red Cross, which hired a for-profit company for a face-to-face fundraising campaign in Chicago in 2011.
Here's how it works: Charities hire companies that station fundraisers on sidewalks, usually to recruit monthly donors. The charities, in turn, typically pay the company a fee for every hour of fundraising or a fee for every donor who signs up. The companies then pay their workers generally $10 to $13 an hour, and sometimes performance bonuses, records show.
Many charities doing this in the United States are taking a fundraising lesson from Europe, where nonprofits have been raising money like that since at least the 1990s. But in the U.K., the trend has also stirred public backlash. The solicitors there have earned the nickname "chuggers," a shortened version of "charity mugger."
In Illinois, state law requires solicitors to say they are paid professional fundraisers. But they are only required to disclose how the company is paid if they are asked about it.
Some charity watchdogs think there should be more transparency.
"There should be no hesitancy on the charity's part to disclose that to the donor," said Sandra Miniutti, vice president of marketing for Charity Navigator, a New Jersey-based charity evaluator.
But Public Outreach Fundraising, which has conducted face-to-face fundraising campaigns in Illinois for the Red Cross, ChildFund International and Mercy Home for Boys & Girls, a social service organization, says such disclosure requirements could be overly burdensome.
"There's only so much information that we can provide in a conversation," said Christopher Peterson, a managing partner of Public Outreach Fundraising. "Ultimately, our role is to recruit monthly donors."
A legal fight
Illinois has long been a legal battleground for regulations regarding professional fundraising.
In 1991 the Illinois attorney general filed a complaint in state court against a for-profit telemarketing company working on behalf of a Vietnam veterans organization, alleging it was committing fraud when it told potential donors that their money went to help veterans but took an 85 percent cut of the donations.
The telemarketers filed a motion to dismiss the fraud claims, arguing that their activities were protected under the First Amendment. The trial court granted the motion, which was later affirmed by the Illinois Appellate Court and the Illinois Supreme Court.
The case went all the way to the U.S. Supreme Court, attracting the attention of dozens of state officials who urged the court to side with Illinois, saying the state needs to be able to protect donors. But charities said a ruling against the telemarketers could hurt their fundraising initiatives, arguing that donors don't always understand that fundraising costs money.
"If you took away the money, it's the same as taking away the speech," said Bill Raney, a lawyer who represented the telemarketing company before the Supreme Court. "You can't regulate fundraising unless it's consistent with the First Amendment."
In 2003, the U.S. Supreme Court overturned the Illinois Supreme Court ruling, paving the way for states to file a fraud complaint against similar companies if the focus of the suit is on alleged misrepresentations to the donor. In handing down its opinion, the court also acknowledged that fundraising was a form of free speech.
Ten years later, charities have continued to pay companies to raise money for them through telemarketing, mailing and promotional campaigns.
More donors, at what cost?
Charities that have hired companies to conduct face-to-face fundraising say it's one of the best ways to recruit new donors.
In 2003, Children International, which helps impoverished youths around the world, hired DialogueDirect for a fundraising campaign, and the company entered the Chicago market a year later, according to the charity.
From October 2011 to September 2012, the most recent year for which contract records were available, DialogueDirect charged Children International $270 for every sponsor it recruited who agreed to donate a minimum of $25 a month, records show. At that rate, a donor making the minimum payment would have to donate for nearly 11 months for Children International to see a return on its investment.
The charity received $17.5 million from DialogueDirect donors between October 2011 and September 2012 and paid $7.2 million to DialogueDirect over the same period. Revenue generated from DialogueDirect includes money given by donors recruited in previous years who are still giving during the time period of the financial report, while the money paid to the company is only for that time period, according to the charity. That fundraising investment represented about 4 percent of the charity's total expenses — about $158 million — during that time period, according to the charity's financial records.
Children International said it chose to hire DialogueDirect because it "pioneered" canvass fundraising in Europe. The nonprofit says the fundraisers are particularly successful at recruiting new millennial-generation donors and starting conversations about the causes Children International champions.
"One positive aspect of this type of fundraising is that hundreds of passionate young adults are educating others about people living in poverty," spokeswoman Christy Howard said in a statement. "More often than not, the experience is positive for both the fundraiser and the prospective sponsor."
Ciera Alexander, 22, started working for DialogueDirect in Chicago during the summer of 2011 at the recommendation of a friend. She earned $10 an hour plus performance bonuses, asking passers-by to sponsor needy children in other countries through Children International.
"I actually did believe what I was saying. I did care about the causes I was canvassing for," she said. "I think that kinda helps people jump on board with you."
But not all of the company's campaigns have been smooth. In 2009, the state of Washington filed a complaint in King County Superior Court against DialogueDirect, alleging that the company was misrepresenting itself to the public.
The incident occurred because one of the solicitors "did not follow protocol" while fundraising on the street and the company's permit with the state lapsed, according to Children International. DialogueDirect was required to cease operations for one day, the charity said.
The next year, DialogueDirect agreed to pay a $10,000 fine without admitting any wrongdoing and pledged to comply with Washington law governing charitable solicitations and commercial fundraising, court records show.
"We have been and will continue to abide by the laws of the state," the company said in an email.
Slow to pay off
Financial records of other charities show the investment does not always offer quick returns.
ChildFund International, a community-building organization, agreed to pay Public Outreach Fundraising an hourly fundraising fee, a $12,570 administrative fee and data-entry fees for a campaign lasting from July 1, 2011, until July 31, 2012, records show.
The charity's financial records show that from July 1, 2011, to June 30, 2012, it paid $3.26 million to Public Outreach Fundraising but received $687,250 in donations, representing a $2.5 million loss for that year. The money paid to Public Outreach represented less than 2 percent of the charity's total expenses that year.
ChildFund International spokeswoman Cynthia Price said the campaign is a long-term investment, and donors who are recruited through Public Outreach Fundraising will keep on giving for years to come. In the last three years, face-to-face fundraising beat television and online efforts to become the largest donor-acquisition channel for ChildFund, according to the nonprofit.
Indeed, at least one other organization — Children International — has seen a financial benefit from prolonged commitment to its campaign. From October 2009 through September 2012, money from DialogueDirect donors increased about 40 percent, while the money paid for those donors increased by about 14 percent.
Organizations that watch charities have differing barometers for what they say is the appropriate cost for fundraising.
The BBB Wise Giving Alliance and CharityWatch say a nonprofit's overall fundraising costs should not exceed 35 percent of the total contributions it receives in a given year. Charity Navigator says that ideally, fundraising costs should not exceed 10 percent of the revenue the campaign generates.
Employees, volunteers for some charities
Some charities still prefer to have their own ranks reach out to the public.
Consider Greenpeace's canvassing operation. In 2005, the environmental organization brought in colleagues from Europe to help set up a face-to-face fundraising campaign in the U.S. in hopes of securing more monthly donors.
The next year, Greenpeace started canvassing in Chicago, using its own employees. The canvassers not only solicit donors on the street but participate in protests and door-to-door campaigns. Sometimes they even move up in the ranks, national canvass director Dan Stafford said.
"If you walk around our headquarters, you can't throw a stone without hitting someone who has spent some time canvassing," said Stafford.
Alexander got a paid canvassing gig with Greenpeace the summer after she worked for DialogueDirect. The Chicago actress said she made the switch because she appreciated how close-knit the Greenpeace canvassers were.
"It was a lot more like a family," she said. "It made me feel more comfortable."
Copyright © 2014 Chicago Tribune Company, LLC