At your next board meeting, management mentions plans to launch a marketing affiliation with a well-known charity. The cause seems like a good one; your company will gain social and public relations benefits, and all sides seem to win. However, some corporations have followed this line of thinking to disaster, when the charity brought hidden legal or financial landmines, or triggered an awkward media relations debacle. As a board member, what questions should you ask before your company seeks to do good?

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“$1.00 from each Widget purchased today will be donated to ABC Charity.”

“For every visit to our website during the month of November we will donate one cent to MNO Charity.”

“Every time someone clicks “Like” during the month of March on our Facebook page we will donate $0.05 to RST Charity.”

What do these messages have in common? Each is a relationship between the seller of goods or services and a charity. This is characterized in more than 20 states as a “commercial co-venturer relationship,” but is better known as cause-related marketing.

In each example, a business enterprise, through a sales promotion or some other activity, is being associated with a particular charitable cause which results in the charity receiving a donation by the business. The reasons for conducting such an activity on the part of a business are numerous, but generally align a particular brand, product or service with a socially beneficial cause. From a charity’s point of view, these relationships can serve many purposes, ranging from introducing the charity to new constituencies to raising much needed funds to help achieve the charity’s mission.

Cause-related marketing is not a new phenomenon. One of the earliest well-known promotions dates back to 1976, when Marriott Corporation engaged in a partnership with the March of Dimes, raising over $2.5 million dollars. Similarly, in 1983 American Express donated one penny for each credit card transaction and one dollar for each new credit card issued towards the Statue of Liberty Restoration Project. That campaign raised in more than $1.5 million dollars.

Not all corporate cause marketing succeeds. A Yoplait promotion for breast cancer research ended up with the company legally required to pay an extra 63,000 to the charity.

Cause-related marketing programs are constantly evolving, particularly since the development of the internet. Creative companies have, with increasing frequency, designed new programs incorporating the web and social media to motivate participation. A number of “match-making” entities have been created with the idea of marrying together corporations interested in increasing sales through a cause-related marketing program with compatible charities.

For example, iGive.com is a website which allows members to shop for items with a portion of the purchase price (in the form of a rebate) distributed to the charity or charities selected by the member. In most cases, the rebate paid is six percent or less of the purchase price.

Similarly, Gifts that Give is a website that allows shoppers to direct 20 percent of their purchase price, along with an additional donation if the purchaser chooses, to charities.

While these are great examples of cases where both business and philanthropy can reap significant rewards by partnering with each other, not all cases are successful. In 1999 Yoplait conducted a promotion to benefit the Breast Cancer Research Foundation. This resulted in an investigation by the Georgia Attorney General’s Office, and concluded with General Mills being required to pay an additional $63,000 to the charity. The Yoplait case is an excellent example of what can go wrong if the rules are not followed.

Cause Marketing Forum reports that in 2012, 47 percent of customers have purchased a brand, at least monthly, that supports a cause, representing an increase of 47 percent from 2010. Similarly, a 2011 report published by Do Good Do Well LLC reports survey results indicating 55 percent of consumers having made a cause-related purchase in the previous 12 months.

Perhaps more significantly, 56 percent of consumers indicated a willingness to travel up to 10 minutes out of their way to make a purchase if a cause they care about benefits. Surveys by others suggest similar results, thus supporting the valuable benefit to businesses for engaging in cause-related marketing programs.

When a corporation considers whether to engage in a cause-related marketing program, the company and its board should carefully weigh a number of issues. First and foremost, they should reflect on how well their brand will align with the charity.

When the renown designer Michael Aram was asked why he decided to work with Gifts that Give, he said, “The concept of Gifts that Give is long overdue and one that insures not only joy for the recipient of the gift, but also provides hope and comfort for the many thousands of people aided through the donation of revenues created by the purchase. I wholly support their mission.”

Similarly, and related to the issue of brand alignment, corporate boards should carefully consider the charity’s history, position on issues and any past media coverage of the charity. While associating with a charity can offer substantial benefits, those benefits cannot be achieved unless the charity is viewed in a positive light by the company’s customers.

For example consider:

• The media coverage involving Lance Armstrong over the use of performance enhancing materials.
• The position of Susan G. Komen for the Cure, and its funding for mammograms performed by Planned Parenthood.
• The Boy Scouts of America’s exclusion of gays.

In each of these cases, association through cause-related marketing may or may not be advisable. Thus, it is critical that due diligence be performed to determine a charity’s position on issues of importance to the company and its customers.

In the case of the Livestrong Foundation, the Major League Soccer franchise in Kansas City came under intense pressure to rename its Livestrong Sporting Park stadium. However, a number of factors persuaded the franchise to retain the stadium’s name. These included Lance Armstrong’s resignation from Livestrong, as well as the franchise’s resolve to continue the foundation’s core mission of helping cancer victims. The stadium also waged a public relations campaign in support of the name retention.

Before abandoning a charity originally deemed valuable and worthy, carefully examine the charges. Have the goals and objectives of the charity been compromised?

On the other hand, Soles4Souls, a charity that collects shoes for those who need them, was accused of taking donations and shipping them to a wholesaler for a handling fee. The charity said this was to defray operating costs. There is a difference here. Livestrong was not accused of straying from its mission to help cancer patients. Soles4Souls was under suspicion of not directly supplying some donations to those who they serve.

There are lessons here for corporate boards. Before making a decision to abandon a charity originally deemed valuable and worthy, carefully examine the charges, and then make a thoughtful decision on whether the goals and objectives of the charity have been compromised. Showing you are a strong partner in difficult times may prove to be a better decision than cutting ties with an organization, depending on what the charity is being accused of perpetrating.

Other important questions to consider when engaging in a cause-related marketing program should focus on the economics of the program. For example, will the company provide a minimum guaranteed donation for participating in the program? Is there a maximum amount that will be donated? Minimum guarantees are not uncommon, particularly if the charity has a significant, well known “brand” name in the community.

Although there is a charitable element in cause-related marketing programs, there is also a significant business element. Charities are becoming increasing adept at evaluating this. The business element is often directly connected to the perceived value of the charity’s “brand.” The agreement of a charity to allow a for-profit company to use its name and trademarks has value.

Although charities cannot value their “brand” using the same metrics as for-profit companies, charities have begun to consider methods for doing so. For example, it has been reported that in 2007 Habitat for Humanity International valued their brand at $2 billion dollars.

Establishing a value for a charity’s brand is not a far-fetched concept, particularly in light of increases in litigation by charities seeking to protect their intellectual property. The Lance Armstrong Foundation has been active in protecting the use of its trademark, specifically, the “Livestrong” brand. Susan G. Kotnen for the Cure has similarly been active in taking action to protect its marks.

Corporate boards should also consider the geographic footprint of the charity. If the company’s business is conducted nationwide, it may not be appropriate to select a small organization with a local or regional constituency. Companies should also consider to what extent the charity’s staff and volunteers will actively participate in promoting the program. This will help a company decide what resources need to be dedicated, and give a fuller picture of the actual cost to the company to engage in the program.

Federal and state law impose a number of rules on charitable fundraising which must be strictly complied with. Failure to comply with any of these can subject the company working with a charity to substantial financial penalties and may also attract unwanted publicity.

The Federal Trade Commission imposes various restrictions on the advertisement of sales, including cause-related marketing programs. Regulations by the FTC prohibit advertisements that tend to mislead or deceive. Although an advertisement may not actually deceive anyone, the fact that it could be misleading is sufficient to cause a problem.

In most states the attorney general is charged with supervising charities. The powers of the attorney general are very broad, and include the power to punish directors and officers.

Boards should also remember that private citizens are permitted to bring an action along with the FTC in the case of allegedly deceptive advertisements. In 2011, a class action lawsuit was filed against pop artist Lady Gaga claiming that she deceived purchasers of a bracelet being sold to benefit victims of the 2011 earthquake and tsunami that devastated Japan.

The suit alleged that Lady Gaga ‘s website advertising the sale was deceptive because it claimed that all of the proceeds were supporting victims. The main point of the suit was that because purchasers were required to pay an additional price for shipping and handling, the statement was misleading.

In most states, the attorney general is charged with supervising the administration of charitable organizations. The powers of the attorney general are very broad, and include the power to punish directors and officers for acts of mismanagement. These powers also extend to individuals and companies working with charities in connection with a solicitation, including a cause-related marketing. Thus, it is important for your company to assure that the charity is in compliance with all applicable state regulatory laws.

There are currently 41 states with registration and solicitation statutes. While each state’s laws are unique, they typically require a charity to file a registration statement with the state attorney general (or some other regulatory agency) prior to soliciting in that state, along with a filing fee and certain governing documents (charter, bylaws, IRS determination letter, etc.). Common situations when registration is required would include sending a letter requesting a contribution, inviting a person to a gala event, as well as advertisements announcing a cause-related marketing program.

In addition to state laws that require a charity to register, many states also impose requirements on corporations with respect to cause-related marketing programs. Four states specifically require the commercial co-venturer to register with the state in advance.

Many states require a copy of the contract between the charity and the commercial co-venturer or some other notice be filed prior to the commencement of the sales promotion (some states have specific requirements with respect to the number of days in advance the filing must occur). Some states will simply set certain requirements on the commercial co-venturer, but impose no filing responsibility at all.

With the exception of the states that impose no requirements, most states require certain disclosures to be made in connection with the sales promotion. For example, many states require a disclosure on the advertisement or solicitation materials indicating the amount of each sale that will be paid to the charity. Strict record keeping requirements are typically imposed upon commercial co-venturers. Records usually must be provided to both the charity and state officials.

Due to heightened consumer protection concerns, state regulation of cause-related marking programs has been increasing. For example, Vermont recently amended its consumer protection laws to impose tight requirements on commercial co-venturers. Thus, prior to engaging in a sales promotion, a careful review of each state’s requirements should be made to ensure compliance.

Boards should also consider to what extent a promotion will be conducted over the internet. At present, very few states explicitly address fundraising using the internet. Some states, however, define a “solicitation” as including any request for support using “any medium.” Such language leaves the internet issue open for interpretation. At present, no single point of view seems to be controlling, though recent litigation seems to be shifting towards requiring registration/compliance nationwide if a campaign will occur on the internet.

The prevailing point of view is embodied in something called the Charleston Principles. The Charleston Principles were written by the National Association of State Charity Officials, an association generally comprised of representatives from State Attorney General offices from around the country.

Generally speaking, the Charleston Principles provide that a charity should register in any state:

• In which they are located.
• Where significant contributions originate.
• Where people are targeted.

Boards will need to carefully consider this issue when deciding whether to engage in the promotion, and the manner in which the promotion will be conducted. Determining whether a charity is required to register in a particular state often determines whether the company will be required to comply with that state’s laws pertaining to a cause-related marketing program.

In addition to the various legal requirements, corporations should be familiar with the Better Business Bureau “Wise Giving Alliance” Standards of Accountability, and more specifically, Standard 19. Many charities apply for the Better Business Bureau’s national charity seal. Among other requirements, in order to obtain and retain this seal, a charity must comply with these standards.

Be especially careful with cause-related marketing that incorporates social media. It is important to consider the terms of use for each social media source.

Standard 19 specifically addresses cause-related marketing programs. This standard states:

“Clearly disclose how the charity benefits from the sale of products or services (i.e., cause-related marketing) that state or imply that a charity will benefit from a consumer sale or transaction. Such promotions should disclose, at the point of solicitation: the actual or anticipated portion of the purchase price that will benefit the charity (e.g., five cents will be contributed to ABC charity for every XYZ company product sold), the duration of the campaign (e.g., the month of October), any maximum or guaranteed minimum contribution amount (e.g., up to a maximum of $200,000).”

Compliance with Standard 19 is not a legal requirement, though most of the requirements included in Standard 19 are imposed by various state laws. However, if a charity makes the decision to obtain the national seal, a company engaging in a program with the charity will likely be required by the charity to ensure that it complies with the standard.

With the rapid expansion of social media and various attempts to incorporate its use in business, companies should be especially careful when engaging in a cause-related marketing program that incorporates social media. When social media is incorporated into the program, it becomes important to consider the terms of use as set forth by each social media source.

For example, if a promotion is conducted through Facebook, be sure to review Facebook’s Promotions Guidelines to ensure the program will be compliant. Additionally, both federal and state privacy laws will need to be considered. These laws have become increasingly complex, and require close attention since a failure to comply could result in very significant fines, along other penalties.

Another area that has gained some popularity is the use of sweepstakes, lotteries or contests in con-junction with a cause-related marketing program. For example, purchase item X between dates A and B and Z percent will be donated to charity, plus you will be entered to win a trip to a sporting event.

While these promotions sound very attractive, it is important to realize additional state and federal laws will likely apply to regulate the sweepstakes/lottery/ contest. These laws vary significantly from state to state and, in some cases, impose criminal penalties for failing to comply. Thus, companies should be very cautious when implementing such a plan.

Cause-related marketing programs can bring numerous corporate benefits. However, before joining with a cause, be sure to do your homework and seek out the advice of experienced professionals. Great brands take years to build, but can be lost by making a single uninformed decision.

Due Diligence Checklist

ls This Charity A Good Partner?

• How long has the charity been in existence?
• Has the charity previously engaged in a cause-marketing program? If so, with whom?
• Who are the key managers at the charity, including those who will be working with your company? What is their experience? Have they received any positive or negative media coverage?
• Has the charity been the subject to any negative publicity, or taken positions on issues that are contrary to the company’s brand or views?
• How much will the company pay the charity (a percentage of sales, a specific amount for each sale, other)?
• Will the company guarantee a minimum amount will be paid to the charity?
• ls the company limiting the maximum amount it will pay to the charity?
• What type of support and service can your company expect from the charity as the program is developed, as well as during the campaign itself?
• How long will the campaign last?
• Where will the campaign occur?
• Has the charity registered in each state in which registration is required, and are the registrations currently in good standing?
• Has the corporation registered as a co- venturer and complied with all other requirements in each state where it is required to do so?
• Does the contract include all state-specific required terms?
• Does the promotional material comply with FTC and state laws by making all required disclosures?