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Court Ruling on Fund Raising Could Heighten Scrutiny at Jewish Groups

May 12, 2003
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Jewish philanthropies could come under new scrutiny in the wake of a Supreme Court decision tightening rules on fund raising.

The Supreme Court ruled last week that the First Amendment’s guarantee of free speech cannot be used to protect telemarketing companies if they mislead donors about what portion of their contributions will go to the intended charity.

The 9-0 ruling arose out of an Illinois case in which Telemarketing Associates retained 85 percent of the money it raised for the veterans group VietNow, but told donors a significant amount would go to the veterans.

Legally the ruling will not deeply affect Jewish federations, foundations and other nonprofits because few of them use telemarketing widely in fund raising. But the case could raise new public awareness about charities, many say.

“This is a wake-up call to the entire philanthropic community,” said Michael Fisher, a consultant to the United Jewish Communities federation umbrella in New York. “Whenever there is significant abuse uncovered, it certainly has a significant effect on how everybody looks at what they do.”

Despite that new focus, the high court’s ruling is unlikely to prompt legal or ethical restrictions on many Jewish nonprofits.

Most Jewish groups don’t rely on telemarketing firms to do their fund raising, for a variety of reasons.

Most “dialing for dollars” by the UJC’s 156 member federations is conducted by volunteers during annual Super Sundays and ongoing phon-a-thon campaigns, Fisher said.

Federations also have a built-in “constituency,” Fisher added, and don’t generally need to spend money in order to raise money via contractors, a process known as “donor acquisition.”

The case of Los Angeles is typical. John Fishel, executive vice president of the Jewish Federation of Greater Los Angeles, said his federation raised about $42.5 million in 2002 — plus another $20 million in Israel emergency funds.

Only a “few million” flowed in through telemarketing, he said. The L.A. federation dedicated between 8 percent and 9 percent of its overall take to pay for the cost of fund raising, he added.

But Fishel said the Supreme Court decision would serve as a reminder to his federation that “credibility and accountability are absolutely necessary to ensure that people continue to support you.”

Others said they try to avoid using professional fund-raising firms because they tend to carry a high price tag.

“Telemarketing is the most expensive way to raise money,” said Barry Shrage, president of the Combined Jewish Philanthropies of Greater Boston. “You avoid it at all costs.”

Last year the CJP took in some $28.5 million. Shrage estimated that perhaps 5 percent was dedicated to telemarketing.

Because telemarketing often brings in smaller gifts, doing business that way is more expensive than soliciting major donors directly, he added.

Those federations who do rely on telemarketing tend to be smaller organizations, Fisher said.

One smaller federation, the Jewish Community Federation of the Greater East Bay, outside San Francisco, took in $14 million and spent about $1.5 million on fund raising — though only about $25,000 of that was for a tele- marketing firm, the federation’s executive vice president, Ami Nahshon, said.

But that federation hired the telemarketing firm for a flat fee, not on a per-dollar basis, which Nahshon said is in line with a standard code of ethics.

“When we use mass-marketing techniques, telemarketing or direct mail, we’re very conscious of the cost,” he said.

Though Nahshon said any new attention on fund-raising ethics arising from the telemarketing ruling was welcome, others said they doubted the ruling would make much of an impact on the Jewish philanthropic world.

Ira Kaminow, a Washington-based public policy analyst and a Jewish philanthropy watchdog, said the telemarketing ruling has not attracted much attention generally, and was not likely to stir much reaction.

“I don’t think this will have any impact on any brand-name Jewish philanthropies,” he added.

“I would be surprised if this had a shelf-life of more than one month or two,” added Kaminow, who has launched a Web site called to raise ethical standards of Jewish philanthropies, and who was able to observe the closing arguments in the high court case.

Still, the ruling “might have a chilling effect in that organizations might be more reluctant to hire telemarketers,” he said.

Only two or three “well-known” Jewish nonprofits use telemarketers on a regular basis, he said, though he declined to name them.

But Mark Charendoff, president of the Jewish Funders Network, which supports Jewish family and other nonprofit foundations, said the ruling raises far-reaching questions about fund raising generally.

“Quite apart from what the law demands, is there an ethical standard that Jews working in the not-for-profit world, or Jews funding not-for-profit agencies, ought to hold themselves or others to, in terms of reasonable allocation of overhead costs?” he said.

So-called “operating costs” at foundations vary, Charendoff added, but he feels a healthy range for foundations is between 10 percent and 50 percent of a funds’ assets.

“No one finds the lights and the heat and the copier to be sexy costs, but that’s part of being a responsible funder,” he added. “But if that’s 50 percent of the cost of a grant, you have a right to say, ‘ I don’t think that’s a good use of my money.’ “

Ultimately, “the point is not the legislation,” Charendoff added, “but that the legislation raises the larger issues,” he said.

The answer to those issues should come from the Jewish community itself, he insisted, rather than through legislation forced upon nonprofits.

“When Congress has to step in and legislate in the philanthropic sector, it’s often because of the philanthropic sector’s failure to police itself,” Charendoff said.

“To me, the story was a wake-up call, or should serve as a wake-up call, to say, ‘If this is something Washington is concerned with, I would much rather have the not-for-profit community, and certainly the Jewish not-for-profit community, take the high road in policing ourselves,’ ” he said.

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