In the legal sense, due diligence is defined by Merriam-Webster as “the care that a reasonable person takes to avoid harm to other persons or their property.” According to the National Center for Family Philanthropy, for a major gift donor, due diligence involves assessing a nonprofit's goals, strategies and capabilities to determine whether the organization is worth one’s support. For a nonprofit, think of the phrase “you are the company you keep.” Those that you or your organization associate with reflect your own or your organization’s character as much as they are a reflection of themselves. 

In today’s world, a nonprofit’s digital imprint allows them to be recognized and effect change worldwide. This also means that donors are worldwide and any negative news associated with a non-profit could be harmful to its existence.

So, How Can a Non-Profit Protect Itself?

To get some answers to this question, attend “Due Diligence: The What, Why, and How of Prospect Research and Risk Assessment” at Apra’s Prospect Development 2023 conference.

Presenters Krista Pierce, associate director of due diligence research at Tufts University, Amanda Turpin, prospect research officer at Doctors Without Borders and Arlinda Hasandjekaj, prospect research officer at Doctors Without Borders, will share insights into the importance of due diligence in the nonprofit realm. We recently discussed the upcoming workshop with Pierce and Hasandjekaj, who offer a preview of what attendees can expect.

Due Diligence in Action

Due diligence at Doctors Without Borders is relatively new, Hasandjekaj says, as the need came about from a reorganization in 2021. There is a strict donor gift acceptance policy, with donors carefully vetted to avoid reputational risk. Due diligence allows her team to review, exclude companies and reject gifts when something arises that may be in conflict with their policy.

The organization works with many corporations and supports efforts worldwide, so they have to be thoughtful about the types of companies they receive gifts from, using the tools they have available. They recognize there are grey areas, such as companies that might be involved in certain endeavors or partnerships that do not align with Doctors Without Borders in certain geographic areas. Her team meticulously looks at the rate of controversies, as the organization works in a very sensitive context around the world.

Pierce shares Tufts University uses a risk rating score card to ensure the team is making consistent and objective decisions. The University Gift Advisory Committee — comprised of individuals from across the university — ultimately decides if a donor’s gift is accepted. In keeping the decision unbiased, the personal relationship with a gift officer is removed from the decision-making process. Pierce has developed reports examining the donor or company — along with the source of the funding — to review for any values that may conflict with those of the university or individual school the gift is targeted to. Each school within Tufts has their own gift acceptance rules based on their specific values.

Comparing Due Diligence and Prospect Research

Pierce explains due diligence is very different from traditional prospect research, so duplication efforts aren’t common. Due diligence research goes farther and takes into account a donor or company’s media presence, social media, post content, litigation history, sanctions and watch lists, sources of wealth, political exposure and negative news — just to name a few. The research is not focused on wealth, but instead where the wealth came from. This is in a different context than what one may typically find in a traditional prospect research profile report.

If you’re just starting out, you can complete some level of due diligence without investing in the higher level (and higher cost) due diligence tools. Pierce notes that developing a policy and procedure around what makes the most sense for your nonprofit is key to beginning your due diligence journey. Look for a similar organization and ask about the policies they have in place.

The Apra PD2023 Workshop will allow for varying views on types of due diligence from large and small shop perspectives. Hasandjekaj will share how Doctors Without Borders researches a company and looks for ways they may be aligned with her nonprofit’s mission and principals, and alternatively if anything is in conflict. Having offices all over the world, they are always assessing reputational risk and how the guidelines for assessment vary due to geographic area and culture.

Developing Policies

Despite the size of an organization, Pierce says having a basic outline of how to proceed is key. The amount of information available on due diligence can be overwhelming, and she recommends focusing on areas that are most important to your organization. Keep in mind that this process will evolve over time — it will need modifications as a nonprofit grows and/or its stakeholders change. 

Hasandjekaj believes that due diligence is a necessary part of business, especially for national or international organizations. As with her organization, nonprofits need to know where the gifts are and who they’re coming from. Turning away a gift is not easy, but when dealing with larger companies or very wealthy donors, your nonprofit may find itself in the news more often. If something comes out after the fact and you need to involve major stakeholders, having a policy in place makes it much cleaner to stand by tough decisions.  

Challenges

Pierce shared that it can be challenging to get stakeholder agreement on the due diligence policy. For guidance and direction, involve leadership and managers from different areas of your nonprofit.  The easiest thing for her was having freedom to develop her own reports because she knew her audience. This gave her insight into how they would want to review the information.

For Hasandjekaj, the most challenging part of due diligence is obtaining consensus on gray area companies. As a global organization, she needs to dig deeper and ask questions such as “Does a company provide consulting to a specific industry?” “How much of their income is derived from this?” She must remain unbiased and take the questions to her team. She also considers if there may be a way for a conditional approval, meaning, “Should we accept the money but not promote it?” Asking these questions gives a reference point for a gray area, should the concern come up again.

Looking Ahead: PD Preview

Pierce will share some due diligence tools, including visual compliance, which allows her to check sanctioned individuals and watch lists. This is relevant to international donors or organizations that want to donate to their cause. She’ll show how her tools utilize artificial intelligence (AI), and how they allow her to research a person’s media presence or public records for finding a direct or indirect risk.

As part of a nonprofit with a global reach, Hasandjekaj will share how she uses tools that offer ratings in relation to business practices in social governance and how her tools focus on nature of harm, recency, sanctions, etc. She’ll also share how she generates reports and prepares a score card on risk assessment. Most importantly, she’ll share the tools that allow her team to obtain an assessment of the industry and any subsidiaries that Doctors Without Borders may accept a gift from and the level of involvement with the parent company.

The presenters encourage attendees from all types of organizations and nonprofits to come to this workshop — no prior experience needed. There will a few scenarios highlighting gray areas, as well as interactive elements to guide conversations. The presenters agree this is a good workshop to discuss environmental, social and governance (ESG), as well as corporate and social responsibility (CSR) and to what degree these topics matter for due diligence. Pierce and Hasandjekaj shared this workshop will be conversational, and they are looking forward to learning from the attendees as well.

Sandra Montgomery
Assistant Major Gifts Officer, Alex's Lemonade Stand Foundation