Cui Bono is the ancient legal question of “Who Benefits” from an arrangement.
A great paper by Sarah Dadush on Project RED at an NYU Conference last Friday, “The Privatization of Development Assistance,” says
though Red was established with the express purpose of generating charitable funds to “help eliminate AIDS in Africa,” the entity behind the campaign is not itself a charity. Instead, the entity that owns the Red label, and that enters into the licensing agreements with the {Corporate Partners} is a limited liability company, incorporated in Delaware, under the name The Persuaders.
The Red website says that the finances are like this:
But Dadush shows they are actually like this:
You can find The Persuaders LLC on the Red web site, but only in fine print for which you have to look hard.
The opacity of the Red finances is striking. As Dadush says, on the Red website, “the words ‘accountability’ and ‘transparency’ do appear fairly frequently, but the terms are attached to the Global Fund,” not to The Persuaders LLC or the Corporate Partners. The Persuaders LLC “discloses nothing about its earnings or the licensing fee structure that allows it to operate.”
We were able to find out through further digging that any profits made by the Persuaders will be transferred to the Global Fund, but this still tells us nothing about the salaries it pays out, and in general how high are its overhead costs.
The Persuaders LLC also “requires the contributions {to the Global Fund} made by the [Corporate] Partners to be disclosed in an aggregate, to-date figure,”which does NOT break out individual corporate contributions by year, a violation of the usual Global Fund “practice of itemizing contributions by donor and by year.”
Dadush wonders whether “consumers may make decisions based on mistaken and inflated assumptions of the beneficial impact of their purchases,” a risk possibly “aggravated by the powerful slogans and advertisements that communicate the potential of buying Red to “change the world.”
(This blog already got into trouble trying to figure out how the Starbucks RED card translated into donations for the Global Fund, drawing an angry response from Starbucks but no useful information.)
RED has a mixed message that may create confusion among consumers. On the one hand, slogans like “Buy Red. Save Lives” might be taken to mean that consumers are making a direct charitable contribution. But then RED says that the campaign is NOT a charity but a sustainable business model: “The company pays extra – the purchaser does not.” This lack of clarity contributes to the Byzantine structure shown above, in which the consumer never knows who is paying how much to whom.
Dadush concludes with a bottom line that sounded very persuasive to us:
[W]here the public’s philanthropic spirit is being leveraged, opacity in charitable activities risks jeopardizing nonprofits’ most important asset: trust.
Our constructive suggestion: voluntarily open all the Red books, including donations by year by corporate partner, and the books of The Persuaders LLC.
We asked the Red campaign for a response on these issues. It was reassuring that we got a prompt response. CEO Susan Smith Ellis wrote:
To the question about whether or not our founders receive profits from (RED) – (RED)™ is owned by the Persuaders, LLC, a company founded by Bono and Bobby Shriver. Any profits earned by The Persuaders, LLC are required by the organization’s charter documents to be paid directly to the Global Fund to fight AIDS, Tuberculosis and Malaria. Bono has never received compensation from The Persuaders, LLC. When Bobby Shriver served as CEO and Chairman, he was compensated for fulfilling those duties. He no longer serves in those capacities and does not receive any compensation from The Persuaders, LLC.
As for charitable solicitation registration as a ”professional fund raiser,” The Persuaders, LLC is not contracted by the Global Fund to solicit contributions and does not receive any compensation from the Fund and, therefore, does not fall under the N.Y. charitable solicitation registration requirements.
Mr. Shriver also admirably made himself available for a telephone interview, which amplified further these points. Ms. Smith Ellis’s response addresses any concern whether Bono or Mr. Shriver might be personally profiting from Red, and gives Red’s perspective on why The Persuaders is not technically required by law to disclose its finances. But it does not address our larger concerns regarding the opacity of the Red finances and the potential confusion this lack of transparency likely creates among Red consumers. So we say again: open the Red books!
Supermodel Gisele Bundchen with Masaai warrior Keseme Ole Parsapaet
11 Comments
Interesting post – I have often wondered about ‘where the money goes’ with Red. In the interest of transparency and accountability (which they would appear, in any case, to adhere to) I’m surprised the books aren’t automatically open as part of their charter.
The paper def looks worth reading. Good to know, at least, that no one seems to be personally profiting from Red.
And yet, despite all the murkiness, (Red) is far and away the most transparent “embedded giving” program around. Try figuring anything out about practically any other “a portion of the proceeds” program.
This isn’t an argument to vindicate (Red), but an argument that any industry where (Red) is the paragon deserves to be shut down.
I don’t think the Red program is economically impractical solely because they don’t put an explicit surcharge on Red products. Rather it seems like it could be a sophisticated way to price discriminate–some consumers might pay only $290 for an iPod, not $300, but they also have a preference to spend $10 on charity. Ergo, Apple packages that $10 into the iPod and finds a way to maximize revenue without giving an explicit price discount. The good only appeals to those who have an existing preference to support charity and would have given that money to charity regardless of their purchase of an iPod.
This is just one idea… but it seems like it could work in theory at least.
Wouldn’t it just be easier (and a more effective marketing strategy) to be clear and up front about where the money is going?
For instance, for every dollar you spend with your Red Starbucks card, 1 cent goes to fund effective clean water non-profits. Then, they could put on your receipt how much you’ve funded (with a rough translation into gallons based on the expenses/output of the water partners) on your receipt just like grocery stores do.
You can’t be clear and up front about where the money goes if your marketing strategy relies on a simplistic equation of “buy something cool = save a poor african”. The image above is a perfect illustration of this strategy. If RED’s campaign was transparent about where the money went and even how it is managed by the Global Fund, I am fairly certain they would be earning a lot less money.
This is good, but sometimes I wonder whether these posts give people who want to just ignore the problems a reason to.
If you want to say “AIDS is their problem, not mine” but feel that’s crass, this kind of thinking gives you a way to say “AIDS is a problem but nothing can be done” or “AIDS is a problem but these people don’t do it right so my part is to criticize them, feel smug, and forget I didn’t do anything.” I can’t make this stuff up: http://cpreview.org/issue/dec-2009/africa-disempowered
Perhaps you should sprinkle some praise for their mission and report the amount they have raised (you say they report the cummulative total).
I agree with some of the arguments here, but not all. As far as I can tell, there are four criticisms:
1. The Persuaders doesn’t disclose salary and overhead costs. [But Persuaders is not a nonprofit, so I buy their argument that they don't HAVE to. However, I still think they should disclose to encourage trust.]
2. Donations are not itemized by year and corporate partner. [Again, The Persuaders is not a nonprofit, so they don't have to. However, I agree they should disclose.]
3. There are inflated claims of changing the world and saving lives. [Here I disagree. This is an ad, not an academic paper. If I come up with an add that says "there is a 35% probability (95%, CI 33-38) that your donation will reduce the risk of diarrheal disease in a child in Malawi, who then has a 13 % chance (95% CI 10-15) of surviving until the age of 5", would the average viewer still buy a RED product? No. Would they look at you as if you were crazy? Probably. Advertizing is an art, not a an academic paper.]
4. It isn’t clear if the contribution is going from the RED customer to the beneficiaries, or from the company somehow. [Agreed, this is quite murky and RED should make their business model clear.]
Here’s what the “other side” have been up to in terms of scientific distortion:
http://www.guardian.co.uk/environment/georgemonbiot/2009/dec/07/george-monbiot-blog-climate-denial-industry
@ Raphael
w/r/t your first two comments, i think what’s at issue here is whether the regulatory frameworks should be adjusted so that these disclosures must be made (assuming there isn’t already room enough under the concept of professional fundraiser to include Red).
on number 3, i have to disagree with you. while i don’t expect these types of advertisements to give a full picture of their effects, there should definitely be some degree of proportionality. and for this to be the case, there needs to be more transparency so that consumers can know just how much of their money is going to global fund when they buy Red
This is a great post that raises all the key questions and issues – this one being most important:
“…the consumer never knows who is paying how much to whom.”
It is ironic that in the name of “sustainability” we see the creation of enterprises (LLCs) that have less strict public reporting rules than 501c3s, so that the LLC can legally not reveal its expenses, which obviously influence the profit calculation (or, in this case, the donation amount).
These multi-headed relationships between private companies, charitable donations, fundraising, product sales, and nonprofit organizations are the logical result of trends such as sustainability, social enterprise, and embedded giving. They allow for the claim of transparency – and Ogden is right, RED reports more (or rather GAVI reports more) than most of these efforts, but we still can’t answer that basic question – “who is paying how much to whom and for what?” In my opinion, anything that makes it harder to answer that question is not advancing the cause of transparency.
Thanks for blogging about the report – I look forward to reading it.
Lucy
Seems like you are a real professional. Did you study about the theme? haha..