In today’s climate of heightened transparency and accountability, both donors and charitable organizations must be vigilant about protecting their reputations. A public misstep, whether it’s a scandal involving a high-profile donor or a nonprofit’s misuse of funds, can lead to lasting damage—loss of funding, support of other donors, staff and board resignations, and media or regulatory scrutiny, threatening a nonprofit’s ability to fulfill its tax-exempt purpose. Managing reputational risk for nonprofits and their funders is no longer just a public relations concern; it’s a core part of organizational and philanthropic strategy.
Reputation Is a Shared Asset
When a donor supports a nonprofit, their name becomes associated with the organization’s mission, values, and public image. The reverse is also true: a nonprofit that accepts funding from a controversial source may find its own integrity questioned. This interconnectedness means that both parties must conduct thorough due diligence before establishing a relationship. Donors should assess the nonprofit’s financial health, leadership, and past media coverage. Likewise, nonprofits should vet prospective donors to ensure that their values, activities, or corporate interests don’t conflict with the organization’s purpose or expose it to future scrutiny. And as the relationship between a nonprofit and donor is ongoing, both sides should encourage open communication about reputational concerns to ensure continued alignment between donor intent and nonprofit action.
Proactive Risk Management
The best reputational risk strategies are preventative and built into the governance of a nonprofit. As the board of directors have a fiduciary duty to protect a nonprofit’s best interest and ensure sound judgment in decision-making, it is essential for the board to foster a culture of integrity, conduct periodic risk assessments, and have appropriate policies in place. For instance, charities should have clear gift acceptance policies that outline the types of contributions they will and won’t accept. These policies might consider the source of funds and any restrictions tied to a gift. Similarly, donors should develop a framework for evaluating nonprofit partnerships, ensuring that their philanthropic involvement aligns with their personal values.
Both parties should communicate openly about expectations at the outset. For example, will a donor expect naming rights or public acknowledgment? Is the nonprofit prepared to address concerns if a donor later becomes involved in controversy? These questions are best answered before a donation is finalized.
What California Law Requires
California law reinforces the need for transparency and accountability in charitable fundraising. The Supervision of Trustees and Fundraisers for Charitable Purposes Act, overseen by the California Attorney General’s Registry of Charitable Trusts, requires nonprofits to maintain accurate records, avoid misleading solicitation practices, and comply with donor intent. Additionally, under California Government Code Section 12586, charitable corporations must file annual reports detailing financial and fundraising activity. If a donor’s restricted gift is misused or if material facts are misrepresented in solicitation, the nonprofit may face investigation or enforcement actions. Charities should ensure gift agreements are clearly documented and restrictions are honored, not just for legal compliance—but also to ensure good stewardship of charitable funds and maintain strong donor relationships.
Safeguarding Reputations Through Thoughtful Gift Agreements
One of the most effective tools for managing reputational risk between donors and nonprofits is a well-drafted gift agreement. For donors, the risk is that a nonprofit may shift its mission or values over time, leaving their funds tied to work they no longer support. For nonprofits, the risk lies in accepting contributions from donors whose actions or reputations could later clash with the organization’s values or brand or funds restricted to purposes the nonprofit may later be unable or unwilling to pursue.
To mitigate these risks, donors should consider including “redirect or reallocate” clauses in their gift instruments. These provisions allow funds to be redirected—either to a related purpose within the organization or to another charitable entity altogether—if the original purpose becomes impractical, impossible, or inconsistent with the donor’s intent. These clauses must be carefully drafted to comply with both donor intent laws and state oversight. In California, this aligns with principles under the Uniform Prudent Management of Institutional Funds Act (Cal. Prob. Code § 18501 et seq.), which govern modifications to restrictions on charitable gifts.
From the nonprofit’s perspective, having a clear gift acceptance policy is essential. Such a policy should empower the organization to decline or return gifts that could compromise its mission, independence, or public perception based on the nonprofit’s due diligence protocols for screening major gifts. This may include donations from individuals or corporations involved in litigation, harmful business practices, or conduct at odds with the organization’s values. Nonprofits can also include morality or reputational risk clauses in their gift agreements, allowing them to disassociate from a donor and remove public recognition (such as naming rights) if the donor later engages in conduct that is materially damaging.
Finally, nonprofits should clearly document any expectations around public acknowledgment, ongoing involvement, or donor influence over programming, and donors should clearly define a gift’s purpose and use restrictions, helping prevent future allegations of misuse. Clarity at the start protects both parties and avoids future misunderstandings that could play out in the public eye.
Responding to Reputational Crises
Despite best efforts, reputational risks can’t always be avoided. When controversies arise, how an organization or donor responds is just as important as the issue itself. Transparency, accountability, and swift action are key. Public silence or evasiveness often worsen the situation, as stakeholders will want to see visible action. Charities should have a crisis response team and communication plan in place, including who will speak to the media and how the board will be engaged. Donors may choose to issue a public statement, distance themselves from the organization, or remain involved depending on the situation.
The Long Game
Ultimately, reputational risk management is about long-term trust. Donors want to ensure their gifts do good without causing unintended backlash. Nonprofits need support from individuals and companies that won’t compromise their credibility. By building strong policies, fostering transparent relationships, and complying with applicable laws, both sides can protect the integrity of their missions, and each other.