Charity Insurance Tips - Think Before You Partner with A For-Profit
When a charity or not-for-profit organisation partners with a standard firm or company (a for-profit business), it is known as cause-related marketing. This can be a very tempting option for a social enterprise organisation, particularly as solid funding routes can often be difficult to find.
However, the associated risks in for-profit partnerships can be substantial and are often misunderstood by charities. Your Social Enterprise “brand” could be tarnished by association with the wrong partner, not to mention a wealth of legislative issues which could impact the chances of success.
What’s more, cause-related marketing campaigns can be subject to registration, contract and disclosure requirements, and they often have potential tax implications on the beneficiary not-for-profit as well. It is crucial that when embarking on a marketing venture with a for-profit company that social enterprises realise what is at risk and take steps to protect themselves and their brand.
What is the Risk?
When a for-profit company uses a not-for-profit name to increase revenue and add to corporate profits, the quid pro quo can be very different from in a philanthropic exchange. Often, a company will press to have its name or products appear prominently in the non-for-profit’s media outreach efforts.
When it allows itself to become an advertiser for the company, a not-for-profit risks being seen by the public as having sold its “brand name” to a for-profit brand, or worse still, having potentially deceived the public by condoning an unworthy product. This erosion of public trust can be extremely detrimental to a charitable organisation.
Litigation and Potential Liability
In extreme cases, a charity could risk legal action from disillusioned donors for breach of duty of care. These legal actions can be extremely costly and lengthy, and result in claims against Trustees under the Trustees Indemnity section of your Charity Insurance policy.
Furthermore, should a conflict arise with the partner company, not-for-profits risk costly legal actions for breach of contract. It is prudent to think twice before entering into a contract with a company, no matter the sum, as potentially negative consequences can greatly outweigh any benefits.
What Can Be Done?
There are several steps a not-for-profit organisation can take to protect itself when considering a partnership with a for-profit company. First, and most importantly, it is fundamental to thoroughly evaluate a potential for-profit partner’s reputation. Examine its record for telling the truth in its ads, verify all statements and figures released to the press and check that in the past, allocation of funds has been as promised to partners and the public.
Important considerations to revisit when entering into a potentially risky relationship with a company include the following.
- Your brand name is your most valuable asset, and it should not be under-priced.
- Cause-related marketing is a business deal, and differs from philanthropy.
- Ensure that payment and use of your name are on your terms, and control all uses of your brand entity. All promises should be in writing.
- Ensure that you are in compliance with all applicable laws.
- Check every deal you make with an accountant and an solicitor.
- As the charity or not-for-profit, you bear most of the risk. For this reason, you should carefully consider the financial cost of the relationship.
- Establish an organisation-wide policy for cause-related marketing ventures, and build on it as your organisation gains experience.
Beyond taking these preventive steps, it is important to ensure that you are properly covered should you become involved in litigation for breach of contract or breach of duty. Trustees Indemnity (Directors and Officers) Insurance is usually available as part of your Charity insurance policy and provides this fundamental level of protection for all charities, Community Interest Companies (CIC's) and other not-for-profit organisations.
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Protecting your organisation against claims emanting from cause-related marketing partnerships is just one of the many areas of risk for your charity or social enterprise.
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