Formalising commercial partnerships
Commercial partnerships between charities and companies should be seen as a more significant situation than businesses supporting charities through Charity of the Year and employee fundraising activities. The Charity Commission defines a commercial partnership as “Any partnership between a charity and a commercial company whereby the charity endorses a product or agrees to allow the use of its logo in return for a benefit (usually financial).” Partnerships can be with an individual, e.g. a sole trader.
Examples of commercial partnership include cause-related marketing/joint promotional ventures, licensing agreements (Christmas cards etc), and sponsorship agreements.
Partnering with commercial entities can be beneficial for charities, yet this is not devoid of reputational and relationship risks. Formalising these partnerships with legal agreements is a key solution for mitigating risks but some charities are hesitant to do so early on. Now, new guidance issued by the Fundraising Regulator could soon be helping to smooth the way for these valuable commercial partnerships.
Value of commercial partnerships
For both charities and companies, commercial partnerships can be extremely worthwhile and can contribute significantly to business success. Benefits for charitable institutions typically include financial donations, occasionally gifts in kind, and always heightened awareness of their cause due to the involvement of the partner company. These benefits can enhance a charity’s reputation, lead to further support and help the charity to achieve its objectives.
Charities can benefit from these partnerships in other ways too. As well as bringing more opportunities for fundraising, learnings from these partnerships can open a gateway to support the charity in building other mutually beneficial relationships in the future. For example, the charity can learn firsthand how to work together with organisations in the private sector to achieve shared goals. Any charity can enter a commercial partnership with a company, regardless of its nature and size, and it is not just something for larger, national charities.
Understanding the risks
When raising funds through commercial partnerships, charities need to recognise that there are inherent risks attached to the process, and, therefore, they should tread carefully when entering into these arrangements. For example, partnering with an organisation which has a negative reputation, especially one which is involved in controversial practices or scandals, could damage public trust in the charity, potentially affecting donations and support from other stakeholders.
Moreover, charities must ensure that they demonstrate full transparency on how they use any funds received from their commercial partner, avoiding cause for question, or in extreme cases, an investigation, which could lead to controversy and impact fundraising potential.
Also, without clear legal agreements in place, there is a risk of miscommunication between the charity and its commercial partner. This could lead to confusion over roles, responsibilities, and expectations, particularly when it comes to the distribution of funds raised or how the partnership is publicised.
Practical steps for protection
There are a number of steps that charities can take to protect themselves from these risks. Before entering into a commercial agreement, they should ask themselves why they are doing so and what they expect to gain from the relationship. Establishing the purpose of the partnership at the outset will make it easier for charities to build a rationale and secure stakeholders’ support.
Charities must also recognise the value of their name and reputation. Brands in the charities sector can be well known and widely respected, and they are typically associated with values and ideas that people are committed to supporting. The needs and expectations of these people should therefore be considered carefully before the commercial partnership is established.
Ensuring that the brand identity of the proposed commercial partner is aligned to the charity’s core activities, and assessing any pre-existing partnerships with third party entities, is critical to ensure that the partnership is successful and its fundraising message supports the charity's core aims and values. Weighing up decisions carefully when it comes to commercial partnerships will help to maintain the trust that the charity has established with its donors over time.
Once the partnership is established, charities should regularly monitor and review its performance. This will help to ensure that the expectations of both the charity and the commercial partner are being met, and that the benefit the charity is gaining from the agreement is not being undermined by any reputational risks. Keeping a close eye on the status and progress of the partnership is useful in cases where there is a negative impact as the charity will have the ability to withdraw from the venture.
Complying with legal requirements
Since commercial partnerships exist between charities and companies for mutual benefit, both entities are required to comply with legal requirements set out in the Charities Act (1992, 1994) as well as recent legal guidance issued by the Charity Commission. For charities, failure to comply with these regulations, whether by accident or as a result of actions taken by a third party, could have serious legal and financial consequences.
To assist charities which partner with commercial organisations, or are looking to do so in the future, brief guidance is available from the Charity Commission. This guidance contains key points designed to safeguard the assets, name, and reputation of the charity, including taking independent legal advice before entering into an agreement or partnership and carrying out due diligence. It is also important to ensure that the partnership is in the best interests of the charity and put processes in place to allow regular reviews during the term of the agreement.
The Charity Commission recommends that all commercial agreements are in writing, and that charities have the right to exercise control over any agreement or partnership. Before entering into the agreement or partnership charities should consider both the benefits and risks to their name and reputation. Then once entered into, the charity should communicate clearly with stakeholders the nature of the agreement or partnership and any commission received. It should also take steps to confirm that the commercial organisation has complied with regulatory requirements.
The Charity Commission regularly reviews and updates the Act because it appreciates that commercial agreements can be incredibly helpful to charities in helping them to raise money and awareness. However, the regulator also wants charities to be aware of potential risks to their reputation.
Reviews should be conducted regularly to protect the charity and its donors and ensure that the commercial partnership is working to the benefit of its stakeholders and not negatively impacting the individuals that the charity is aiming to support.
In the past, there have been cases where some individuals have received a large number of requests for donations as a result of their personal details being shared with other charities and commercial organisations, causing significant distress to those affected. To address instances like this, 17 recommendations for changes to the Code of Fundraising Practice were made recently, with the aim of giving the public more control over the way charities communicate with them.
Importance of formalisation
To help mitigate risks it is vital that charities set out their commercial partnerships in legally binding agreements. Agreements provide a framework for managing the relationship in a way that ensures transparency, accountability and mutual benefit. By clearly outlining the roles, responsibilities and expectations of both parties, such legal agreements help to prevent misunderstandings and ensure that the partnership remains on track.
Formal agreements can also help to mitigate multiple risk factors arising as a result of reputational damage, financial uncertainty and non-compliance with regulations. With an agreement in place, charities can engage confidently in commercial partnerships, knowing that their interests are safeguarded.
However, some charities may still feel uncomfortable about raising this issue early in the relationship due to concerns that it could seem overly formal or mistrustful.
New guidance issued
Recognising these concerns, the Fundraising Regulator has issued new guidance. The guidance outlines who is considered a commercial participator and explains what commercial entities need to do to comply with the law.
The new guidance is valuable as it not only includes information on what a charity needs to do when working with a commercial participator, but also on what the participator needs to do when working with a charity. It demonstrates a desire to help both parties achieve their goals for the partnership.
Key aspects of the guidance include putting in place a clear framework for legal agreements, with an emphasis on early formalisation, risk management, compliance with regulations, and ongoing relationship management.
In today’s challenging and increasingly competitive fundraising landscape, formalising commercial partnerships through legal agreements is becoming a necessity. By embracing the guidance provided by the Fundraising Regulator and taking the formalising partnerships with due care and consideration, charities will be better placed to unlock the full potential of these mutually beneficial partnerships. In doing so, they can access new funding opportunities, raise awareness for their cause, and ultimately achieve greater impact in their communities.
