The Civil Society War: Fundraising Conflict Popularizes Financial Ratios and Uniform Accounting Standards through Public Policy

Abstract

The Civil Society War involved powerful interests clashing over fundraising policies for 25 years. The United Funds coerced leading health agencies to join their federated campaigns. These health agencies insisted on independent fundraising campaigns to maintain awareness of their causes, volunteers, and funds raised. Through the 1950s and 1960s, the United Funds expanded their focus from social services by entering the health field. An important tactic in this conflict was the development of fundraising permitting regulations across the country. These regulations often included fundraising efficiency ratios, limiting the percentage spent on fundraising divided by the donations received. These fundraising efficiency ratios, along with permitting regulations giving preferential treatment to United Funds resulted in numerous lawsuits. Ultimately, the fundraising regulations were declared unconstitutional by the U.S. Supreme Court based on freedom of speech under the First Amendment and equal representation under the Fourteenth Amendment. While the courts struck down the use of financial ratios, these metrics continue to be used in rating charities. One positive outcome of the conflict was the development of widely used uniform accounting standards. The health agencies drove development of these standards as a way to address a legitimate concern among a barrage of criticisms of their practices influenced by the conflict with the United Funds. The Civil Society War had lasting impacts on three main areas affecting nonprofit policy: fundraising regulation, use of financial ratios in charity evaluation, and uniform accounting standards.

Leading and lagging indicators in fundraising management: A Canadian case study

“…Pressures to manage ratios, measured within single years, also have the potential to cause organizations to prefer short‐term results. These challenges may be addressed by some organizations in a less‐nuanced manner than they deal with other financial matters because most major fundraising tactics and management tools, along with public and regulatory attention on overheads, date back to the middle of the 20th century and do not reflect actual efficiency or effectiveness (Barber, 2017; Cleveland, 2019; Coupet & Haynie, 2018; Mitchell & Calabrese, 2019) while the techniques for managing other organizational revenues and expenses have continued to evolve. Recent scholarly work has looked at how charities make decisions between different sources of funding (Bem et al, 2019; Rebetak & Bartosova, 2020; Shon et al, 2019; Yermack, 2017), but little looks at how fundraising as a source of revenue is managed internally.…”