A devastating piece of investigative journalism on the Trump Foundation from the Washington Post has revealed that Donald Trump used $258,000 from his foundation to settle his personal legal problems. Additionally, apparently all of the charity’s money since 2008 came from other people, not Trump himself, despite his claims of giving millions of dollars to charity out of his own pocket.
It is likely these practices violate actual laws on self-dealing that forbid the leaders of nonprofits from using charity money for the benefit of themselves or their businesses. By contrast, while some aspects of the Clinton Foundation have drawn scrutiny, there are no substantiated accusations of any legal impropriety.
Commenting on the revelations about the Trump Foundation, a prominent charity lawyer, Jeffrey Tenenbaum, who represents 700 nonprofits a year describes the details as “really shocking.” He goes on to say, “if he's using other people's money—run through his foundation—to satisfy his personal obligations, then that's about as blatant an example of self-dealing [as] I've seen in awhile.”
This seems to fit Trump’s approach to other areas of economic and public activity. He regularly lies, breaks laws, and engages in various corrupt dealings to promote his business and political career. Yet the impact of his style on the nonprofit sector may be particularly problematic.
Nonprofit giving is based on inspiring emotions that prompt people to donate. Thus, what people get in return for their investment into giving is addressing their emotional needs, as opposed to a tangible product. Negative publicity about one nonprofit not only hurts that nonprofit, but also causes people to experience negative emotions toward other nonprofits. This is why nonprofit scandals hurt the nonprofit sector more than the for-profit sector.
The problem is in part due to how our brains are structured. When we dislike one member of a group, this dislike spills over to other members of that group, even if there’s no good reason to think badly of them. This is particularly dangerous for the nonprofit sector. According to Stuart Mendel, director of the Center for Nonprofit Policy & Practice, “[Nonprofits’] whole ability to succeed is based on people's desire to trust them.” In other words, the Trump Foundation scandal will likely reduce trust in the nonprofit sector as a whole—including the most ethical and effective nonprofits and foundations.
Such unjustified distrust of high-quality nonprofits and foundations undermines our society. The nonprofit sector provides social services that governments don’t reach, including food, shelter and free education for the poor. To continue solving these social needs, and to address the distrust caused by nonprofit scandals, we need to improve the reputation of the nonprofit sector as a whole.
Savvy nonprofits and foundations can take steps to demonstrate to their stakeholders how they deserve trust, while donors and volunteers can press the organizations they support to show they are trustworthy. One step to take is to ensure there is a healthy culture of constructive self-criticism and transparency within the nonprofit sector. Doing so will help prevent issues such as the ones surfacing now about the Trump Foundation, since nonprofit staff would be much more wary about taking unethical and illegal actions. And if they do, they would be much more likely to be caught and dealt with before the issues grow to the size of a scandal.
Besides transparency and constructive self-criticism, what foundations and direct-action charities need to show, and what effective donors should demand, is clear evidence about the positive impact per dollar donated. This is the only salient number that matters in evaluating the effectiveness of how any given charity does its job.
Research shows donors care about impact per dollar, and are not satisfied with the current information available. Moreover, they would be willing to give more based on information about the organization being cost effective.
Fortunately, there are nonprofit charity evaluators that help donors choose the most cost-effective charities. The Life You Can Save uses a rigorous selection methodology to recommend a number of charities oriented toward poverty reduction. It has an impact calculator to help donors see the specific impact of their giving. GiveWell provides in-depth research reports on top charities focused on reducing poverty. Another organization, Animal Charity Evaluators, gives recommendations on the most effective charities to prevent animal suffering. These charity evaluators are aligned with a recent social movement called Effective Altruism, which has been pushing the nonprofit sector to become more transparent and accountable.
Crucially, these evaluative organizations, called meta-charities, do not receive any funding from organizations they are evaluating. Instead, meta-charities receive funding from donors who appreciate the services these organizations provide, allowing meta-charities to stay objective.
With time and support from donors, new meta-charities will arise to evaluate other areas of nonprofit activity. In the meantime, individual nonprofits and foundations can provide data on their impact per dollar, and donors can demand the organizations they support offer this data. Doing so will not only help individual nonprofits, but also help address the kind of scandals that greatly hurt the nonprofit sector.
We all have the power to ensure we can truly trust nonprofits to spend our money wisely. Doing so is vital for our society today to address the various societal needs that help the extreme poor.