In the last decade, a series of scandals involving UK and US nonprofits has made headlines, undermining donor trust as a result.
Now, organizations are taking proactive steps to protect their reputations and rebuild trust. In this article, we’ve collaborated with BWF, a leading philanthropy consultancy, to explore how prospect researchers can analyze potential donors not just from an opportunity perspective, but also from a legal and reputational standpoint.
The traditional approach to prospect research
The role of prospect researchers has traditionally been to identify, evaluate, and prioritize prospective donors with the capacity, propensity, and affinity to support their organization, typically at or above the major gift level. Researchers then leverage their insights to produce actionable intelligence for frontline fundraisers to inform and tailor their approach.
This model works well from an opportunity perspective. However, research conducted solely from an opportunity perspective may overlook regulatory, reputational, and ethical considerations. In the modern fundraising world, nonprofits should know a prospect’s full background–not just their philanthropic capacity and passions, but also the potential risks posed to the organization by the prospect’s history, activities, and associations. The process of researching and assessing philanthropic risk potential, called philanthropic due diligence, is often left until the final stage, right before accepting the gift.
Leaving due diligence until last has consequences
There are two issues with leaving donor due diligence until after the cultivation period.
Firstly, valuable time and resources have already been invested in nurturing a relationship with the prospect. These efforts may go to waste if the organization finds that accepting a gift from the prospect would pose an intolerable level of risk and must decline the donation. A gift rejection would also likely sour the relationship with the donor, who might even take their dissatisfaction public in an effort to dissuade others from supporting the organization.
Secondly, conducting due diligence at this late stage can slow the gift acceptance process. Just when the fundraising team and the donor are most eager to move forward and put the funds to good use, they may be forced to pause while the due diligence procedure is executed. This can cause friction among the staff charged with due diligence, the fundraisers responsible for closing the gift, and the donor. Additionally, delays in gift acceptance make it difficult for organizations to meet their fundraising targets on time. This could potentially result in a funding shortfall, impacting not only short-term initiatives but also having long-term consequences on the organization’s ability to honor its commitments to stakeholders and other donors.
Insufficient due diligence has eroded donor trust
According to a 2023 report by the Independent Sector Trust in Civil Society, only 52% of Americans currently trust nonprofits. This reflects a notable decrease of 4 percentage points from the previous year. Public confidence in US universities has also dropped by nearly three percentage points on average each year over the last eight years.
The nonprofit sector has been rocked by several controversies over the last decade. Jeffrey Epstein and the Sackler Family are well known for the damage they have done to top university and museum reputations. But they are far from alone. In 2018, it was revealed that George Mason University allowed the conservative Charles Koch Foundation a say in the hiring and firing of professors in exchange for their donations. In 2019, Warren Kanders was forced to resign as the vice chairman of the Whitney Museum’s board after months of protests and artist boycotts following the revelation that his company’s tear gas and munitions were used against migrants at the US Mexico border.
In June 2015, Portland State University Foundation ended its fifth straight year increasing private gifts to the school, raising $46 million – three times what it had raised in 2010; however, that same year, the school faced student protests when the board raised tuition in response to legislative budget cuts. Despite their success, the PSU Foundation fundraisers were under pressure to raise significantly more. So, in early August, when technology entrepreneur John Fitzpatrick offered to donate $100 million to the school, the Foundation team moved quickly to finalize what would be the school’s largest gift.
A day before the scheduled August 18 public announcement of the gift, the University President Wim Wiewel cancelled the press conference featuring the governor and the mayor. On August 21, President Wiewel sent an email to the trustees – the first communication from him to all but the Board chairman. In the email, President Wiewel reported that he had not shared more earlier because of the donor’s requested anonymity, but they were investigating the donor vetting practices after it came to light late in the process that the donor has a history of bankruptcies and involvement in a child pornography controversy. A week later PSU Foundation’s two top fundraisers – the Foundation CEO and Chief Development Officer – resigned. It remains unclear whether Mr. Fitzpatrick ever had the money to give or not.
And last year, following a criminal investigation, authorities seized 17 sculptures and other artifacts from the Metropolitan Museum of Art, which were on loan from donor and trustee, Shelby White. The FBI also seized 89 additional pieces from her home. White has had an active role at the Met for the last 33 years. She and her late husband made a $20 million donation to the museum, and in 2007, the Met opened the Leon Levy and Shelby White Court for Greek and Roman Srt. At the time of the seizure, White was part of a 12-member task force of trustees that provided counsel on the museum’s collecting practices and other policies related to cultural property issues. According to an article in the New York Times in July 2023, the Met had not done much to review items it had or would get from White, even after many of her artifacts were returned to Italy and Greece in 2008 after the opening of the Court. The Met told the paper that they are now paying closer attention.
In the UK, charities are encouraged to start from a position of accepting donations but to consider the risks involved in accepting them. This is, of course, the position that all nonprofit organizations and institutions should take. The question is when and how to best evaluate the risk to an organization’s reputation and the loss of trust by its supporters, and whether that risk is worth the reward offered by more problematic donors. Recent history suggests it’s not.
So why is donor due diligence an afterthought?
Thorough due diligence research demands time, which many organizations simply don’t have. While larger organizations can afford to outsource their due diligence to external providers, it often takes days to get a report back, which slows down the gift acceptance process.
Due diligence also requires dedicated resources – namely, specialized tools and trained staff. Although online searches are a good starting point, they have their own challenges and limitations. Search engines typically surface a vast amount of information, making it practically impossible for a human researcher to sift through hundreds (or even thousands) of result pages.
Differentiating content from unrelated individuals with similar names adds further complexity to manually researching on the open web. Although using advanced search techniques like Boolean searches and keyword strings using risk words can be helpful, they require expert skills that researchers may not have developed due to lack of training, time, or both.
To prevent researchers from spending excessive time on irrelevant information, organizations sometimes set time or page limits on due diligence research. However, this often leaves researchers understandably concerned about missing something crucial.
Why not build due diligence into prospect research?
In response to these challenges, it’s clear that organizations need a more efficient and effective way to conduct due diligence. One solution is to include this function as part of prospect research prior to the cultivation stage.
When traditional prospect research and donor due diligence are done together, it ensures nonprofits don’t connect with individuals who are incompatible with the organization in the first place. Fundraisers then only invest their time into building relationships most likely to result in a successful gift closure.
In addition, the time between building donor relationships and receiving gifts is shortened, so organizations can keep their fundraising pipelines moving.
Don’t rip up your processes—trust AI
The natural next question is how organizations can include due diligence in prospect research without building a new team or overwhelming existing researchers with process changes. Out-of-the-box AI tools can smoothly integrate into a prospect research team’s current workflow, where it serves as an additional layer to enhance research capabilities.
Unlike other AI tools on the market, Xapien provides the source of information down to sentence level. Generative AI models, like ChatGPT, ingest large amounts of information from various sources, making it difficult to trace the original source. As a result, most generative AI technologies can’t demonstrate where they got their response from.
Another challenge is getting consistent answers. Researchers using generative AI models must engineer their prompts meticulously, which involves being highly specific with their prompts and often having to make multiple attempts to get the right information. Xapien’s pre-trained models eliminate the need for this. Researchers only need to provide a name and some context — Xapien does the rest.
Most importantly, there must be complete trust in using AI tools for critical work like donor due diligence. Generative AI tools like ChatGPT have a reputation for hallucinating, which raises concerns about how to use them without the risk of producing false data. To prevent this from happening, Xapien has developed a protective layer around its interactions with large language models (LLMs). This layer ensures that the information surfaced has been independently verified by a completely different algorithm. Therefore, Xapien reports are reliable and accurate.
Restoring trust in the nonprofit sector in 2024
Protecting a nonprofit’s reputation is crucial—it’s the most valuable asset an organization possesses. But one ill-advised relationship can tarnish it, sometimes irreparably. As more data about individuals and companies become available online, it becomes increasingly time-consuming for nonprofits to uncover reputational and ethical risks. That’s where AI-powered tools like Xapien can help. AI can search for information, analyze it, and generate comprehensive written reports, empowering researchers to make strategic recommendations early in the fundraising process that will protect their organizations from philanthropic risk.
About Xapien
Xapien is an AI tool that handles manual research, analysis, and report writing. Our AI scours millions of registries and screening data, as well as trillions of web pages across the entire indexed internet. It extracts and contextualizes fragments of information about the subject. These findings are then compiled into a fully sourced, summarized report that teams can easily share with fundraisers and committees. To get started, all it needs is a name and some context. You can learn more about how increasing numbers of organizations are using Xapien here.
About the Authors
At BWF, Catherine serves as associate vice president of prospect development. As a lead for this practice, she partners with clients to develop best-in-class, comprehensive solutions for their unique prospect research and relationship management needs.
Beca is an Account Executive at Xapien, working across customer success, sales and marketing, with a focus on the non profit and fundraising sector. Xapien is an automated background research platform used by a number of leading UK and US universities and non-profits, including the University of Cambridge, the London School of Economics, Tufts University, Dartmouth College and the RNLI. During her time at Xapien, Beca has been involved in various aspects of developing the product to better serve universities and nonprofits, acting as a liaison between customers and the product team. Beca has a background in research, with a first class degree in English Literature and an MA in Literature, Criticism and Culture from the University of Cambridge.
