The Goldie Company

What to do when donors become tainted?

Thursday June 3, 2010

Paul Dunn, an associate professor in the faculty of business at Brock University, wrote an interesting story in The Globe and Mail about how the BP Sea Otter Habitat has just opened – and faces an ethical dilemma…

BP’s reputation has been severely damaged as a result of the oil disaster and its inability to curtail the growing environmental damage.

Meanwhile, at the Aquarium of the Pacific in Long Beach, Calif., the remodelled BP Sea Otter Habitat opened last week. Should a sea otter habitat be associated with a polluter that is causing enormous harm to the aquatic wildlife in the Gulf of Mexico?

This is not an unusual dilemma. Charities, hospitals, universities and other non-profits occasionally face the ethical challenge of what to do when one of their donors becomes tainted.

One option is to return the donation and delete the honour bestowed on the benefactor. The day after David Radler pleaded guilty to committing fraud in the Hollinger case, Queen’s University in Kingston announced that it would be returning his $1-million gift and deleting his name from a hallway in the business school. Israel’s University of Haifa also returned a $75,000 donation that Mr. Radler had made to its business school.

Another strategy is to do nothing. The Hospital for Sick Children in Toronto continues to honour Conrad Black and his family for their donation. A hallway in the hospital still bears the “Black Wing” name.

BP has been a generous supporter of cultural activities in the Los Angeles area. It has supported the Los Angeles County Museum of Art, the Walt Disney Concert Hall and a local public television station. Should these institutions return the donations and delete BP’s name, or should they do nothing?

In its press release at the time, Queen’s University said, “Ethics and corporate social responsibility are a cornerstone of good business practice, and we take them very seriously at Queen’s.” Clear enough. But an environmental disaster – awful as it is – may not necessarily be incompatible with the goals of an art gallery or concert hall. They may legitimately opt to do nothing.

But, what about the Aquarium? On the surface, oil pollution that is killing the aquatic wildlife along the coast of Louisiana is inconsistent with a sea otter habitat designed to protect a threatened species. According to the Aquarium, “California’s sea otters are concentrated in a relatively small area, and a major oil spill off the central coast could wipe out the entire population.” Furthermore, BP has a history of accidents, from an oil refinery explosion in Texas in 2005, to an Alaskan crude oil leak in 2006 in its Prudhoe Bay pipeline.

So, should the Aquarium delete BP’s name?

The difference between the Radler donations and the BP donations is that David Radler admitted he intentionally committed a fraud that cheated the shareholders of Hollinger. From all the evidence currently available, it appears the BP disaster is a horrendous accident. BP did not intentionally set out to pollute the Gulf of Mexico. As such, the Aquarium has no ethical obligation to return the donation and delete BP’s name from the sea otter habitat, even though they may now be under severe pressure to do so.

What, then, are the lessons that can be learned from this incident?

First, non-profits should carefully screen their donors. Mother Teresa apparently accepted donations from anyone, no matter how unsavoury the donor. Her contention was that the money went to a good cause, helping the poor and destitute in the slums of Calcutta. But few non-profits have the moral stature of a Mother Teresa. They need to thoroughly examine the background of their donors before accepting gifts.

Second, accidents and scandals occur. Non-profits should protect themselves by having formal agreements with large donors that specify what happens in the event that one is embroiled in a scandal.

Finally, non-profits should seize whatever opportunities present themselves. If you have broken eggs, make an omelette. The Aquarium of the Pacific can use the oil disaster and its association with BP to launch an educational program that discusses the benefits and risks of offshore drilling, especially the potential problems to the environment and the associated damage to aquatic wildlife.

Tainted donors certainly present ethical problems. But they also create significant opportunities for those non-profits that can see beyond the surface of problems.