The Canada Revenue Agency (CRA) Charities Directorate has recently created a webpage discussing the involvement of charities in the practice of cause-related marketing (CRM).[1] The message on this new webpage zeros in on the benefit to the for-profit partner if the charity is considering issuing a receipt for a donation.

Previously, in 2012, the CRA Charities Directorate had generally discussed cause-related marketing/social marketing ventures in their Fundraising by Registered Charities Guidance.[2] They defined cause-related marketing as fundraising as follows:

Cause-related marketing or social marketing ventures are fundraising activities in which a charity partners or collaborates with a business or other non-charitable organization to promote a good or service of the non-charitable organization on the basis that a portion of the revenues will be paid to the charity.

That 2012 guidance made it clear that annual disclosure of cause-related or social marketing fundraising costs incurred by the charity and revenue received were necessary.

In 2017 however, the CRA Charities Directorate apparently thought it was necessary to again highlight the practice of cause-related marketing.[3] On this new webpage, the CRA uses a similar definition of cause-related marketing as before: “Cause-related marketing is a fundraising activity where a registered charity (or other qualified donee) works with a for-profit partner to promote the sale of the for-profit partner’s items or services on the basis that part of the revenues will go to the registered charity.”[4] The CRA further discussed other factors to keep in mind, talked about the de minimis rule and generally reminded charities to think about advantage i.e. the benefit the for-profit partner might receive. Indeed, even Wikipedia defines cause-marketing as advantageous, but to both parties: “Cause marketing or cause related marketing refers to a type of marketing involving the cooperative efforts of a for-profit business and non-profit organization for mutual benefit.” (emphasis added) [5]

However, the CRA ended its most recent missive on this topic by talking about the way the business or for-profit partner might handle the issue by indicating “if the charity cannot issue a receipt, the for-profit partner may want to get professional advice to see if it can claim the expenses from the cause-related marketing arrangement as an advertising expense.”[6]

Some would the say that the horse has already left the barn. Cause-related marketing has morphed into something much bigger than simply advertising. It has become a profit driving strategy. Hardly a day goes by without seeing some sort of social media or mainstream media ad indicating “all proceeds” will be going to one cause or another. In fact, an organization in the United States that used to be called the Cause Marketing Forum Conference is now called “engageforgood.com”[7] and is a forum where businesses will soon attend and learn about how to do effective cause-marketing to increase their profits. Many charities and causes also attend the conference and no doubt this is a very good networking event for causes to meet business at the “intersection of profit and purpose” as the conference website claims. Alongside the list of registered attendees at this year’s conference, besides the big multi nationals like Johnson & Johnson, and Macy’s in the US, is the name of a well-known Canadian company, WestJet. Will a portion of every seat sold go to your favourite charity in the future?

Some may ask what is wrong with this. Others may ponder, while the CRA is contemplating about whether the for-profit business involved in cause-related marketing can deduct this for an advertising expense, who is determining or checking to see if promised proceeds have actually reached the charity concerned. Who are you going to call if you, as a consumer, feel that you have been hoodwinked by a top brand that says so much of its proceeds will be going to your favorite charity? How will the charity itself know for sure?

In the United States, the Federal Trade Commission is the Government department that protects America’s consumers. Interestingly, it seems that they have recently signed a memorandum of understanding with the Royal Canadian Mounted Police to strengthen Canada/US cross-border enforcement of consumer fraud.[8] In Canada we have the Competition Bureau. The Competition Bureau promotes truth in advertising in the marketplace by discouraging deceptive business practices and by encouraging the provision of sufficient information to enable informed consumer choice.[9] The Competition Act contains criminal and civil provisions to address false or misleading representations and deceptive marketing practices in promoting the supply or use of a product or any business interest.[10] Some of these provisions might be suitable to be used if an investigation of cause-related marketing is warranted. How the Competition Bureau might respond may or may not be enough to satisfy a consumer’s concerns as its options range from seeking criminal or civil legal action to issuing public alerts to actions encouraging voluntary compliance with its laws.[11] In 2009 a huge $2 million dollar fine was levied for a misleading lottery scheme where the promoter “gave consumers the misleading impression that they could win tens of millions of dollars”.[12] One can see some parallels with marketing that purports to share proceeds of sales with a cause, if the marketing itself can be shown to be misleading.

There is at least one province (Alberta) that might help someone trying to find out if a charity is actually getting the funds that the for profit business promises. The Charitable Fund-raising Act in Alberta refers to a donor fund-raiser in part 3 of the Act defined as “a business that makes a direct or indirect request to buy a good or service normally produced or provided by the business in which it is stated or implied that all or a portion of the purchase price will be donated to a charitable organization or be used for a charitable purpose.[13] Furthermore it is provided by regulations made under the Act that any person may ask a donor fund-raiser for information relating to its donations to the charitable organization or the money it used for a charitable purpose in its cause-related marketing efforts.[14] If this provision was well used, it could become a very onerous requirement for any business to disclose the kind of information required. However, it might better than not knowing if the promises were kept by the business.

If the CRA is defining fundraising in a way that would catch CRM, and fundraising is not a charitable activity, therefore it must be some other kind of activity, such as a business activity. Businesses can fundraise but when operating in each province they must follow the rules of carrying on business and that is when fundraising legislation would come into play. But most provinces and territories, with a few exceptions, do not have legislation directed at fundraising at all, let alone CRM. However most provinces and territories require registration to carry on business inside their borders, but as we have pointed in other newsletter articles, the definition of carrying on business differs from province to province to territory.

If the CRA is the self-appointed regulator of registered charities but is not the regulator of business, (although it is the tax enforcer of business) then the CRA would not be the best place to look for any kind of help for those wondering about the financial accounting for any charity involved in cause-related marketing. The provincial governments could exercise jurisdiction similar to Alberta with their Charitable Fund-raising Act but at the end of the day since marketing today seems to be country wide or indeed, continent or worldwide, the best way would be for the Federal Government to enforce laws under the Competition Act or some other statute created for the purpose and then indeed cooperate with other countries similar to what the RCMP has done with the Federal Trade Commission in the United States on cross border fraud. The time has come to have a closer look at worldwide efforts to target consumers and tug on their heart strings. Targeted legislation directed at the practice of cause marketing and disclosure of information is needed everywhere. A quick search on the internet reveals that there are research studies being touted showing how cause-related marketing is best carried out to increase profits for the business. So not only has the horse left the barn but so has the cart to be filled with the profits that could be made from this practice. It is time to act. Perhaps the world needs a Ralph Nader type for cause-related marketing consumer education, similar to what we had for the automobile industry in the 60’s.