Practical ethical guidelines for accepting outside funds

This essay is part of “Charting new ground: The ethical terrain of nonprofit journalism,” API research exploring the philanthropic funding of journalism. Read the other essays.

As the business of news has been disrupted, and the means of distribution for news revolutionized, I hope we can agree that our news values have remained unwavering and intact. In that spirit, I believe we can find most of the answers to questions about the proper relationship between donors, the new funders of some journalism, and the journalists they fund, in close analogies to guidelines long ago developed about the appropriate relationship between advertisers and the traditional news organizations they funded.

I am a lawyer as well as a publisher, and this entire debate reminds me of another one from about 20 years ago, as Internet distribution of news content first became widespread. At that time, conferences and papers—and then courts—asked how the new medium would change the law of libel. The answer, in the main, was that it would not change it very much. The elements of libel, and its key principles, endured. Sure, some new facts emerged, and old rules had to be applied to them. But that was the ultimate point: the rules were generally not new ones.

Perhaps the best way to think about this problem is to recall some of the rules long ago developed about the proper role of advertisers—and limits on that role—and then to consider what these rules suggest as answers to analogous questions about donor funding.

Old rule: Transparency is key in these relationships. Thus, it’s important, to begin with, to know who a publication’s advertisers are, and have some rough idea of what they are spending. In legacy print, the identity of advertisers was almost always clear (and trade association rules sometimes helped ensure this in marginal cases), while rate cards and various tracking services helped police the question of who was paying how much.

Some new facts emerged, and old rules had to be applied to them. But that was the ultimate point: the rules were generally not new ones.

With donors, much greater precision is available via tax returns on Forms 990 filed with the Internal Revenue Service. But two important matters do remain: First, are these non-profits making public, ideally through their own web site, the schedule from their 990 that reveals how much each donor contributes? My own view (and the practice of ProPublica, where I am responsible for business operations) is that any even arguably material contributions should be disclosed in this way. Without such disclosure, it is impossible for anyone to gauge whether the publisher is maintaining its independence in the face of donor pressures. Surely, we don’t want to see publishing suffer the corrosive effects that “dark money” is inflicting on our politics.

Yet, the practice among even leading non-profits varies on this transparency question, as a quick look at the some of the larger non-profit publishers reveals. The Texas Tribune, after some questions were raised about its practices in this area early last year, has now become a leader, listing every contributor in real timeand posting its 990 (complete with Schedule B detailing contributors), as well as its audited financials. ProPublica posts both its 990 (including Schedule B) and its annual audited financials, providing a list of major donors months ahead of these documents in its annual reports. The Center for Investigative Reporting (on its Reveal site) posts its 990 (but without Schedule B) and its audited financials. The web site provides what it describes as a list of major donors, although at the time of this writing that list had not been updated for more than 17 months. The Center for Public Integrity posts its 990 (including Schedule B, but with names of donors omitted) although not its audited financials. The site does enumerate individual gifts and displays a gift acceptance policy, although the list of gifts only runs through 2014 at this writing.

It is important to note that when donors contribute to for-profits, as an increasing number of institutional funders have been doing, there is a 990 only on the donor side to serve as a mandatory disclosure vehicle. Again there is the question of disclosing the appropriate schedule, but, beyond that, for-profit journalism organizations taking donations from public charities should consider themselves under an obligation to disclose a range of details about this funding, including its annual amount. Certainly, they should not take steps to conceal it, even as they would never do so with advertisers.

The next area in which transparency is critical is whether particular content a publisher distributes is advertising or sponsorship, on the one hand, or news, opinion or analysis on the other. While beyond the scope of this note, this is why native advertising is so deeply problematic. Let’s face it: any premium for such content above and beyond that for traditional advertising is based on some degree of consumer confusion. As the New York Times recently explained (in a news story), native advertising is “ads made to resemble articles.” But I do not see why native advertising is any more problematic for non-profits than it is for for-profits. Nor, on the other hand, is it clear to me why native advertising should be any more acceptable outside of text publishing, for instance on podcasts, than it is in newspapers or magazines.

One way in which transparency should be limited in non-profit journalism is in the relationship between the governing board and editorial content. To be sure, governing boards have fiduciary responsibility for the non-profit overall. But especially given that these boards often include major funders, it is probably the best practice (and has been ours at ProPublica) that boards not be aware of the content of stories until they are published. The necessary fiduciary responsibility can be exercised in monitoring editorial performance on a post facto basis.

Any premium for such content above and beyond that for traditional advertising is based on some degree of consumer confusion.

Old rule: Advertisers cannot dictate editorial content, and shouldn’t know of it in advance with any specificity. The practice in legacy media was also fairly clear here: advertisers could choose the section of a publication or broadcast against which their advertising would appear. Topic pages or sections or broadcast segments were often created in part to attract such advertising. But advertisers were never—at least at high-quality publications—permitted to advertise against particular stories, or indeed to know about particular stories before they were published.

In the new environment, it is not at all clear why these standards should be relaxed. The risks of advertiser influence that gave rise to the rules in the first place remain. (If advertisers can choose which stories to subsidize, the pressure on publishers to produce stories amenable to those advertisers, and not to produce others, can become overwhelming.) But a few non-profits have convinced themselves that asking particular donors to fund specified stories is somehow acceptable. This is neither in their interest nor, in the long run, in that of the funders, because it poses a significant risk to the reputation of the grantee.

One way to understand why it is a mistake to blur this heretofore-bright line is to recognize that it puts funders in a preferred position with respect to what should be editorial confidentiality. If a source, for instance, or a public official, asks the specific focus of a forthcoming story, reporters and editors generally reserve the right to decline to say. But how can this be justified if one or more funders have already been told? And conversely, what is the point of policies that wall off non-profit governing boards (which may include large general support funders) from advance knowledge of editorial schedules if project funders have been permitted to purchase precisely this same knowledge?

All of this said, project funding is a reality in the life of non-profits. General operating support, as many have long argued, may be the hallmark of the smartest and most effective philanthropy. But many funders, for a range of reasons, insist on project funding. At ProPublica, our resolution of the resulting cross-pressures has been to welcome funder support for reporting beats, rather than specific stories. To date, this compromise has seemed to work well for a range of funders, from large institutional foundations to smaller family entities. At the same time, support of beats seems closely analogous to the familiar advertiser sponsorship of sections, pages or broadcast programs or segments in legacy media.

It should be noted that this resolution of the proper role of funders can pose special challenges in the new world of crowdfunding. One of the clear early lessons in this sphere is that specificity of output helps drive results. This is almost certainly one of the reasons why crowdfunding has proven more effective for documentary film projects (where the end of the story is often clear before work begins) than for investigative journalism (where, at least for the best work, it is not). I confess that I have no ready answer to this particular dilemma; it has held ProPublica, for instance, from pursuing crowdfunding as aggressively as some have urged that we should. We look at this question as an area in need of further innovative thinking.

Diversity of funding sources makes enormous business sense. It is the best insurance against shocks and challenges of all kinds. But beyond that, such diversification also fosters editorial independence, as the influence of a single funder or even type of funder declines.Old rule: Diversifying the number of advertisers you have is one of the most critical ways of assuring continued independence.

There is a great deal of talk these days about the need for non-profit news organizations to diversify revenues away from philanthropy altogether. This is another subject beyond the scope of this note, but suffice to say that I find much of this talk unrealistic, excessively theoretical, and insufficiently grounded in the hard facts of detailed business results. But that debate, however it is resolved, does not detract from the imperative to diversify sources of revenue within philanthropy, ideally minimizing dependence on often-fickle institutional foundations, growing net funding (not gross revenues!) from small contributors as rapidly as feasible, and focusing as much as possible on the potential support of patient individuals and family foundations who share a publisher’s vision and sympathy for its mission.

Old rule: But no matter what you do, and what rules you have in place, you may sometimes need to remind advertisers of the limits of their influence.

Editors, in fact, do well not to think much of advertisers (or donors) at all. That is the job of publishers. When editors are too eager to please funders unfortunate compromises can ensue. When they refuse to do so they can actually strengthen their news operations.

The classic case of this sort occurred more than 60 years ago, when General Motors squared off against The Wall Street Journal. GM was then the largest company in the world, and the largest advertiser in American newspapers. The Journal, then on the rise and just creating the idea of a national newspaper but still not widely known among broader publics, published two stories that angered GM management. The first effectively forced auto manufacturers to drop their opposition to a dealer sales tactic they did not like, and the second unveiled the designs of new cars in a manner that threatened short-term sales.

GM retaliated by ceasing all advertising in the Journal, and briefly even cutting off relations between GM PR people and Journal reporters. But the Journal, under legendary publisher Barney Kilgore, held fast. As the paper editorialized once the dispute became public, “the fact that a company happily chooses to advertise with us cannot be allowed to put the newspaper under any obligation to the advertiser which breaches its obligation to all its readers.” In short order, GM backed down publicly, and the Journal actually gained prestige from the fight. Within 10 years, it was the nation’s third-largest paper; 25 years after the battle with GM it was the biggest. As a young ad salesman who later went on to head up advertising for the paper recalled, “Our future was assured.”

This is a tale all publishers should bear in mind when confronting pressure from advertisers—or donors. The rewards for compromising principles are all transitory, while those from the preservation of independence and integrity can be enduring.

Tofel is president of ProPublica.