Cui Bono? The murky finances of Project (RED)™

Cui Bono is the ancient legal question of "Who Benefits" from an arrangement. A great paper by Sarah Dadush on Project RED at an NYU Conference last Friday, “The Privatization of Development Assistance,” says

though Red was established with the express purpose of generating charitable funds to “help eliminate AIDS in Africa,” the entity behind the campaign is not itself a charity. Instead, the entity that owns the Red label, and that enters into the licensing agreements with the {Corporate Partners} is a limited liability company, incorporated in Delaware, under the name The Persuaders.

The Red website says that the finances are like this:

But Dadush shows they are actually like this:

You can find The Persuaders LLC on the Red web site, but only in fine print for which you have to look hard.

The opacity of the Red finances is striking. As Dadush says, on the Red website, “the words 'accountability' and 'transparency' do appear fairly frequently, but the terms are attached to the Global Fund,” not to The Persuaders LLC or the Corporate Partners. The Persuaders LLC “discloses nothing about its earnings or the licensing fee structure that allows it to operate.”

We were able to find out through further digging that any profits made by the Persuaders will be transferred to the Global Fund, but this still tells us nothing about the salaries it pays out, and in general how high are its overhead costs.

The Persuaders LLC also “requires the contributions {to the Global Fund} made by the [Corporate] Partners to be disclosed in an aggregate, to-date figure,”which does NOT break out individual corporate contributions by year, a violation of the usual Global Fund “practice of itemizing contributions by donor and by year.”

Dadush wonders whether “consumers may make decisions based on mistaken and inflated assumptions of the beneficial impact of their purchases,” a risk possibly “aggravated by the powerful slogans and advertisements that communicate the potential of buying Red to “change the world.”

(This blog already got into trouble trying to figure out how the Starbucks RED card translated into donations for the Global Fund, drawing an angry response from Starbucks but no useful information.)

RED has a mixed message that may create confusion among consumers. On the one hand, slogans like “Buy Red. Save Lives” might be taken to mean that consumers are making a direct charitable contribution. But then RED says that the campaign is NOT a charity but a sustainable business model: “The company pays extra – the purchaser does not.” This lack of clarity contributes to the Byzantine structure shown above, in which the consumer never knows who is paying how much to whom.

Dadush concludes with a bottom line that sounded very persuasive to us:

[W]here the public’s philanthropic spirit is being leveraged, opacity in charitable activities risks jeopardizing nonprofits’ most important asset: trust.

Our constructive suggestion: voluntarily open all the Red books, including donations by year by corporate partner, and the books of The Persuaders LLC.

We asked the Red campaign for a response on these issues. It was reassuring that we got a prompt response. CEO Susan Smith Ellis wrote:

To the question about whether or not our founders receive profits from (RED) -  (RED)™ is owned by the Persuaders, LLC, a company founded by Bono and Bobby Shriver.  Any profits earned by The Persuaders, LLC are required by the organization’s charter documents to be paid directly to the Global Fund to fight AIDS, Tuberculosis and Malaria. Bono has never received compensation from The Persuaders, LLC.  When Bobby Shriver served as CEO and Chairman, he was compensated for fulfilling those duties.  He no longer serves in those capacities and does not receive any compensation from The Persuaders, LLC.

As for charitable solicitation registration as a "professional fund raiser," The Persuaders, LLC is not contracted by the Global Fund to solicit contributions and does not receive any compensation from the Fund and, therefore, does not fall under the N.Y. charitable solicitation registration requirements.

Mr. Shriver also admirably made himself available for a telephone interview, which amplified further these points. Ms. Smith Ellis's response addresses any concern whether Bono or Mr. Shriver might be personally profiting from Red, and gives Red's perspective on why The Persuaders is not technically required by law to disclose its finances. But it does not address our larger concerns regarding the opacity of the Red finances and the potential confusion this lack of transparency likely creates among Red consumers. So we say again: open the Red books!