If you have been reading your financial press you may have spotted the US$1.4 billion in fines and charges being paid by some of Wall Street’s leading bankers.

In case you haven’t, here is the potted history.

Researchers at the banks promoted the shares of certain companies in order that their banking colleagues could win those companies’ business. The researchers were paid substantial bonuses based on the new business that they helped to win. Bonuses and pay were often in excess of US$1m and could reach US$10m.

The inevitable result was that researchers gave bad advice. Foolishly they boasted of this in emails. One of Merrill Lynch’s most senior researchers reportedly (Financial Times 29.4.03) referred to some companies he was promoting as “pieces of shit.”

The banks and their researchers are accused of:

  • Issuing research reports not based on “principles
    of fair dealing”
  • Not providing a sound basis for evaluating facts
  • Exaggerating claims
  • Being paid for research and not disclosing
    the payments or the conflict of interest

You may wonder what all this has to do with you, but it is, in fact, directly relevant to research in fundraising. Each year, more fundraisers are turning to research to answer strategic questions and help them find donors. Researchers in Britain are an honest, highly ethical lot. There is little danger that they are about to be offered Wall Street salaries. Surely there is no danger that they would fall prey to wild Wall Street practices? No. But the Wall Street story does give us some useful tests to apply to research in our sector.

1 Fair Dealing

A Wall Street preoccupation, the concern here is that banks offered to ‘fix’ flattering research in order to win clients’ business.

This is an accusation sometimes levelled at consultants in fundraising. Consultants’ “feasibility studies,” can lead, if they are positive, to further consultancy work. And the claim is made that too few feasibility studies are negative.

The regulators have forced the banks to separate research from banking in order that customers get truly independent research. Perhaps we should be considering something similar in fundraising.

2 Evaluating Facts

The Wall Street banks are accused of not providing a sound basis for evaluating facts. In fundraising research we continuously need to evaluate facts.

“The legacies market will grow by 5.6% per annum.” Fact? Supposition? Built on a past trend or a mathematical ingenuity?

“The Goodly Foundation’s giving record indicates a strong interest in environmental projects.” Do we mean that it gives mainly to green projects, or just that part of its giving goes that way? What other projects does it support?

Fundraisers need to be given information in a format that allows them to distinguish facts from opinions. We, as researchers, must learn to be more open about our presumptions. It is our job to train our fundraising colleagues so that they can make sensible evaluations of our research.

3 Exaggerating claims

Frank Quattrone at Credit Suisse First Boston had, reports the Financial Times (29.4.03) an unwritten rule for his team of researchers; “If you can’t say something positive, don’t say anything at all.”

Does this happen in fundraising research? I can honestly say that I have never seen it happen. But it might, and researchers need to be aware of the consequences of exaggerating a prospect’s capacity to give, or over-stating the potential for a particular fundraising market. Our mission, surely, is to be objective.

4 Conflicts of interest

Potential conflicts of interest in fundraising are microscopic when compared with the multi-billion dollar conflicts in the investment banking world. But they are just as damaging to good research.

For researchers these conflicts can come in various guises;

  • A researcher workingsimultaneously for two different cancer charities
  • Using privileged information gained from one client to help another
  • Revealing to one organisation the fundraising research, and thus the strategy, of another

Like all good researchers, The Factary is precluded from each of these cardinal sins. We sign a privacy contract wherever we are handling sensitive data, and our relationship with clients is governed by codes of conduct from the Institute of Fundraising, EUconsult and the Association of Professional Researchers for Advancement as well as a raft of legislation on data protection and copyright. These codes require us to make declarations about conflict of interest, and a range of other topics, to clients.

But, inevitably, there are grey areas; conflict of interest is rarely as clear as black and white. Researchers need to be even more cautious than other charity suppliers if they are to retain the independence in research that clients rely on.

Wall Street and Charity Towers, UK, are 3,457 miles apart. But the scary lessons from New York are a reminder that we need clarity, caution, control and care in everything that has to do with research in fundraising.