Charities Fear Fallout From United Way Scandal

THE scandal at the United Way of America that forced its longtime president to resign last week has set off alarms in charity circles over public trust.

But at the same time, the nation's 135 alternative charity federations see a chance to win a larger share of the lucrative workplace fund-raising drives that they have been excluded from by the near-monopoly of the United Way.

Philanthropic officials nationwide, struggling to keep up charitable giving during the recession, are concerned about what effect William Aramony's lavish management practices and his $463,000 annual pay will have on public trust in charities.

"No one [in the field] is talking about anything else. They're already strapped by recession ... [and] the worry is that people will stop giving," says Philip Semas, editor of The Chronicle of Philanthropy.

After reports of United Way of America director Aramony's management practices and his large salary, charities will receive much closer scrutiny, he says. On the other hand, "there are a number of alternative charities that have been battling for years to break up what they consider is a monopoly on employee giving. They see it as an opportunity," he says.

The United Way is a system of 2,100 autonomous federations that raise money for member charities, mostly local health and social-service programs. The cheapest and highest-yielding way to raise money, the charity federation system is good for both employers and charities.

The employer is not bothered with multiple solicitations and can rely on the federation to screen participating charities. Meanwhile, the charities have easy and cheap access to donors without having to develop mailing lists or expensive promotions. The employer, in turn, handles payroll deductions.

Of the $122.5 billion given to charity in 1990, just 2 percent, or slightly more than $2 billion came from employee deductions through the federation system, says Robert Bothwell, executive director of the National Committee for Responsive Philanthropy, an organization of alternative federations.

But most of that money was raised by United Way federations, with only about $200 million being eked out by alternative federations, he says.

Those familiar with the philanthropic field say the fallout from the United Way scandal - in both the excessive compensation issue and the scramble of competitors to the spoils of scandal - is whether nonprofits can and should take on the competitive character of private business.

"The United Way may have taken on an inappropriate business attitude, rewarding [Aramony] as if he were in private business. The United Way is not the only organization guilty of this. Many other large, nationally recognized nonprofits may have adopted the for-profit model for their executives [to hire and keep the best people]," observes Dwight Burlingame, director of academic programs and research at Indiana University's Center on Philanthropy.

Further, the United Way, which has held dominance in the field since it pioneered payroll deduction in the 1940s, has fought off competition.

Only about 30 alternative federations existed in the 1970s, says Mr. Bothwell. But when the United Way lost a legislative battle to keep competitors out of federal government employee deductions in 1980, the field mush- roomed to today's 135 federations.

These alternative groups seek to expand employee charity options to such areas as research, public education, environmentalism and social-justice advocacy agencies representing women and minorities.

United Way boards are traditionally headed by business executives whose interests often run at odds with those of public advocacy groups, say observers.

When alternative groups try to take a share of the market, it is seen as competition, says Mr. Burlingame.

"In any business, and the United Way is a business, preservation of market share is a pretty standard objective and certainly the United Way has tried to preserve its share," says John Stafford, vice president of the United Way of the Bay Area in San Francisco.

To preserve its market share, the San Francisco chapter includes six alternative federations, such as the United Negro College Fund and an international charity federation. Still, he admits, environmental groups are specifically excluded.

This is a familiar scenario for Kalman Stein, executive director of Earth Share, a federation of 40 environmental nonprofits including such well-known organizations as the World Wildlife Fund and National Audubon Society.

"One major oil company looked at us and said, 'you've got three or four groups suing us. We're not going to give you a mechanism to fund their lawsuits against us, says Mr. Stein, who argues that individual donors are being denied the right to donate to a broad range of causes.