Ethics – Make sure your policies are grounded in reality

Editor’s Note: While the below article was written with Not-For-Profit institutions in mind, the issue of ethics discussed below can equally apply to other business situations, Lisa Aldrich 1/20/11

Ensuring an environment of ethical behavior includes developing core values, a code of ethics and a conflict of interest policy, said Walter Bristol CPA, executive vice president of corporate operations and chief financial officer of the American Heart Association, and Joan Pastor, Ph.D., president of JPA International, Inc. The comments were made during the American Institute of Certified Public Accountants’ Not-For-Profit Financial Executive Forum in San Francisco.

Bristol and Pastor added that nonprofits should have in place board fiduciary guidelines, an internal risk reduction program, a policy on accepting personal gifts, use of assets policy and a prohibition of loans to volunteers and senior staff.

Even with proper practices in place, organizations need to consider the psychological factors that arise for whistle blowers when a violation has been witnessed.

Myth: A whistle blower can remain anonymous.
Reality: A whistle blower can rarely maintain anonymity, and they know this.
Myth: People believe whistleblowers.
Reality: Until recently the burden of proof was often on the whistle blower.
Myth: Whistle blowers are always right
Reality: Whistle blowers may be operating from their own agenda. Their comments may be part truth and part distortion. Look for previous problems.
Myth: Whistle blowers come forward as soon as they uncover wrongdoing.
Reality: Most whistleblowers know for months or years before saying anything.
Myth: Legal advisors and spouses will support whistle blowers.
Reality: Many lawyers and spouses will discourage people from speaking up.
Myth: Whistle blowers feel relieved once they speak out.
Reality: The anxiety becomes much worse. Many whistle blowers fear repercussions. These are realistic fears.
Myth: Anonymous “mechanical” procedures (computer, Internet, written) for blowing the whistle will increase the likelihood that fraud will be reported.
Reality: The best procedures are those that make the whistle blower feel safe. The above procedures, while necessary, will not make the person feel safe. Most whistle blowers speak privately first to an individual in the company with whom they have built a bond.

Making the moral choice

In addition to their official duties, nonprofit managers find that they practice ethics on a routine basis. Personal, professional and public expectations converge to challenge managers almost daily.

In their book “The Ethics Challenge in Public Service,” Carol W. Lewis and Stuart C. Gilman offer several terms and definitions that they say will help in getting a clear vision of ethical conduct.

Among these terms are:

— Ethics. This involves thinking systematically about morals and conduct and making moral choices about right and wrong when faced with ethical dilemmas. I goes beyond though to performance and action.
— Moral choice. This is the would-should divide, the heart of good moral character to which most of us are exposed as children. The “mama test” (what mama would have said) clarifies simple choices between right and wrong.
— Moral judgments. These are what individuals must make when they find themselves between the rock and hard place of incongruent duties and conflicting claims — the stuff of ethical dilemmas. Unfamiliar situations, organizational and technological impersonality and professional and public power intensify pressures.
— Moral character. This means having appropriate ethical values and is associated with attributes such as honesty and fidelity. Character is a sort of internal gyroscope that helps a person distinguish right from wrong.

When To Decline A Gift

The rich uncle of an alumnus recently passed on and left behind a large sum to his nephew’s university. But while he might have been known as a wealthy philanthropist, the late uncle also was just as well known for cheating investors during a stock scandal. Do you accept the gift, or say “Thanks, but no thanks?”

Those are some of the issues that charities must consider when receiving contributions, said Erik Dryburgh, who directs the charitable giving group at the San Francisco law firm of Sil, Adler & Colvin, during a workshop at last fall’s National Conference of Planning Giving in Kissimmee, Fla.

Public perception surrounding donations are just one area to examine when receiving charitable contributions. Others issues to consider include:

Educating donors on issues such as a charity’s administrative policies and procedures, which donors sometimes can become suspicious of how they’re established.
Is the gift’s purpose consistent with charity’s mission? Donors often want to make a gift or bequest to Charity X with the understanding that it will transfer a portion of the funds to Charity Y.
If a charity provides some “return benefit” to a donor, disclose any goods or services provided and include “a description and good faith estimate of the value of any goods and services provided to the donor on its receipt.”
If you receive a substantial gift, but it comes with numerous contingencies on how to use it, are they restrictions that the organization can live with?

6 ethical issues to discuss now

Both because of the high-mindedness of their missions and their need to raise funds, nonprofit organizations must deal with issues of ethics on an almost constant basis.

While ethical questions need to be dealt with as they arise, preparedness can be a key factor in avoiding pitfalls. The Vermont Community Foundation, which made a presentation at a recent national conference on planned giving, has a standing item on each staff meeting’s agenda for a discussion of ethics and values.

Further, the foundation offered several ethical issues that may be worth pondering. There are no hard-and-fast answers to each question, but they merit consideration:

If donors want to make a gift without getting legal counsel, do you accept the gift, advise them to seek counsel, make them sign a form that you have advised them to seek counsel?
When do you start to feel uncomfortable, and what do you do, when a donor offers you personal gifts?
What do you when a donor invites you and your family to his vacation home for a weekend, and then offers you unlimited use of the home at any time?
What do you if a donor invites you to attend a sporting event in a family-owned box, offers you the box as a cultivation tool or offers you free use of it when he will be out of town?
What do you when a donor wants help revising a will?
How do you deal with a donor who is no longer competent?

Three Roads : Which is the right one?

Which way to go?

Nonprofit managers may find themselves at a crossroads when facing practical problems of day-to-day operation while striving to adhere to the highest ideals of philanthropy.

In their book The Ethics Challenge in Public Service, Carol W. Lewis and Stuart C. Gilman offer three routes that they say are open to nonprofit managers, and they offer their views on choosing the best one.

The routes encourage different behavior, make us of different vehicles, promote different purposes and lead in different directions.

According to Lewis and Gilman, the three routes are:

The “Low Road” of compliance. A largely proscriptive, coercive, punitive and even threatening route, this approach to ethics is designed to spur obedience to minimum standards and legal prohibitions. It is enforced by controls that ordinarily aim at acceptable levels of risk, not flawless purity
The “High Road” of integrity. This is ethics in the raw. Relying on moral character, this route counts on ethical managers individually to reflect, decide and act. It is a basic value, not limited to public service by any means. It draws on appropriate values and principles, absorbed from upbringing or philosophy.
The “Fusion” Road. The two previous roads mistakenly reduce the world to two distinct categories — ethical and unethical — whereas managers actually cope in the gray areas of legitimate but competing values, principles and responsibilities. Neither approach alone reaches the goal.

First published in The NonProfit Times (Morris Plains, NJ) as of 1/9/11.