The Nonprofit Ethicist | Fall 2006

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Dear Nonprofit Ethicist,
I am the executive at a fairly new arts organization in a city with a lot of wonderful arts groups. Ours, however, specializes in the art of new arrivals in the United States: immigrants and refugees. I could not be more excited about my position and many others feel the same way about the institution. My worry is that we have grown very fast and sometimes I think we may have lost something along the way.

The particular situation I am most concerned about has to do with our board. A few months ago a major funder expressed concern about our financial systems, which were at that point divided up probably among too many people, including myself. The program officer was willing to invest for a few years in a dedicated position of business manager, so I mapped out a hiring process and went to the next board meeting with it. When I brought the issue up I saw a look pass between the board chair and a new member of the board and I knew I was in trouble. This new board member, I knew, had recently been laid off from a local financial institution. The conversation about hiring was cut short because of other business.

The next day the chair dropped in unexpectedly and suggested that we hire the new board member into the position. She had his resume in hand—ready to go. I tried to resist, but in the end she basically ordered me to hire this guy. Never mind that his performance has not been stellar to date, I am consumed by shame and guilt and anger. Both of these people are well connected to other important arts patrons. What should I have done? What do I do now?

Dear Disillusioned,
Don’t be hard on yourself. Yours is an altogether-too-common problem. Given that one of your board members was unemployed, what could you have done to prevent your board chair from pushing his candidacy anyway? The ethical issue is doing what is best for the organization. The issue of who to hire comes last—after a review of the existing financial operation, a plan for its reorganization, and a job description. This is a public trust, and the board should respect that. A board chair has no right to order you to do anything, and except in large organizations, even the board as a whole should not be directly involved in hiring senior staff. That’s the CEO’s role. That said, you would not be normal if you weren’t worried about your job security, so let me make two practical suggestions. (1) Call in reinforcements. Have you talked to your funder? Maybe the program officer would be willing to have a chat with the board chair, or the whole board, about the funder’s expectations—which presumably are beyond the capacity of your unemployed board member—and why it’s a bad idea to hire a board member anyway. This way, if they want to kill the messenger, you’re not in the line of fire. (2) Hang tough. If you do not have the authority to hire and fire, you are going to have a hard time getting your subordinates to follow instructions to your satisfaction. If you hire this guy, you will just postpone a crisis, or else you will wind up doing two jobs—yours and his. After you deal with this crisis, maybe you could arrange ethics training for your board.

Dear Nonprofit Ethicist,
I wonder if you could address an issue that nags at me. I am a fairly new (one year) executive director of a human services nonprofit, with most of our funding from government sources. A few years ago the agency decided to seek more private funding and donations, so my predecessor hired a part-time development director to plan special events, conduct an annual appeal, and seek corporate and private support. Since I have been at the agency, I have observed this person in action in a number of situations that concern me.
In at least two situations I have observed—so presumably there are others—we have been talking to a potential donor when she mentioned the needs of her children’s private school and said she would like to talk to them at another time about that. I am all for supporting education, but I question whether she should be using her work relationships and time to seek funds for another organization. I worry about the mixed message that sends to potential donors, and I worry that she is using our donor list for a different agenda. The instances I have witnessed nag at me, but I have not said anything to her yet because I am not sure how to handle it.

Is it just my own competitiveness for funds, or is it a real concern? What is your assessment, and how would you handle the issue with the staff person? I should mention that this employee has not responded well to new agency leadership and complains often to others at the agency. She is probably looking for another job, which is actually for the best, considering her attitude. Based on her demeanor and previous actions, I believe she would not hesitate to take with her our donor list, our foundation research, proposals, case statements, etc. This information would seem to be proprietary to me, and worthy of protecting. How should I prevent her from using such information for her kids’ school or her next employer, or at least impress upon her that it would be unethical to do so? Thanks for your help in figuring out this tricky issue.

Dear New ED,
Paragraph 13 of the Association of Fundraising Professionals (AFP) standards of professional practice states “. . . all donor and prospect information created by, or on behalf of, an organization is the property of that organization and shall not be transferred or utilized except on behalf of that organization.” (See You should have admonished her the first time she brought up the subject of her children’s school. She is not entitled to pitch more than one organization unless she originated the prospect using her resources on her time. If she used your resources to compile a list of prospects, the prospect list is your property also. You should assume that she has copies of everything at home, so if she does not stop, all you can do is take legal action against her and any organization that benefits from her fundraising efforts at your expense. She probably won’t be cowed by a threat to sue her, but she might think twice if you threaten to sue her clients. Discuss your options with your lawyer so you don’t make idle threats. Then have a talk with her. Establish new ground rules based on AFP standards. If she doesn’t follow them, fire her.

Dear Nonprofit Ethicist,
I have some conundrums. As a member of an international, professional, nonprofit association with head offices in the United States, I sense a conflict of interest in the following situations.

(1) The major corporate sponsor of an exhibit hall partnered with my association for its official social event held during an on-site conference, open to all conference attendees. Is this a conflict of interest for the association, or is this appropriate sponsorship and endorsement for this individual company? At previous annual conferences, several commercial exhibitors would hold off-site social events, independent of the association, and invite conference delegates to attend.

(2) At this year’s annual conference, the association’s conference booth merged with a publisher’s booth that was selling a book written by the association’s president. In the exhibit hall, there were at least two other major book publishers who sell books related to this profession, in addition to the publishing company who manages the professional association’s official journal. Does an endorsement of this one publishing company by the association present a conflict of interest?

Dear Conundrummer,
(1) Based on your description, this arrangement sounds to me like a standard sponsorship. There is nothing wrong with recognizing contributors by plastering their name on an event. I am assuming, of course, that other exhibitors were given an opportunity to sponsor other events. Your organization should not want to be seen as playing favorites if there were others who were ready, willing, and able to sponsor at the same level or higher.

(2) The second arrangement, however, is clearly tacky and potentially damaging to your organization’s relations with other publishers. It may or may not fall under the category of conflict of interest, because it could be viewed as the publisher sponsoring your organization’s booth, rather than your organization’s endorsement of the publisher. Nevertheless, it is unethical because it has the potential to harm your organization.

Dear Nonprofit Ethicist,
I serve as a volunteer foster parent for a local animal rescue group. Recently, the group has been fundraising for hip surgery for the dog I’m fostering. Now they’ve decided not to schedule the surgery and are planning to use the money for other expenses. As a professional fundraiser, I explained that this is both illegal and unethical, and that at the very least, they need to ask the donors for permission to use the funds for other purposes. Am I obligated to do anything else?

Dear Hippie,
You truly are hip to the ethical issues (sorry, I couldn’t resist). If you haven’t yet formally expressed your views in writing to the board president, I suggest you take this additional step. Be careful about opining on the legality of the organization’s actions, however. Whether or not something is illegal is for a court to determine and is sensitive to specific facts. I prefer the serviceable phrase “questionable legality.” Ethically, you are on very firm ground. If this organization doesn’t mend its ways, you might consider volunteering for a different one. I don’t recommend stating this possibility in your letter because it might sound to the board president like a threat, and people don’t react well to threats. But, if you do quit, write a second letter stating your reasons.

Dear Nonprofit Ethicist,
We are a small nonprofit. Our ED, who is truly above reproach, has sole control over all checks and cash entering and exiting the agency. After carrying checks from donors around awhile, she photocopies them (when she remembers), deposits them, and enters them in the bank register. Our auditor has never questioned this arrangement, but I wonder about it. And shouldn’t two signatures be required on every check? What is the Ethicist’s thinking? Just checking.

Dear Just Checking,
The Ethicist is appalled. This arrangement violates separation of functions—one of the fundamental tenets of internal control. Yes, there should be two signatures on each check, but the issue is a larger one. No one person should have control of every step in the process of collecting or spending money. The organization may be small and the ED may be above reproach, but neither the board nor the auditor should let her do this. At a minimum, it is sloppy money management. It could scare off foundations and big donors, who are typically sensitive to such things. And what will happen when she retires? Get good systems in place now. The next person may not be so scrupulous. Your auditor can suggest how to do this in a way that is appropriate to the size of your agency. However, considering your auditor has not raised any red flags about an obvious problem, I suggest changing auditors too. Auditors should be changed every five to seven years, anyway. I do not mean to impugn the integrity of your ED, but when money disappears, the most trusted person is usually the one who took it.

Dear Nonprofit Ethicist,
I am an organization development consultant. I have encouraged my clients to have board compositions that are without conflicts of interest and with perspectives that support the whole organization and its mission. Several times over the years I have encouraged clients to seek the resignations of paid staff from the board. Occasionally, this encouragement has been met with resistance. Some clients point to the legal entitlement to a percentage of people who benefit financially. Some paid executive directors or founders have feared losing control and insist that they serve as board members. It is exactly this issue of staff control that suggests paid staff as board members may exhibit undue influence over the board’s thinking and decision-making. There are other troubling consequences of their board membership, but my question is, is it just troubling or might it be unethical for paid staff to serve as voting members of a nonprofit board?

Dear Consultant,
I’m with you. The whole point of having a board is to provide management oversight. Oversight is compromised when management is part of the board team. Nonprofits probably copied this practice from the business sector, where it is common. But, CEOs of publicly traded corporations are usually major shareholders. Corporate boards represent shareholders, so having senior management on corporate boards makes some sense—at least in theory. However, there is a wide gulf between theory and practice. We have witnessed a torrent of compensation abuses, not to mention insider looting of Enron, WorldCom, and Adelphi. Corporate boards have been too cozy with management and make a lousy role model for nonprofits.

In the nonprofit realm, private inurement is a huge issue, so it is especially important that nonprofit boards be independent of management to maintain objectivity. Nonprofit CEOs might counter that “it’s only one vote, and I wouldn’t vote on my compensation anyway.” But we all know that CEOs tend to get whatever they want because they are usually the chief recruiter of board members and they don’t put people on the board who are likely to disagree with them. But, being a board member would go one step further and blur the distinction between the governing and the governed. Considering that nonprofit boards are clubby and tend to operate by consensus, the CEO’s vote—although technically it counts the same as any other—is a powerful weapon for subduing a board. Stick to your guns.

Woods Bowman is Associate Professor of Public Service Management, DePaul University.