Nonprofit Ethics: From the Top

Print Share on LinkedIn More

[April 8, 2008]  One never knows quite how much to make of research that depends on self-reported surveys (i.e. what people say they think, say, or do as opposed to empirically verifiable and measurable statements or actions). And there are numerous other concerns as well. Does the survey represent a good cross section of the sector? Is the sampling or stratified sampling robust enough to be reliable? Are the respondents’ survey answers accurate or hyperbole? Is the sponsoring agency credible, professional, and not tied to jimmying its data to make some ideologically predetermined answer?

With those caveats in mind, we find the 2007 report of the Ethics Resource Center  (ERC)[1] entitled National Nonprofit Ethics Survey: An Inside View of Nonprofit Sector Ethics [2] to be strong enough to warrant concern regarding issues that have been raised repeatedly in the pages of Nonprofit Quarterly. This report is the fifth of ERC’s longitudinal surveys of government, business, and nonprofit employees, the fourth in which nonprofit data was disaggregated and analyzed in comparison to the other two sectors. The 558 nonprofit respondents out of more than 3,400 total were randomly selected and guaranteed confidentiality in the telephone interviews.

Rich with findings, the report contains nuggets that should give some pause to nonprofit readers:

•    Nonprofit survey respondents reported observing more financial fraud than their counterparts in business [3].  Nonprofits led their counterparts in altering financial records (government led in lying to their employees, business was reasonably represented across the board in several categories of fraud). Do nonprofit staff get to “see” more of this because their organizations’ size and possibly flatter administrative structures make financial fraud easier to spot? Or do nonprofits too often succumb to deflating administrative overhead and hiding fundraising costs due to the frequently unrealistic pressures of foundation funders and charity watchers? Regarding behaviors that go beyond “financial” fraud, the findings showed that nonprofits have basically caught up with their government and business peers in overall ethical misconduct.[4]

•    More nonprofits are seen as having weaker ethical cultures than in past years [5].  Forty-two percent of respondents characterized their organizations as “weak” or “weak-leaning” ethical cultures compared to 38 or 37 percent in the 2000, 2003, and 2005 surveys. As Scott Harshbarger and Amy Crafts have noted, the effectiveness of nonprofit whistleblower protections and overall self-corrective anti-fraud mechanisms within the sector are inextricably tied to the strength of organizations’ ethical cultures [6].  As a result, it shouldn’t be surprising that only 38 percent of nonprofit employees actually blew the whistle (by reporting to management) the financial misconduct they witnessed. The two major reasons for nonprofit employees’ not blowing the whistle were fear of retaliation and the belief that whistle blowing wouldn’t result in corrective actions [7],  findings consistent with studies of the silence of potential whistleblowers in other sectors [8].

•    “Nonprofit misconduct occurs more frequently in mid-sized and larger nonprofits than smaller [9] nonprofits. [10]  This is a counterintuitive finding, at least for some of the apologists for the scandals at The Nature Conservancy, the United Way of the National Capital Area, the James Irvine Foundation, and others. At the Senate Finance Committee’s 2004 hearings on nonprofit accountability, streams of nonprofit witnesses from national trade associations and large nonprofits attributed the sector’s accountability missteps as primarily a problem of smaller, unsophisticated nonprofits whose boards and staff didn’t know the rules and needed training and capacity building. That response seemed all too facile and self-serving, the ERC findings imply.

•    It warrants an exact quote: “In organizations where the board sets the tone, more employees believe that ethical leadership in the organization is weak.” More: “Where the board sets the tone, employees observe more misconduct.” And this: “Nonprofit employees have the most negative views of the ethics of their governing body’s decisions.”  [11] This has been a consistent concern of Nonprofit Quarterly, basically captured by the proverb of nearly every nationality on earth, the fish stinks from the head. When nonprofit boards behave in ways that belie their organizations’ values and ethics, for example, the sometimes all too visible evidence of board members’ self-dealing, to expect ethical behavior below the board level is relatively fruitless. To add another truism to this discourse, if boards don’t clear up their acts and hold themselves to higher ethical standards, the chickens will come home to roost.

While the ERC findings on nonprofit misconduct and whistle blowing are intriguing readers should keep in mind that it draws on percentages of anonymous nonprofit survey respondents and may not be a precise reflection of the behaviors the entire nonprofit sector. But as the responses of a random sample of nonprofit employees, interviewed by a reputable organization, the ERC findings on nonprofit ethical shortcomings should be a wake-up call to the sector leaders.  Sometimes we are all too willing to believe that the angel-wings of “nonprofit values” give charities some stronger abilities to resist ethical misconduct than their government and business peers.   Nonprofit board members have to understand that their behaviors set the ethical tones and cultures of the organizations they are legally responsible for stewardship in the public interest.

 

Footnotes

 1. In full disclosure, we note that the ERC’s vice chair is Scott Harshbarger, currently Senior Counsel at Proskauer Rose LLC, formerly the head of Common Cause, formerly the Massachusetts Attorney General, and both a regular contributor, board member, and corporate counsel to the Nonprofit Quarterly.
2. Available here .
3. Page 4 of the report.
4. Other categories of misconduct reported in the ERC survey included alteration of other (presumably non-financial) documents, lying to customers, vendors, or the public, lying to employees, and misreporting of hours.
5.  Page 4-5 of the report.
6.  Scott Harshbarger and Amy Crafts, The Whistle-blower: Policy Challenges For Nonprofits, in Nonprofit Quarterly (Winter 2007),
7.  ERC, pp. 19-20
8.  Cf. Rick Cohen, Whistle-Blowers by the Numbers, in Nonprofit Quarterly (Winter 2007),
9.  The ERC survey uses number of employees as its gauge of organizational size.
10.  Page 6 of the report.
11.  Page 7-8 of the report.