When the economy is bad, everything tends to look worse. Snowy weather feels colder, your favorite team losing is more disappointing, and ethics scandals seem more egregious. The recent focus on corporate and nonprofit executive salaries, and the ethics surrounding these decisions, is under intense scrutiny. Recently, Congress investigated the salary levels of top executives at one of America’s largest nonprofit organizations, Boys and Girls Clubs of America.

For the nonprofit sector, these investigations and scandals are particularly damaging, especially when fundraising is tight. In a 2008 Brookings Institution survey, only 10 percent of respondents thought charitable organizations did a “very good job” spending money wisely. So much of our work depends on our reputation, as individual organizations and as a larger nonprofit community. Even though the third sector is sometimes referred to as the “ethical” sector, nonprofit organizations are not exempt from poor behavior and questionable decisions.

You may think that ethics is not an issue in your organization because the focus on mission instead of profit somehow eliminates the pressures to act in unscrupulous ways. However, a 2007 study by the Ethics Resource Center would show otherwise. The study found that 55 percent of nonprofit employees observed one or more acts of misconduct in the previous year. We all need to value ethics and take steps to ensure we are behaving in ways that honor our mission and values.

Ethics at the organizational level

The Independent Sector (IS) spent concerted time and effort at the end of 2003 and the beginning of 2004 to craft a “Statement of Values and Code of Ethics for Charitable and Philanthropic Organizations” (http://www.independentsector.org/). They followed up the code with a guide for charitable organizations on Good Governance and Ethical Practices in 2007 that outlines four areas of focus: Legal Compliance and Public Disclosure, Effective Governance, Strong Financial Oversight and Responsible Fundraising (http://www.nonprofitpanel.org/report/principles/Principles_Guide.pdf.). These statements and codes are suggestions; the sector as a whole has not adopted a set of ethical guidelines for itself.

However, this outline can be a helpful tool as organizations move toward more intentional ethical policies and practices. IS suggests that organizations set aside time during board meetings and retreats to discuss in detail ethical codes and practices and to include a specific discussion around the organization’s ethical policies during orientation of new staff and board members.

There are practical steps a nonprofit agency can take to start down the road to strong ethical behavior:

• Organizations can contract to have an ethics audit conducted by a third party to show the true nature of their actions and compliance with existing policies.
• An organization can adopt a specific decision-making model that includes questions around values, both individual and community, as part of the process.
• A board can take deliberate time to discuss and reflect on the organization’s actions in ethically-charged situations to determine if the stated values were put into action, and then how to respond in the future.

It is important to engage a large group of board and staff in developing the values and ethics codes for your organization. All views must be acknowledged and each player needs to be comfortable with the final result, because ethical behavior is, at the end of the day, a personal choice.

Ethics at the personal level

Morals are what you believe, and ethics are how you act. Leaders in organizations must act in ethical ways as individuals and model the behavior and actions they expect. Leaders at all levels must understand their own moral compass and be consistent in how they act upon their own beliefs. When the leader’s actions match the stated values and policies of an organization, ethics becomes part of the fabric of the organizational culture.

This requires time for self-reflection and meaningful discussion. Good leaders ask more questions than they make statements, and value time for open discussion around tough issues. Strong leaders celebrate work done in a highly ethical manner instead of punishing poor actions. This approach builds upon the strengths within the organization and inspires people to act at their best, instead of out of fear and insecurity. It is like reading a story about a stranger returning a wallet with $500 in it; we all feel good and want to act in a like manner.

High ethical standards and actions are critical to the third sector – not so much to talk about our ethical behavior, but for ensuring that important work is done with integrity and strong character so we can maximize the benefit to our constituents and communities.

By Cindy Willard, program officer for the Helen K. and Arthur E. Johnson Foundation, a Colorado-based family foundation (www.johnsonfoundation.org).