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Ethics and stewardship

By Putnam Barber, Idealist.org

Two topics that deserve more discussion as boards examine their roles and responsibilities are in the title of this piece. In reverse order, then, here are a few points to consider in getting that conversation going.

Stewardship

In the public's mind, and in the law books, the board of directors is responsible for all the assets of the group — from the paper clips in the supply room to its reputation in the community. If resources that might have been used to further the mission are wasted or misused, the board should expect to be asked "How did that happen?" and "What are you going to do to make sure it doesn't happen again?" In fact, those are the questions the board should be asking itself.

More basically, though, the board responsibility is to build and maintain a culture in which all the assets of the group are focused on achieving the mission and being used as productively as possible toward that end. This is a big challenge. Even a small organization has a lot of assets.

It might be tempting to think of this challenge as narrowly defined by financial assets. Certainly, it is a central responsibility of the board of directors to build a budget, monitor revenues, expenses, reserves and obligations, and press managers to do as much as possible with the available money to have a successful program today and into the future. Even that approach to the concept of stewardship places a heavy demand on the time and attention of board members. Typically, boards rely on professional staff and advisors to set up the systems and design the reports that will give the board itself a useful summary of the organization's financial situation at each meeting. Larger organizations, and those with funding from the government or other grantmakers, will also typically have an annual independent audit that examines whether the financial statements accurately reflect its financial condition and uses of funds.

It is rare, though, that such an audit will discover misdeeds by staff or others with access to the organization's resources. Such misdeeds are of course rare, but when they do occur they undermine morale, divert energy and attention from the mission, and inevitably reflect badly not just of the damaged organization itself but on nonprofit organizations in general. The most effective defense against serious losses is the presence of a credible "whistleblower" policy — one that makes it easy for anyone to report suspicious behavior, guarantees that the suspicions will be sensitively but completely investigated, and protects from retaliation both the person making the report and everyone else who is, or might be, involved. A comprehensive discussion of this subject is in the Nonprofit Risk Management Center's article "Whistleblower Protections in the Nonprofit Sector".

Establishing and occasionally re-emphasizing the importance of a whistleblower policy is a good start at maintaining that "tone at the top" that experts advise is the most critical element in maintaining an organization in which responsible behavior is just a normal part of everyday routine. The risk in nonprofits, especially smaller ones where everyone works hard and knows and likes each other, is that small lapses will lead to larger ones until the damage cannot be ignored or contained. Preventing temptations from becoming actions is as much a matter of culture as policies. There is more about the difficulties, and the importance, of leadership in creating such a culture in a 2006 article I wrote for Nonprofit Online News called "Trust, But Cut the Cards".

Ethics

In addition to the board's responsibility for the overall wellbeing of the organization, there are some specific standards that apply to the way the board itself operates. A very general discussion of these standards is contained in the publications of the Panel on the Nonprofit Sector convened by Independent Sector, especially in "Principles for Good Governance and Ethical Practice" (available as a free download from the website).

Legal studies distill this topic down to two (sometimes three) "fiduciary duties" of board members. The essence of these duties is that board members work exclusively for the benefit of the organization and its mission, consistently excluding any and all other considerations. (The word "fiduciary" signals a responsibility to care for the possessions of someone else—a person or an organization—under a strict requirement to focus exclusively on the interests of the other.)

  • The Duty of Care — Board members are expected to pay attention. To pay attention to the materials that are put before them in preparation for meetings, of course, but also to what is said at meetings, what they see and hear about the way the organization is working, and to the broader context, the way the organization serves the best interests of the community through its work.
  • The Duty of Loyalty — Board members are expected to consider only the interests of the organization on whose board they are serving. This topic is often discussed in the context of avoiding conflicts of interest, meaning steering clear of any transaction in which the board member might "profit" at the organization's expense. (Another page provides some sample conflict of interest policies.) This idea of loyalty has a much broader reach, though. For example, a board member may not exploit an opportunity revealed as part of board deliberations. (Imagine making a offer on some real estate before the board had decided whether or not to try to buy it.)

Note that avoiding conflicts of interest doesn't mean that board members cannot sell things to or provide services for an organization, only that the other board members must assure themselves that the deal is the best the organization could get anyplace. So, for example, if a board member is willing to sell supplies to the organization at lower than retail prices, the rest of the board needs to be sure that the proffered discount leads to a lower price than can be obtained from a different vendor.

  • Some observers add a Duty of Obedience that focuses on complying with the law and other external requirements that may apply. Others say there's nothing special about living up to that responsibility and no need to call it out separately. Whether or not this third "duty" is listed is a matter of taste. Living up to it, on the other hand, is clearly a requirement.

These duties have been articulated over the years in countless statutes, legal decisions, and commentaries. A little searching online will yield many more discussions, with layers of complexity and interpretation.

Because they have their roots in the law, sometimes people make the mistake of thinking the question to be asked is something like "will we get sued if we do that?" The real focus would better be on doing the right thing. Board members need to hold themselves, and each other, to high standards of ethics and stewardship. Doing that is more a matter of careful thought than subtleties of interpretation.