Ethics Schmethics

The Penn State iconoclasm debate lingers on.

Minutes after being asked by yet another reporter about the purpose of removing names/statutes/plaques  etc. of disgraced members of an organization (such as removing the name of Gary Schultz from the Penn State day care center that bore his name:*see answer below), I had a student in my MBA class make a statement to the effect that ethics are fungible:  my ethics may not be yours, may not be hers, may not be his, and so forth.  Already behind in week three, I bit my tongue, waited to see if any of the other students would challenge that statement, bit my tongue even harder, told myself I’d come back to this later in the semester at a more appropriate time, and moved on.

The unchallenged statement, however, was added to the maelstrom of thoughts on ethics in the nonprofit sector that was already taking place in my head, as I’d earlier in the week begun to form the content of this post.

In drafting a syllabus for a master’s level class on law and ethics in the nonprofit sector, I’d read the 2007 “National Nonprofit Ethics Survey,” the fourth iteration of a national study of ethics in nonprofits, for-profits and government done by the Ethics Resource Center’s (ERC).  After reading just the first three items in its Executive Summary on page VIII, the maelstrom had moved from my head to my stomach!  Here they are, word for word:

• At present, nonprofit organizations have the strongest ethics standing over any other sector.
  
• Nevertheless, integrity in the nonprofit sector is eroding.  Misconduct is on the rise—especially financial fraud.
  
• Governance makes a substantial difference, positively or negatively.

The ERC has been around since 1922.  Since 1994 it has been doing a nationally representative survey of employees of nonprofits, businesses and government in order to understand the status of ethics and compliance in the workplace.  The 2007 report is the first time the data was reported discretely—just a report on ethics and compliance within nonprofits.  It reflects the responses of the 558 nonprofit employees (out of a total of 3,452).

The good news:  our sector has “stronger ethical cultures” than business or government (which always seems to come out on the shortest end of the ethics stick in this report).  The bad news:  the strength of this ethical culture is weakening, as indicated by the rate of observed misconduct (such as fraud, self-dealing, lying to stakeholders and staff, altering documents, abuse, etc.) which, at 55%, is the highest it has been since the ERC began measuring it.

More bad news:  fraud, defined here as altering documents, including financial records, lying to stakeholders and employees and misreporting hours, is as common in nonprofits as it is in business and government, though the observation of financial fraud is “significantly” greater in nonprofits (8%) than business (5%) or government (6%).

And still more bad news:  Not only do nonprofit employees believe that their organizations are less ethical than they were five years ago (19% versus 7% of business and 11% of government—ouch, that hurts!) they also are more likely to believe that their organizations are continuing down that negative slope.  There’s more but you need to get a copy of the report and read it.

What is the matter with us?  Clearly, we’ve lost our moral compass—if we ever really had it, as opposed to making others believe we did.   So, what is to be done?

I’m reminded of the process of recovering from addiction.  First, an addict must recognize his/her addiction and want to recover; then, s/he must work at it very hard and every day.  An organization must first recognize the importance and value of having an ethical culture and, then, must want it.  And, second, the organization has to work at it.  Merely wanting it is insufficient.  ERC’s study provides some insight on this topic—some good, some scary.

Good:  “Nonprofits’ ethics risk is virtually eliminated when organizational leaders take steps to establish a well-implemented ethics and compliance program and adopt an organization-wide culture approach to ethics.”  Scary:  “Where the board of directors sets the tone, perceptions of ethical leadership are lower.”  In fact, when employees believe that the board is leading the organization, they are 18% less likely to believe there is strong, ethical leadership at the top than if the top paid leadership is setting that tone, and they are more likely to observe acts of misconduct.  Confusing:  “Paradoxically, [over half—52%–] of those who think the board is top management are more likely to believe that their organization is moving in the right direction.”

There is much data in this report that left me scratching my head, trying to figure out what the story was they were telling and discerning the lessons within.  Three lessons are, however, readily apparent:

• one, we must wake up;
•  two, we have work to be done that needs to be done quickly; and,
• three, ethics and compliance programs make a difference.  Boards need to heed the wake-up call and, working in partnership with the paid leadership, make explicit the conditions of an ethical culture, promulgate, model, and respond swiftly to violations of those expectations.  We cannot know for certain whether such a culture would have made a difference in New York, Pennsylvania, Texas, Virginia, or the location of the scandal du jour, though many of us would hazard a bet; but we can know for certain that it absolutely couldn’t have hurt.

When was the last time your board, your executive leadership, your full staff discussed the ethical tenets of your organization?

 *Answer:  it is a symbolic act that both distances an organization from the misconduct and rights the wrong of the misconduct by indicating that “We do not condone, nor do we honor people who do, acts of misconduct; “we position ourselves, going forward, as a moral and ethical organization (regardless of however we might have appeared in the past).”