• How Ethical is Your Nonprofit?

Almost every day, it seems, newspaper headlines shout out the details of another corporate scandal. Those of us in the nonprofit sector are tempted to think that we are above such shenanigans—and the accompanying headlines. We are, after all, do-gooders who are uncorrupted by the desire for profit. Our motives are so noble, how could anyone question our actions?

Unfortunately, nonprofits are run by people with the same range of ethical standards as the rest of society, and we have our share of bad apples. In recent years, the Nature Conservancy, the Red Cross, a handful of United Way chapters, and local foundations in several communities have found themselves the target of negative headlines. Such ethical lapses—or perceived ethical lapses—undermine the trust the public holds in the entire sector.

  • Procedural Responses

Most of the responses to these scandals have been procedural. The common reaction is to encourage nonprofits to develop a code of ethics and perhaps become certified as an ethical organization.

Writing such a code will make you and your organization think through the issues, and if the entire organization is involved at an early stage, the resulting code is far more likely to be relevant to your day-to-day operations. Moreover, you can and should train your employees to follow the ethical precepts of your policy. This training allows you to reinforce values, explain the language of the code, and to discuss hypothetical and actual situations that others have faced. Codes of ethics and training are important procedural steps, but they are only a small part of the larger ethical picture.

  • The Buck Stops at the Top

Whatever a code says, the leaders of an organization—the executive director, his or her lieutenants, and the board—set the stage for the actual ethical behavior. Enron, for example, had adopted a 64-page ethics policy, which clearly did not prevent unscrupulous actions.

Better training may not have helped, either. Fully 99% of the chief ethical officers attending the Conference Board’s annual Business Ethics Conference in 2002 believed that the Enron scandal would have erupted even if senior management had received extensive ethical training (although almost half thought the behavior would have been stopped more quickly).  (Taub, Stephen, “Crisis of Ethics,”, June 19, 2002,

A truly ethical organization can exist only when its leaders embrace ethical decision making and recognize the importance of values other than the bottom line.

  • Principles of Ethical Decision Making

Many nonprofit ethical principles, such as honesty and treating people with respect, are parallel to those in the for-profit world. In both the for-profit and nonprofit worlds, a good rule of thumb when making a decision is to ask whether you would want to be treated the same way and whether you would be comfortable seeing your decision on the front page of the local newspaper.

The nonprofit world has another guiding principle, however, that is irrelevant to the for-profit sector: no one individual is to profit from the organization. Losing sight of this principle has led to many of the scandals in the nonprofit world. In general, discussions about nonprofit ethics cover the topics of honesty, transparency, conflicts of interest, fundraising issues, and treating employees, volunteers and clients with respect.

Read more about Honesty: Openness: Conflicts of Interest: Privacy: Fundraising and other issues regarding the difference between right and wrong by visiting: Elizabeth Schmidt, October 2004 article on GuideStar.

© 2004, Elizabeth Schmidt – Elizabeth Schmidt teaches Nonprofit Law and Practice at the College of William and Mary Law School. She is a nonprofit consultant and can be reached at

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