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What is Social Sector Ethics?

Naomi Nakano-Matsumoto, assistant director of Social Sector Ethics at the Markkula Center for Applied Ethics, discusses various ethical issues faced by the social sector including conflicts of interest and appropriate governance practices.

Ann Skeet

The social sector is a fascinating realm.  Nonprofit organizations are complex animals by design, with a “triple bottom line”: traditional performance measures, returns to social goods, and care for the environment. Staff and volunteers are blended in management and governance roles. As Evelyn Brody writes in the Fordham Law Review, “Board members, in both business and nonprofit corporations, are part-timers, often volunteers, serving for a variety of altruistic, social, and even selfish reasons, and (for the outside directors) not likely to be technically skilled in the business of the enterprise.” Donors give money for investment and distribution, and expect transparency to match their generosity.  Philanthropists and foundations have their own goals they work to achieve within the sector.

In this complex environment, organizations with ethical cultures have the best chance to build trust and prosper long term. We enter our work in social sector ethics with the aim of helping the organizations that serve it fulfill their missions and thrive.

An outline of the issues

There have been some headline-worthy ethical dilemmas in the nonprofit sector, from misuse of contributed funds, to outlandish executive pay, to flat out scams executed under the guise of nonprofit work. As many people are served by nonprofits and support them, when trust is lost in this sector, the impact can be significant.

Less obvious are the issues that crop up as people shift from role to role within a single nonprofit organization. Someone who might be the parent of a child in a nonprofit school might also be a volunteer; a donor may sit on the board. The sector’s complexity can make doing the right thing challenging and good choices harder to identify.

Nonprofit ethics refers to the issues encountered in a sector defined by mission-based organizations that are exempt from taxes. The United States Internal Revenue Service categorizes the different types of nonprofit organizations and their tax status.

People encounter nonprofits in many different parts of their lives and can have multiple roles within the sector. We are served by nonprofits—our churches and synagogues, some schools and healthcare organizations, and more. We are solicited by nonprofits for support, choose to donate to certain organizations, and can volunteer, find employment, or serve on a board of a nonprofit. Some people sit on commissions or agencies with oversight over certain kinds of nonprofits. Foundations support the work of nonprofit organizations, and some also have programs of their own delivering services in the sector. Legislators and other public officials create laws and guidelines that design the system nonprofit organizations work within. Globally, the organizations in the sector are referred to as non-governmental organizations, a definition upheld by the United Nations, which describes them as not-for-profit and not simply an opposition political party.

People are asked to make decisions about supporting work in the nonprofit sector perhaps more than they realize. Each person asking for individual support on a street corner requires the passerby to decide whether to give money. When we fill out our taxes, there are boxes we can check to support various efforts. Just checking out at the grocery store, we might be asked for a contribution as well. When we decide to solicit our own networks to support organizations we are connected with, we make another set of decisions about whom to approach. How do we think about our actions in those moments? Are we aware of the numerous ethical decisions we are making, where we consider the concerns of others, and how we make those decisions?

Time, talent, and treasure are common terms describing contributions that volunteers, donors, staff, and board members make to nonprofits. Participants must identify their role and which set of interests they primarily serve while in that role for their contributions to have the greatest impact. The rights and responsibilities of volunteers are different, for example, from those of people serving in governance roles on a board, even if both are essentially performing volunteer work.

There are laws, codes of ethics, and standards of excellence that help define best practices in the nonprofit sector and guide people’s decision making about what is ethical. Some feel nonprofits are held to higher standards than for-profit or even government agencies since people are voluntarily providing resources to support their missions.

In the business sector, reward systems are built around increasing responsibility and increasing compensation. Motivations for people working in that sector generally cluster around these areas and finding meaning in work.

This same grouping of motivations likely works for most nonprofit sector employees as well, though the emphasis shifts more toward meaning from compensation when most people in the sector are polled. While some are working in the sector not because of mission but because it is where they can find employment, typically, compensation is not a driver.

For donors, volunteers, and board members, there’s an even greater array of reasons to contribute time or money. Sometimes they are involved out of a sense of duty, because of a role they have personally or professionally, because they seek recognition for their contribution, or perhaps because of who asked them to become involved. The reasons for engagement tend to be broader than those in the business sector and even at times in direct conflict. If I am a donor but see during my volunteer efforts for the organization that expenses are not managed well, how do I think about this and act on it?

Typical ethical dilemmas in the sector arise around fundraising, both how it is done and how funds are used; governance; employee compensation, financial reporting, and decision making about priorities.

Ann Skeet is the director of Leadership Ethics at the Markkula Center for Applied Ethics.

Dec 15, 2015