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GUEST
ARTICLE - Allan Lowe
Ethical
Guidelines for Board Members of Not-for-Profit
Organizations
Introduction
Not-for-profit societies or associations
are generally created in order to provide programs and
services which address specific needs or interests of
those who create the organizations. These organizations
are governed by a board of directors, which is responsible
for directing, influencing, and monitoring the
organization’s business. The boards generally carry out
their governance roles by developing and monitoring
policies, and work is generally organized through
committees.
Board members of not-for-profit
organizations are volunteers who have an interest in the
well being of the organization. With their board
membership, however, comes responsibility and
accountability. An overriding area of concern for all
not-for-profit organizations is its ethical governance -
not only must governance be ethical in all areas, but it
must also be perceived to be ethical. The ethical
operations of the entire organization will flow from the
standards set by both policy and leadership actuality, and
the ethical conduct of each board member will determine
the perception and to a degree the reality of the ethical
conduct of the board as a whole, and through to the
not-for-profit organization as a whole.
While not-for-profit organization
board members are both liable and responsible for
their conduct and decisions in their board member role,
the not-for-profit organization often does not
articulate standards which define potential areas
of unethical conduct by board members.
Practices which are generally acceptable in a business
setting may not be considered ethical in the
not-for-profit organization’s domain; however, if board
members are not made aware of these areas of concern, they
may breach ethical boundaries unknowingly to the
detriment of both the organization, its membership
and themselves. It is therefore incumbent on
not-for-profit organizations to articulate ethical
guidelines to board members at the outset of their
membership to protect the sanctity of both the
organization and the member. This report will review
related issues, and suggest guidelines which a
not-for-profit organization can use to impart the
necessary knowledge to prospective board members.
Reasons for Serving on a Not-For-Profit
Board
Individuals volunteer to serve on boards
of not-for-profit organizations for many different
reasons. Most volunteers offer their services because they
share the raison d’être for the existence of the
organization, and strongly believe in its work and
purpose. People also serve on boards from enlightened
self interest, in that they believe in the
organization, but they also want to gain personal benefits
from their volunteer efforts. The reasons for board
service range through degrees of pure servitude
intentions, i.e. total desire to serve, to a
salient desire for personal gain, i.e. total desire for
personal gain.
While it is generally from board members’
wishes to gain personal benefits from their volunteer
efforts that most areas of conflict of interest arise,
ethical issues can also arise through actions or lack of
actions unbeknownst to the board members.
Areas of Potential Ethical Problems
Board members both expect and are expected
to carry out their board duties with the proper use of
their authority, and in a professional and ethical manner.
Ethical problems evolve in situations where expected
standards or norms are not met, whether they have been
clearly articulated by the not-for-profit organization or
the organization has been silent on the standards.
Expected performance standards include the following:
-
Being loyal to the not-for-profit
organization and its members
-
Avoiding conflict of interest, including
direct and indirect gains which could accrue to the
member as a result of actions or decisions made in the
capacity of board authority. Examples of potential
conflict of interest include:
-
A board member makes a decision
motivated by considerations other than the “best
interests of the not-for-profit organization”
-
A board member or close family member
personally contracting with the organization
-
A board member learns of an
opportunity for profit which may be valuable to
him/her personally or to another organization of which
he/she is a member
-
A board member assists a third party
in their dealings with the organization, where such
assistance could result in favorable or preferential
treatment being granted the third party, by the
not-for-profit organization
-
A board member receives gifts or loans
from the organization
-
Dealing with the public, staff, clients,
and board peers in an ethical, fair, and straight
forward manner
-
Not exercise individual authority over
the not-for-profit organization or the staff
-
Speaking positively of the
not-for-profit organization to the public
-
Fostering friendly and positive working
relationships between volunteers and staff
-
Maintaining confidentiality of board
business
In any organization, including a
not-for-profit organization, standards and the practicing
of these standards are set by the leadership, and the
organizational culture follows from these standards and
the subsequent practice of these standards by board
members. In the long term, a lack of an ethical base
resulting from not creating and following ethical
standards has the potential to lead to a lack of success
in the organization. As unethical behavior by an
individual board member reflects on the board as a whole,
and vicariously to the organization as a whole, it
behooves all not-for-profit organizations to provide clear
standards for board members.
Board Obligations and Responsibilities
The board is ultimately responsible to
determine the purpose of the not-for-profit organization,
through the establishment and implementation of the
organization’s vision and mission, and the review and
modification of these guiding principles as required. It
is also responsible for the continuity of the
organization, which it provides through either directly
managing and implementing the organization’s affairs, or
through the effective recruitment of management and staff
personnel. The board sets the organization’s rate of
progress in reaching its mission and vision, and also is
responsible for establishing the identity of the
organization by securing its community’s support and
appreciation for the organization’s raison d’être and long
term direction.
It is important that the board of a
not-for-profit organization ensure that it is aware of its
obligations and responsibilities, and that this
information be articulated and disseminated to all board
members. The board, and vicariously each board member is
ethically responsible for the proper functioning of the
board. Often the board’s area of ethical
responsibility is ignored, with ethical concerns focused
on areas of perceived and actual areas of fairness and
honesty, and little or no focus placed on the potential of
lack of management or failure to ensure that the board
meets its responsibilities to its board members.
Guidelines for Board Members and
Not-For-Profit Organizations
Not-for-profit organizations, whose boards
are generally comprised of volunteers for whom their board
membership is usually one small part of a busy life, often
do not have a code of ethics or related guidelines for
their board members. While it is common for such
organizations to have a code of ethics for their
membership at large, it is not recognized that there are
specific pitfalls and areas of potential ethical
mismanagement which are not likely encompassed in the
general code of ethics prescribed to its members.
Each not-for-profit organizations should
consider establishing a code of ethics for directors.
The structure and contents of such a code,
while important, are somewhat secondary to the
commitment required to develop the code, and
the awareness established through the development
process. Each board should determine areas of specific
concerns given their own special circumstances and
areas of risk. These circumstances and risk areas
may change and evolve with the organization’s growth and
evolution, and the code of ethics should be revised to
maintain currency with organizational shifts. While
individual organizations’ specific areas of concern may
not incorporate some of the following identified
potential components of a code of ethics for board
members, the components are identified along with a
relatively exhaustive listing of potential areas of
conflict. The listings could be eliminated in areas of non
applicability, and in other areas could be used to
generate ideas of specific identification of
potential conflict of interest areas unique to the
organization.
Suggested components of a code of ethics for directors of
not-for-profit organizations are as follows.
Code of Ethics for (organization’s
name)’s Board of Directors
Statement of Commitment
[A statement of commitment will emphasize
the responsibility of the board and each member to the
membership, and to the board as whole both as the
statement is being developed and in perpetuity as it is
discussed with each nominee and incumbent. An example of a
Statement of Commitment is:]
“In establishing policy for and on behalf
of (organization’s name)’s members, I am a
custodian in trust of the assets of their
society/association. The members recognize the need for
competent and committed elected board members to serve
their organization and have put their trust in my
sincerity and abilities. In return, the members deserve my
utmost effort, dedication, and support.”
“Therefore, as a board member/director of
organization name, I acknowledge and commit that I
will observe a high standard of ethics and conduct as I
devote my best efforts, skills and resources in the
interest of organization name and its members. I
will perform my duties as board member/director in such a
manner that members’ confidence and trust in the
integrity, objectivity and impartiality of organization
name are conserved and enhanced. To do otherwise would
be a breach of the trust which the membership has bestowed
upon me.”
Ethical Guidelines
[A listing of items which the
not-for-profit organization considers to be in conflict
should be developed by the board, and included in the
overall code of ethics. An example of a comprehensive
listing of items follows. Each organization should include
items which may be unique to their own membership.]
General
-
I will always hold the betterment of the
membership of the organization as my priority, including
during all participation in discussions and voting
matters.
-
I recognize that I am obligated to act
in a manner which will bear the closest public scrutiny.
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It is my responsibility to contribute to
the board of directors any suggestions of ways to
improve the organization’s policies, standards,
practices or ethics.
-
I will not abuse my position as a
board member by suggesting to any organization
employee that I am entitled to or expect any special
treatment beyond regular members of the organization.
-
I will declare any conflict of interest,
be it real, potential, or apparent, which is not
immediately obvious with regard to any matter being
discussed in my presence during a meeting.
-
If the board decides at any time during
a meeting that I have a conflict, I will accept their
request that I refrain from participating in the
discussion and I will leave the meeting at the board’s
request. I understand that the board’s decision will be
recorded in the minutes, either with or without the
reasons for the decision being also recorded
-
I understand that the following
activities are considered by the organization to be
conflicts of interest, and that conflicts of interest
are not limited to the following situations:
-
where a director makes a decision or
does an act motivated by other or additional
considerations than “the best interests of the
organization
-
where a director personally contracts
with the organization or where he/she is a director of
other organizations which are contracting with this
organization
-
where a director learns of an
opportunity for profit which may be valuable to
him/her personally or to another organization of which
he/she is a member, or to other persons known to the
director
-
where a director, in any
circumstance as related to the organization, puts
his/her personal interests ahead of the best
interests of the organization
Information
-
I will not knowingly take advantage of
or benefit from information that is obtained in the
course of my official duties and responsibilities as a
board member, and that is not generally available to
membership
-
I will be alert to information which the
organization can use to develop improved policies and
strategies
-
I will protect the organizations
information closely and will not release or share
confidential information without the permission,
preferably in writing, of the person who provided it
-
I will maintain confidentiality of all
information which the board deems ought to be kept
confidential
Resources
-
I will be mindful of resources which are
in my trust on behalf of the organization, and will help
establish policies which ensure the maximization of
secure and protected resources
-
I expect to be reimbursed for legitimate
expenses incurred by myself for the sake of the
organization. I will keep all such expenses reasonable
and justifiable and will discuss expenses which may be
in question with the organization’s president
Gifts and Hospitality
-
Should business associates or others
offer me gifts, favors, or benefits on a personal basis
because of the business the organization does with them,
I will recognize that such offers may be an effort to
secure advantage from me, and I will reject such offers
on the basis that it is against the organization’s
policy to accept gifts from business contacts. The most
I will accept will be normal promotional handouts of a
nominal value.
-
I will not routinely accept the
hospitality of others. For example, when meals are taken
with business colleagues, I will pay for as many meals
as do my colleagues.
Representing the Organization
-
As part of my duties as a board member,
I represent the organization informally and formally to
other associations, societies, government officials, and
business representatives. I recognize that it is
important that I represent the organization in such a
way as to leave others with a positive impression of the
organization. In my duties I will preserve and enhance
the good reputation of the organization and will avoid
behavior which might damage its image.
Interpretation
-
The president of the organization shall
ensure that the practice of this policy will be fair,
just, and equitable in all situations of interpretation
and application.
Enforcement
-
The president is ultimately responsible
for immediate interpretation, application and
enforcement of the board members’ code of ethics policy.
All complaints concerning a possible code of ethics
violation shall be made in writing to or by the
president with a copy provided to the complainant.
The president shall make an initial
determination of the issue and shall attempt initial
resolution of the problem with the complainer and the
complainant.
If this initial attempt at resolution is
not successful, the president shall appoint a tribunal
composed of three board members to investigate the
complaint. The tribunal is required to investigate as
required and submit a written report to the president
within 30 days. The president will render his/her
decision within ten days of receiving the tribunal’s
report.
The president’s decision may be appealed
in writing to the board of directors for consideration
the board’s next regular meeting at the organization’s
next regular scheduled meeting for a final decision. The
final decision shall be delivered in writing to the
complainer and complainant.
Delegation and Penalties
-
Should the president be the subject of a
written complaint, the vice president shall perform the
duties normally assigned to the president in this
matter.
-
Penalties imposed for breach of the code
of ethics may include, but are not limited to, the
following:
-
Excluding the director from portions
of all future meetings and discussions which relate to
the stated conflict of interest, and/or
-
censure of the director, in private,
in public, or both, and/or
-
removal of the director from office by
a resolution passed by a vote of two-thirds of the
members voting at an annual or special general meeting
of the not-for-profit organization’s members, provided
that notice of such a proposed resolution is given
with the notice calling the meeting.
I have read and I accept (organization’s
name)’s Code of Ethics for Board Members
_____________________
Date
____________________________________
Signature of
Director or Nominee
Conclusions
The leadership of all organizations,
including not-for-profit organizations, is ultimately
responsible for the creation of the culture which will
permeate the organization and its membership. A strong
ethically grounded organization is only possible when it
is governed by a strong ethical board; in turn, the
strength of the board is grounded in the ethical conduct
and approach of each of its board members.
While the more basic components of ethical
behavior incorporate the base principles of fairness and
honesty and are therefore fairly obvious, there are many
other potential pitfalls for the board member who may not
be aware of the possible implications of his/her actions
or, in some instances, lack of actions. The fact that a
board as a whole has ethical obligations to its board
members, and ultimately to all organization members, is
often overlooked and is also often at the root of a
resultant culmination of unethical behavior.
The board is firstly responsible to ensure
that it has a clear understanding of its roles,
responsibilities and functions, and then to ensure that
this information is clearly articulated and conveyed to
all board members. By making clear the purpose and
requirements of the board and all of its members, the
board will reduce the liklihood of its swaying from its
mandate, and by clearly retaining its focus and purpose it
will help to ensure that any unethical behavior by its
board members will stand out as improper and
inappropriate.
As well as maintaining and disseminating
the “big picture” of its roles, responsibilities and
functions to its board members in order to enhance their
understanding of the board’s ultimate responsibilities and
therefore reduce unethical actions and behaviors,
including those of lack of adequate management due to lack
of knowledge, the board should also clearly outline an
exhaustive listing of actions, lack of actions, and
behaviors which it considers to be detrimental to the
board and to society’s norms, and therefore unethical. The
creation of such guidelines and the provision of them to
all board members firmly grounds the organization’s
ethical stance, and the guidelines will be an ever present
barometer which can be referred to in moments of question
or doubt. The posting of these guidelines in a prominent
location during meetings can help to remind board members
of their ethical duties, while also subtly serving as a
convenient reference for members to refer to should events
arise during a meeting which contravene the guidelines.
The immediate referral to the guidelines can prevent
potential problems from escalating beyond their inception.
By making such a listing a part of an
orientation package for nominees of a board, prior to the
nominees signing a nomination form, the board can be
ensured that all future board members are aware of the
ethical stance of the organization. By having nominees
sign a declaration on the nomination form that they will
disclose all currently known or potential conflicts of
interest, each new board member will bring a fresh
commitment to ethical governance, invigorating the
commitments of existing members.
Through continual rigorous efforts to
maintain an ethical organization, all not-for-profit
organizations can increase their chances to serve their
membership in a positive manner, unencumbered by
unnecessary distractions caused by unethical behavior of
any sort.
References
Stanton, Barbara H., Trustee Handbook -
National Association of Independent Schools, National
Association of Independent Schools, 1989
Buchholz, Rogene A., and Rosenthal, Sandra
B., Business Ethics, Prentice-Hall Inc., 1998
Carver, John, Boards That Make A
Difference, Jossey-Bass Publishers, San Francisco, 1997
David, Fred R., Concepts of Strategic
Management, Prentice Hall, 1997
www.asaenet.org, American Society of
Association Executives
www.associationplace.com, Canadian Society
of Association Executives
Board Development - Roles and
Responsibilities of Not-For-Profit Boards, Board
Development Program, Volunteer Services Branch, #907
Standard Life Centre, Edmonton AB, Ph. 780-427-2001
 Allan
Lowe is President of the
Alberta
Roadbuilders and Heavy Construction
Association.
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MARCH
2004
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