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The Importance of Being Ethical (Nonprofits)

Our current lighthearted series – “Nonprofits’ ‘What Not To Do’” is a tongue-in-cheek road map to staying out of trouble or legal jeopardy. Hopefully, it’s a welcome break from the relentless heaviness of current events reported on the 24-hour news cycle. See our most recent episode, (1.3), featuring “The Case of the Possible Pledge.”

But these cautionary tales have a more serious purpose; namely, to reinforce the notion that nonprofit organizations and their key people should aim higher than mere minimum compliance with laws and rules. Not just legal, but also ethical, behavior should be the goal.

To aim for and achieve a culture of ethics in an organization is not only a moral duty, it’s also a financial necessity. In terms of survival, nonprofit organizations must be held in high esteem to attract and maintain public financial and other support. According to current surveys and studies, though, there has been a statistically significant erosion in trust in the nonprofit sector.  Trust in Civil Society (May 19, 2022) Independent Sector; see also, for example: Why are foundations and nonprofits losing public trust? (June 17, 2022) Stephanie Beasley, devex.com; Combatting decline in trust in nonprofits (January 27, 2022) James Davenport, philanthropydaily.com


You’ll recall that the new century opened with a slew of high-profile corporate scandals like Enron. The nonprofit sector, though less directly connected with these misdeeds, responded by creating tighter laws, regulations, and standards. Notable examples include California’s landmark Nonprofit Integrity Act of 2004. And by 2008, the Internal Revenue Service had overhauled the Form 990 with much more comprehensive reporting requirements including on matters of organizational governance.

U.S. researchers a decade or so ago noted still-troubling statistics on both the public perception of, and trust in, nonprofits, as well as the employee reports about actual observations of unethical behavior. See Ethics and Nonprofits (Summer 2009) Stanford Social Innovation Review Professor, Professor Deborah L. Rhode & Amanda K. Packel, Esq., refer to distressing poll numbers and survey responses.

Among them were findings from a 2008 Brookings Institution survey that “about one third of Americans reported having ‘not too much’ or no confidence in charitable organizations, and 70 percent felt that charitable organizations waste ‘a great deal’ or a ‘fair amount’ of money. Only 10 percent thought charitable organizations did a ‘very good job’ spending money wisely; only 17 percent thought that charities did a ‘very good job’ of being fair in decisions; and only one quarter thought charities did a ‘very good job’ of helping people.

Similarly depressing was a 2006 Harris Poll, researchers found that “only one in 10 Americans strongly believed that charities are honest and ethical in their use of donated funds. Nearly one in three believed that nonprofits have ‘pretty seriously gotten off in the wrong direction.’”

And just as worrisome to was a 2007 National Nonprofit Ethics Survey, in which “half of employees had observed at least one act of misconduct in the previous year, roughly the same percentages as in the for-profit and government sectors. Nearly 40 percent of nonprofit employees who observed misconduct failed to report it, largely because they believed that reporting would not lead to corrective action or they feared retaliation from management or peers.”

“Unethical behavior,” concluded ethics experts Rhode and Packel back in 2009,  “remains a persistent problem in nonprofits and for-profits alike.”

Work Still To Do

Fast forward to the current day.

“Trust in institutions generally seems to be falling, but trust in nonprofits seems to be declining even more rapidly,” notes Phil Buchanan, head of the Center for Effective Philanthropy. He linked that growing distrust to a decrease in household giving in the U.S., which he called “concerning.” He added: “This all matters a lot, and it matters for donors — individual donors as well as foundation donors.”

Beth Breeze, the director of the Centre for Philanthropy at the UK’s University of Kent has some interesting observations that may apply globally: “Maintaining public trust is critical for foundations and nonprofits because of the voluntary nature of philanthropy. It is difficult for citizens to completely disengage from business and government, but it is simple for them to ‘opt’ out of involvement with nonprofits and philanthropy if they lose faith in them.”

She adds: “The reasons why the public is losing trust in these organizations have grown much more ‘interesting’ than those cited decades ago,” explaining further that in the 1990s, “nonprofits commonly heard criticisms based on the perception that their leaders were too ‘amateurish’ to run an organization.”

Dr. Breeze thinks that now, “rather than being worried about good intentions that are imperfectly executed,” the general public “are worried about the bad intentions of nonprofits and, in particular, of their donors.” They are concerned “that philanthropists are ‘in it for themselves’ and that they’re motivated by a desire to advance their own agenda — and not by altruism.”

Ethics Resources

All of this means that there’s quite a bit of improvement needed in both actual ethical conduct by nonprofits as well as in the public perception of the relative level of trustworthiness and integrity in our sector.

The 2009 Stanford Social Innovation Review article, Ethics and Nonprofits, remains an excellent resource along with more recent discussions including:


As we resume our own tales of ethically-challenged nonprofit behavior, please note that there’s a perfectly serious and comprehensive compilation of hall-of-fame examples of what-not-to-do, courtesy of the University of San Francisco Masters of Nonprofit Administration faculty and students.

The school’s motto is “Doing Good and Doing It Well.” See Nonprofit Ethics, and more particularly, the Nonprofit Unethical Case Studies: “The following are examples of the case studies we identify and analyze during our graduate studies. We share them with the public in the hope of promoting more ethical practices and avoid[ing] unethical and illegal pitfalls in our mission-driven works.”

– Linda J. Rosenthal, J.D., FPLG Information & Research Director 


The post The Importance of Being Ethical (Nonprofits) appeared first on For Purpose Law Group (FPLG).

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