Abstract
The Nonprofit Challenge: Integrating Ethics into the Purpose and Promise of Our Nation’s Charities, fails to deliver on its title or thesis. The reader expects a book with a solid definition of ethics and an argument that brings the diverse nonprofit sector together with an ethical focus. The reader might then expect some direction or a template or set of questions to help a nonprofit organization align itself with this focus. Executives, board members, professors, and students interested in how ethics might bring together the many disparate purposes of the nonprofit sector (service, health care, education, advocacy, arts, environmental preservation, and the promotion of values and community solidarity) will be disappointed. Doug White proposes that the nonprofit sector become the leader and advisor on ethics to both business and government. In fact, he would like to rename the sector the “ethical sector.” Yet he fails to define ethics or provide an adequate set of ethical guidelines, nor does he convince the reader of how ethics can unify the sector. Nevertheless the thesis is intriguing and further thinking on whether and how ethics could refocus and unify the nonprofit sector makes sense given the sector’s growth and diversity. The book also has a practical use, accurate and timely case studies that practitioners and teachers can use to illustrate issues and work through ethical dilemmas.
White’s argument is brief. He writes that the government’s purpose is “. . . to provide for the general welfare without infringing on personal liberties” (White, 2010, p. 187); and commerce’s purpose is “. . . to generate economic stability and wealth through the exchange of products and services” (White, 2010, p. 187); while the nonprofit sector’s purpose is “. . . to uniquely serve society with love” (White, 2010, p. 2). White correctly identifies the nonprofit sector as the sector that “catches” any organization that does not fit into government or commerce and correctly identifies this as a problem, a problem he wishes to solve by focusing the sector on ethics.
The author concedes that nonprofits have a long way to go to claim this moral high ground and cites many examples of the illegal and unethical activities of the sector throughout the book. Two chapters with the following titles, “The Perils of Profit-Making in the Nonprofit World” and “Do Some Charities Want Too Much?” summarize one major ethical challenge: greed. Two main categories of greed are outlined: board members who fail to exercise due diligence in financial matters and CEOs and board members who profit from relationships that are, in reality, a conflict of interest.
White begins with the now infamous Aramony scandal that brought to public light a board’s failure to exercise due diligence by paying an excessive salary and a CEO’s conflict of interest by using the power and money of the United Way for personal gain. Other examples include Peter Diamandopoulos, President of Adelphi University, and Lawrence Small, Executive Director of the Smithsonian, who spent their organization’s resources on themselves and were excessively compensated by their boards. While these three examples cite the greed of paid leadership, Bernard Madoff and J. Ezra Merkin demonstrate nonprofit board members’ ability to use their governing powers for personal financial benefit. Madoff and Merkin, as board members of Yeshiva University, invested in a hedge fund, Ascot Partners. Merkin then placed all of the fund’s money with Mr. Madoff, who we now know was employing an illegal Ponzi scheme to inflate earnings. When the bogus investments were uncovered, it was estimated that Yeshiva University lost US$110-million. According to Gose of the Chronicle of Philanthropy, most of that total represented “fictitious” gains (Gose, 2009, p. 21). Nevertheless, Merkin and Madoff benefited from the investment as long as the ruse was hidden.
Another example of opportunistic greed—that does not focus on board due diligence or conflict of interest—is the Salvation Army’s court battle with Greenpeace over the Di Stefano bequest. Doris and Hector Guy Di Stefano left a bequest of US$264 million to eight charities and indicated that the charities should divide the money evenly. Greenpeace International, in the meantime, had been absorbed into the Greenpeace Fund, so the Salvation Army argued that Greenpeace International no longer existed and therefore the bequest should be divided between the seven remaining charities. An out-of-court decision was made awarding the Greenpeace Fund US$27 million, therefore adding US$857,143 to the US$33 million share of the other seven nonprofits. Teachers using these examples as case studies would need to clarify illegal activity, ethical breaches, and ethical dilemmas; distinctions between these activities are not defined in the book. The book is unclear about whether being ethical means being legal and avoiding obvious breaches, or whether it also means how an organization processes a dilemma when there are competing values.
White offers a brief ethical framework. His four ethical pillars are disclosure, transparency, avoidance of conflict of interest and oversight. White quotes Barry Barbash, the head of the SEC’s division of investment management, in his attempt to define disclosure of material terms: “If an 85-year-old person who is financially unsophisticated cannot understand your disclosure statement, then you haven’t disclosed anything.” (White, 2010, p. 155). White suggests that transparency be accomplished by putting financial information on the nonprofit’s web site so the public can view audits and campaign details as well as the IRS Form 990. Except for smaller nonprofits where the organization may require the paid expertise, service, or product of board members, White further suggests a strict adherence to disclosing conflicts (this is required by the new 990 form) and adopting a policy of not paying for a board member’s professional expertise or for the services or products of their business. Oversight means that board members show up for meetings, are prepared, ask good questions, and take their responsibilities seriously. White goes on to suggest that each organization write a code of ethics using the Independent Sector’s (2011) Principles for Good Governance and Ethical Practice as a model. Writing an organizational code of ethics would prompt a discussion about how to build trust between boards, employees, employers, volunteers, donors, businesses, other nonprofits, government, and society. This exercise and the ensuing document would promote the ethical culture necessary to prompt business and government to turn to the nonprofit sector for ethical leadership.
In the Aramony, Diamandopoulos, and Small cases, these strategies would have saved the organizations from their ethical and legal blunders. It is not clear how the pillars would have prevented the Salvation Army from trying to obtain Greenpeace’s share of the bequest and the author does not elaborate. Neither is it clear how the pillars would assist in ethical dilemmas where the pillars or other ethical standards conflict. When transparency and oversight cannot both be upheld, how would White suggest a board determine the best action? Personnel, donor, client, and contract issues often raise these dilemmas.
While White’s suggestions support and add to the growing literature on ethical standards and questions, the nonprofit sector actually serves as the ethical sector in ways that the book fails to mention. These aspects are less related to how the sector does its work (disclosure, transparency, avoidance of conflict of interest, and oversight) and more tied to what the sector has accomplished. Without nonprofit health organizations, polio might still be rampant and AIDS a death sentence. Hospice changed the culture of dying and advocated and won insurance coverage for home health care. Nonprofit civil rights organizations ended many forms of segregation and inequality. Nonprofits serving the disabled and their families led to deinstitutionalization, community integration, and building code changes. These fulfillments of nonprofit mission statements and goals form a solid foundation for White’s vision of the nonprofit sector as the ethical sector. Although the people and the organizations that accomplished these missions and goals may be flawed, they have succeeded in changing and improving society.
While there will likely always be ethical breaches in all sectors of society, the nonprofit sector can build on its ethical history of diminishing hunger, curing disease, increasing human rights, and improving the human condition. The book pushes us to think how the means of accomplishing these missions (disclosure, transparency, avoidance of conflict of interest and oversight) could also unite us as a sector and be used as a model by government and business. Unfortunately, this book does not provide readers the path to go from thought to action and help society create more ethical organizations.