Rushworth kidder universal human values

Ethical And Legal Issues

NEW DIRECTIONS FOR PHILANTHROPIC FUNDRAISING, NO. 45, FALL 2004 © WILEY PERIODICALS, INC.

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Given increased public scrutiny of nonprofit ethics, foundations need to communicate their core values more explicitly. A code of ethics is a necessary begin- ning and an essential decision-making tool for managing philanthropy’s toughest choices.

7 Foundation codes of ethics: Why do they matter, what are they, and how are they relevant to philanthropy?

Rushworth M. Kidder

IN THE FOUNDATION community, three questions should underlie any discussion of codes of ethics: Why do they matter, what are they, and how are they relevant to philanthropy?

First, they matter very little if they only hang on walls and do not determine action. Second, they are not worth the paper they are written on if they are platitudinous, verbose, unmemorable, or indis- tinguishable from an organization’s other statements about vision, mission, strategy, specific conduct, or rules and regulations. Third, they are stunningly irrelevant unless they provide real-time guid- ance to decision making in the tough world of philanthropic choices.

The need for such guidance dawned on the trustees of the Treer Family Foundation (not its real name) not long ago as they sat

Note: The case in this chapter was written by Diane Neimann for the Council on Foun- dations Family Foundations Meeting, New York, February 9, 2004, and distributed by the Institute for Global Ethics.

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around their boardroom table. Judging by their faces, one of their longest-standing grantees, the Community Health Clinic, was in serious trouble. The trustees of the foundation, the leading phil- anthropic resource in the small city it served, were listening intently to a report about the clinic from their senior program officer, Charlene.

The clinic, a well-known local institution, was the sole source of health care services for the area’s migrant population. As an organi- zation serving impoverished outsiders, it regularly struggled to break even. Over the years, it had depended heavily on Treer, and the foundation had been happy to continue supporting its good work.

At Charlene’s request, however, clinic staff had provided detailed (although as yet unaudited) financials for the current year. Look- ing at them, Charlene spotted some puzzling figures that, as she worked with an accountant from the Treer family office, grew into a major financial discrepancy. Alarmed, the two of them followed the trail, only to have it lead to what looked like some serious self- dealing at the clinic. The issue centered on two members of the clinic’s board of directors, who seemed to have deliberately steered lucrative contracts toward firms in which they had significant per- sonal and financial interests.

Hearing Charlene’s report, the trustees were divided about what to do. To disclose the self-dealing publicly could have the effect of closing down the already shaky clinic, which had no natural con- stituency in the community to speak up in its defense. The result- ing impact on the health and well-being of migrant families and children could be severe. One trustee, Tom Treer, argued strongly against public disclosure. He pointed out that Charlene’s informa- tion had not come from an audit but from the foundation staff. He also noted the inherent unfairness of penalizing an entire organi- zation, and the community it served, rather than targeting the two errant board members for punishment.

But his sister Sally, the board chair, argued that the foundation had a responsibility to other donors who followed its lead. With its commanding size and distinguished history, Treer was seen, rightly or wrongly, as providing assurance about the quality and responsi- bility of the organizations it funded. It was assumed that a grant

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from Treer constituted a kind of imprimatur, approving the grantee and promising some oversight of its operations. While Sally did not relish that role for the foundation, she accepted it as a fact. She therefore argued that to preserve the foundation’s integrity, as well as to protect other donors from supporting organizations with seri- ous ethical challenges, the wrongdoers at the clinic should publicly be held accountable, and the major grant should be withheld.

The issues facing the trustees of Treer revolved around the need to choose between two courses of action that were both morally right: between Tom’s sense of compassion and Sally’s sense of jus- tice, his focus on immediate needs and her concern for long-term implications. Such a standoff between competing principles char- acterizes much of what happens in the foundation community, where finite resources constantly compel difficult up-or-down choices among excellent proposals, programs, or personnel. These are the toughest ethical decisions that individuals or organizations can face, where the choice lies not between right and wrong but between right and right.

How is this relevant to a code of ethics? The guidance behind both kinds of choice comes from something akin to a code of ethics—a statement of shared values that can usefully be applied to decision making. For an individual, the guidance may derive from core principles of character; for an organization, it may arise from long-standing standards and practices. Behind each lies a core of widely shared moral values.

Recent events in the field of philanthropy reveal the need for such values, particularly in issues dealing with right and wrong. News accounts about self-dealing at some of the nation’s little- known foundations paint brazen portraits of private fiefdoms run by family members who view the foundation’s wealth as still their own—despite the fact that the family took significant tax deduc- tions during the transfer. Meanwhile, stories about excessive perks and lavish spending at some larger foundations are stirring demands for greater self-regulation and stronger government over- sight of philanthropy. That is not surprising. In today’s general cli- mate of distrust of organizational integrity—evidenced in corporations, government agencies, sports organizations, schools,

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churches, and the nonprofit world—foundations too are being held up for closer inspection. There are ever louder calls from philan- thropy executives and outside observers for foundations to pay seri- ous attention to these right-versus-wrong issues—and, in response, a new $2.9 million initiative, announced early in 2004, from the Council on Foundations to help foundation professionals adopt ethical standards. Increasingly, foundation watchers are recogniz- ing that foundations need to ensure, more self-consciously than ever before, that their ethical barometers are not falling into neg- ative territory.

Important as that work is, right-versus-wrong issues are not the ones that most frequently face foundation executives and trustees. The persistently tough questions usually fall into the right-versus- right category, as they did at Treer. To be sure, a right-versus-wrong problem involving serious conflicts of interest had generated the trustees’ dilemma. But the trustees themselves had done nothing amiss and were not subject to temptation. Their task was not to cor- rect their own wrongdoing but to find the proper response to the wrongdoing of others. Their need was to sort out an issue where each side laid legitimate claim to the moral high ground, but where both claims could not be honored at the same time.

In these two sorts of situations—right-wrong and right-right— codes of ethics can play crucial roles. A right-versus-wrong temp- tation, by definition, involves a tension between one course of action in keeping with a set of values and another wholly at odds with those values. In that case, an application of the principles, val- ues, and moral standards articulated in a code of ethics can help alert the unwary to moral hazards, steer action away from the lure of wrongdoing, and build recognition of the need for right-doing.

Right-versus-right dilemmas, by contrast, involve a tension between two powerful values that may both be on the code of ethics. Tom Treer’s view focused on dignity and respect for those who (as the “Values” statement from the W. K. Kellogg Founda- tion puts it) “are most vulnerable in society.” His sister’s position centered on the integrity of the foundation and the grant-making process, squaring with what the David and Lucile Packard Foun-

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dation’s “Values Statement” describes under the heading of “Integrity” as the need to “encourage the highest possible standards of conduct and ethics.” Both sides are right. But how the trustees negotiate their way to a choice between the two poles of this dilemma—or, better still, find a trilemma option or middle ground partaking of the best of both sides—may well depend on the guid- ance they can derive from the long-standing ethical traditions and practices of the foundation.

Such traditions were an essential ingredient when, several years ago, the staff of the Charles Stewart Mott Foundation in Flint, Michigan, began creating its code of ethics. As they did so, they found themselves in uncharted waters. “Ours was one of the early ethics statements,” recalls Phillip H. Peters, vice president of the administrative group and secretary-treasurer of the foundation.

With few other foundation codes to use as models, they turned to the foundation’s internal documents. Ethics has been “part of our doctrine here for years,” says Peters, part of the three-person drafting team that also included the foundation’s counsel and a pro- gram officer with strong writing skills. “So it was not that difficult to come up with a statement. Our biggest problem was to keep it concise and simple.”

The resulting document fits on a single page. Telegraphing the foundation’s ethical traditions, it leads with a quotation from its founder, C. S. Mott, noting that “every person, always, is in a kind of informal partnership with his community.” It continues with a summary, short enough to be memorized and focused on three key moral values: “Respect for the communities we work with and serve; Integrity in our actions; [and] Responsibility for our deci- sions and their consequences.” It then fleshes out that summary with eight commitments:

• We are committed to act honestly, truthfully, and with integrity in all our transactions and dealings.

• We are committed to avoid conflicts of interest and the appropriate handling of actual or apparent conflicts of interest in our relationships.

• We are committed to treat our grantees fairly and to treat every indi- vidual with dignity and respect.

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• We are committed to treat our employees with respect, fairness, and good faith and to provide conditions of employment that safeguard their rights and welfare.

• We are committed to be a good corporate citizen and to comply with both the spirit and the letter of the law.

• We are committed to act responsibly toward the communities in which we work and for the benefit of the communities we serve.

• We are committed to be responsible, transparent, and accountable for all of our actions.

• We are committed to improve the accountability, transparency, ethi- cal conduct, and effectiveness of the nonprofit field.

Discussions of early drafts with trustees and staff focused on tightening the language, removing redundancies, and making sure nothing had been overlooked.

Has it made a difference? “I think it’s done more externally than internally,” says Peters. Internally, he said, the ideas were already “ingrained in our philosophy.” They have also found expression in a more detailed document titled “Grantee Ethics,” a kind of code of conduct for staff-grantee relations. Externally, however, the doc- ument has been held up as an example by the Council on Founda- tions and the Council on Michigan Foundations. Now, says Peters, “people look to us for leadership in this area.”

That ability to communicate internally and externally is one of the principal attributes of a good code. Typically, codes operate in three ways. First, they reflect the moral history of the organization. The most effective codes do not spring into being ab ovo. Instead, they recognize and formalize the elements of ethical concern and the patterns of values-based decision making that have grown up over time in the organization. For that reason, organizations emerging from serious ethical disarray often find that merely adopting a code of ethics is of little help. For that reason, too, orga- nizations with strong ethical traditions find that building a code of ethics is simply one step toward a successful ethics program.

Second, codes define an organization’s shared moral values in succinct, nonspecialist language. Those values typically bear close resemblance to the five shared values—respect, responsibility, hon- esty, fairness, and compassion—that the Institute for Global Ethics

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finds are common to cultures everywhere around the world. These values tend to be more aspirational than descriptive, telling us more about the direction the foundation wishes to go than the place it already occupies. When the Charles Stewart Mott Foundation, for instance, lists “respect” as a key element of its code, it lays no claim to perfection. It holds out no guarantee that its staff will never be accused of disrespectful behavior. But it does undertake to put respect in a priority position and strive toward ever-higher expres- sions of that powerful value.

Finally, codes communicate those values both internally and externally. They speak to both the users within the foundation, who turn to them for guidance, inspiration, or justification, and to onlookers from outside, who seek assurance that the foundation not only cares about ethics but is willing to commit to a public stand for right. Communicating that commitment may be as simple as a posting on a Web page or as robust as a laminated wallet card accompanying a new-employee orientation session and an ongoing training program. Either way, the language of the code is of crucial importance. Codes that bristle with extensive and proscriptive reg- ulations find little readership beyond those called on to enforce them. By contrast, codes that speak in ordinary language, organized in logical patterns and with a memorable message, can have wide- reaching impact. Communication is crucial: a code uncommuni- cated is tantamount to no code at all.

If the Treer trustees had had a code of ethics in place, would they have deliberated any differently about their dilemma? Maybe not. If the trustees had a long tradition of probing ethical discourse at their meetings—or if, by contrast, they had no understanding of the ethical dimensions of their behavior and no interest in devel- oping it, a code alone might have made little difference. But few boards live at these extremes. Most operate in a middle range where they have some experience with ethical issues and realize the importance of ethical decision making but need tools and frame- works for moving forward.

A code of ethics provides rudimentary tools and frameworks. At the very least, it should help Tom recognize that Sally’s position is, like his, highly ethical and help her do the same for him. After all,

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each can trace the other’s views directly back to statements in a code that was agreed on by the board in quieter and more reflec- tive moments and that commits the trustees to seeking guidance in a fully rounded set of ethical values.

The following points are useful in building a code of ethics:

• The best code is a brief code. It should be crisp, concise, portable, even memorizable.

• A code of ethics is a statement of shared moral values. It should articulate general principles, without trying to cover every exigency that might arise.

• Ethics has been described as “obedience to the unenforce- able.” Law, by contrast, is eminently enforceable. A code of ethics provides broad guidelines, not narrow regulations. It should not read like a set of ordinances or require legal expertise to interpret.

• A code of ethics should be positive, not negative. It should address commitment to honesty, for example, rather than intoler- ance for dishonesty. Resist off-putting proscriptions and school- marm hectoring.

• Codes are not mottos meant to market ideas in catchy sound bites. They are not mission statements that define future objec- tives. They are not vision statements articulating lofty ideals worth striving for but rarely reached. No code should carry more than it can bear.

• For the broadest buy-in, the code of ethics should focus on universal values such as honesty, responsibility, respect, fairness, and compassion. It should not be a statement of organizational strategy. Save such words as learning, results, personnel, flexibility, and focus for other foundation-generated documents accompanying the code and addressing commitment to standards of best practice. Again, let the code be just the code.

• A code of conduct is a useful adjunct to a code of ethics. Codes of conduct can be quite specific, discussing self-dealing, nepotism, trustee compensation, conflict of interest, transparency, donor intent, and other foundation-specific issues. Consider having both.

• Building a code is more important than having a code. A code of ethics requires revisiting, so that new staff and trustees feel as

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passionate about it as those who put it together. Having a simple training program, and designating someone to pay special atten- tion to ethical issues, can help ensure its ongoing effectiveness.

• An effective code should be user-friendly internally and appealing externally. The test of a good code is not that it sits on a Web site or hangs on the wall but that it changes behavior inside the foundation and among grantees, nonprofits, and the field of philanthropy.

In a world in which discourse is increasingly polarized by extremist views and in which argumentation is sometimes seen as a blood sport where victory goes to those who utterly destroy the opponent, a code of ethics provides a moderating influence. The ability of trustees to find common ground even as they disagree forcefully helps ensure that discussion does not descend into rant, that professional differences do not turn into personal animosities, and that a compromise on policy is not seen to be a cave-in on val- ues. As John F. Kennedy (1956) observed about real-world debates, there are “few if any issues where all the truth and all the right and all the angels are on one side” (p. 5). As issues heat up around the boardroom table, a good code of ethics helps remind us of that fact.

Reference Kennedy, J. F. Profiles in Courage. New York: HarperCollins, 2000. (Originally

published 1956.)

rushworth m. kidder is president of the Institute for Global Ethics in Camden, Maine.