Stanford Social Innovation Review: Ethics And Nonprofits

Ethics and Nonprofits
By Deborah L. Rhode & Amanda K. Packel

Stanford Social Innovation Review Summer 2009
Copyright © 2009 by Leland Stanford Jr. University All Rights Reserved

Stanford Social Innovation Review 518 Memorial Way, Stanford, CA 94305-5015 Ph: 650-725-5399. Fax: [phone] Email: [e-mail], www.ssireview.com

28

STANFORD SOCIAL INNOVATION REVIEW • Summer 2009

Ethics Nonprofits
By Deborah L. Rhode & Amanda K. Packel

and

|

Illustration by Richard Mia

Unethical behavior remains a persistent problem in nonprofits and for-profits alike. To help organizations solve that problem, the authors examine the factors that influence moral conduct, the ethical issues that arise specifically in charitable
The Red Cross, however, set aside more than half of the are unlikely to affect corporate policies. Our view, however, is that $564 million in funds raised for 9/11 for other operations and future symbols matter, and that similar divestment decisions by large instireserves. Although this was a long-standing organizational practice, tutional investors can sometimes influence corporate conduct. Hyit was not well known. Donor outrage forced a public apology and pocrisy, as French writer François de La Rochefoucauld put it, may redirection of funds, and the charity’s image was tarnished.23 be the “homage vice pays to virtue,” but it is not a sound managerial As the Red Cross example demonstrates, nonprofits need to pay strategy. To have one set of principles for financial management and particular attention to transparency. They should disclose in a clear another for programmatic objectives sends a mixed moral message. and non-misleading way the percentage of funds spent on adminis- Jeff Skoll acknowledged as much following his foundation’s support trative costs—information that affects many watchdog rankings of of Fast Food Nation, a dramatic film highlighting the adverse social nonprofit organizations. Transparency is also necessary in solicita- impacts of the fast-food industry. “How do I reconcile owning shares tion materials, grant proposals, and donor agreements. Organizations in [Coca-Cola and Burger King] with making the movie?” he asked.26 cannot afford to raise funds on the basis of misguided assumptions, As a growing number of foundations recognize, to compartmentalize ethics inevitably marginalizes their significance. About a fifth of or to violate public expectations in the use of resources. institutional investing is now in socially screened funds, and it is by Financial Integrity. Nonprofit organizations also face ethical dilem- no means clear that these investors have suffered financial losses as mas in deciding whether to accept donations that have