Transcript Leadership, Governance and Giving

Regulation, Ethics and
Philanthropy
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The following material was prepared for the AFP
Research Council Think Tank held February 3-4, 2011
and two preceding webinars.
The Research Council is indebted to a generous grant
from the Edyth Bush Charitable Foundation to the AFP
Foundation that made it possible to convene nationally
recognized presenters for the 2011AFP Think Tank.
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Moral Courage and Ethical
Fundraising
Rushworth Kidder, Ph.D.
President and Founder
Institute for Global Ethics
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Build Ethical Fitness ®
• Core shared values
• Ethical decision making
• Moral courage
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Kidder’s Five Core Values
Ethics
• Respect
• Compassion
• Honesty
• Fairness
• Responsibility
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•
•
•
•
•
Five Tests for Ethical Decision
Making
Is it legal?
Does it conform to government
regulations?
Does it pass the “stink test?”
Would you want your decision to
appear on the front page of the
newspaper?
What would Mom (or Dad) think?
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Moral Courage
“the willing endurance of significant
danger for the sake of principle”
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Moral Courage
Values
Danger
Endurance
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Preventing and Managing Director
Conflicts of Interest
Melanie Leslie
Professor of Law
Benjamin N. Cardozo School
of Law, Yeshiva University
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As of taxable year 2008: all conflict of
interest transactions must be
disclosed on tax return
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The IRS will presume that the
transaction is good for the
corporation, if:
• Transaction approved by a majority of
independent board members (or a committee
of the board)
• Those approving relied on appropriate data,
and
• There is adequate documentation of the basis
for the decision
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Most state laws
Standard:
• advance approval
• by majority of disinterested directors
• after full disclosure
Transaction is “fair”
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Who’s Watching?
• Legal Guidelines
–State Law
–Internal Revenue Code
• Public Perception
–Reduced public support
–Damage to reputations
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Bullet-proof Approach
Safest Course of Action: Avoid transactions in
which board members might obtain a benefit,
either directly or indirectly.
–Require board members to disclose
conflicts
–Structure transactions to eliminate
conflict
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Second Best Approach: Sound
Procedure
1) Bring it to the full board
2) Full disclosure of the conflict and the terms
of the deal
3) Is this deal the best deal?
--Do we need this quality of good or service?
--Is the price better than we could obtain on the
market?
4) Document!
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Government Regulation and
Ethical Fundraising
Mike DeLucia
Trustee, The Agnes Lindsay Trust
Former Director of Charitable Trusts,
New Hampshire Attorney General’s
Office
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Framing the Issues
• Needed: both effective regulation
and greater self-regulation
• Needed: greater collaboration
between regulators and the
nonprofit sector
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Government Training for Nonprofits
Examples:
• Webinars on state regulations developed by
state attorneys general
• Governance Checklist (Part VI (Governance)
of IRS Form 990
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Four Major Trends in the
Charitable Sector
1) Proliferation of charities
Registered with the IRS – 501(c)(3) entities
1940
12,500
1980
320,000
1996
654,186
2007
1,128,367
In 2007, IRS approved 68,278 new 501(c)(3) entities
Impact on: (i) fundraising; (ii) regulators; (iii)
duplication of services; (iv) quality of boards/fiduciary
duties
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Four Major Trends in the
Charitable Sector (cont’d)
2) Increased scrutiny by regulators and the
media
•
•
•
•
Internal Revenue Service: Form 990, governance
Attorneys General: fiduciary duties, excessive
compensation
U.S. Senate Finance Committee: governance,
accountability
House Committee on Government Oversight:
professional fundraisers
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Four Major Trends in the
Charitable Sector (cont’d)
3) Persistence of fraud and embezzlement
Fraud may be easier to perpetrate in nonprofits
due to:
• atmosphere of trust
• weak internal controls
• lack of financial expertise
• reliance on voluntary boards
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Four Major Trends in the
Charitable Sector (cont’d)
4) Movement toward self-regulation
• Independent Sector’s Report to Congress:
Strengthening Transparency, Governance,
Accountability, June 2005
• New Hampshire’s model: Collaboration among
regulators, nonprofits, CPAs
• AFP’s Code of Ethical Principals and Standards
and ethics enforcement
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For more information
• Kidder, Rushmore, Moral Courage, Institute for Global Ethics,
2005.
• Ethics Newsline® , free on-line weekly ethics newsletter,
www.globalethics.org.
• Pribbenow, Paul, Notes for the Reflective Practitioner, free
bimonthly on-line newsletter, [email protected].
• Pettey, Janice Gow (editor), Ethical Fundraising: A Guide for
Nonprofit Boards and Fundraisers, Wiley, 2008.
• DeLucia, Michael, “Preventing Fraud: From Fiduciary Duty to
Practical Strategies” New Hampshire Bar Journal,
www.nhbar.org/uploads/pdf/BJ-Fall2008-PreventFraud.pdf.
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What shall we do?
Our work at the intersections of ethics,
law and regulation
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The map of our work together
• Use the cases as a
common focus and a
jumping off point for
reflection
• Identify the “is” and
the “ought” – what are
the opportunities and
gaps?
• Discuss how we
(individually and in
common) might
respond
Case study analysis
• Begin by reading the case
• Make sure the facts make sense
• What else is important about the situation
described? Missing context, implications,
what else do I need to know? Feel free to
embellish!
Then on to analysis...
• Given the issues raised
by the case, what are
the points of
contention?
• Relationships, values,
power dynamics, the
nuances of real life, etc.
• What is our ideal state
re: these issues?
Our findings
• Based on our analysis, what are the
conclusions we begin to draw about the
ethical, legal and regulatory issues related to
our work?
• Be expansive in these findings. What are we
up against as we do our professional work in
these sorts of situations?
What to do?
• Based on findings,
begin to explore
potential next steps.
• What can I do? What
can we do together?
What is the role of our
associations?
• How might we realize
our aspirations?
Case Study 1: A Particularly Challenging
Monday
This case relates to two letters received by Bill, a new
development officer with an arts organization.
• 1) An event planner notifies him that she will be
charging the nonprofit a finder’s fee for a sponsorship
she has secured for a dinner auction event to raise
money for the nonprofit.
• 2) A donor to his previous nonprofit notifies him that
she intends to change her will, removing a $100,000
bequest previously intended for his former employer
and substituting the organization for which he now
works.
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Case Study 2: Serving Two Masters: How
Should a Board Handle an Unusual
Conflict of Interest?
This case is about a board member of Friends of
Marine Animals (FOMA) who has been aggressively
trying to convince the rest of the board to support his
idea to focus solely on the plight of the manatees.
Frustrated by the continued lack of response from the
board, he has recently started a new organization –
Save the Sea Cows (SOSC), and he asks the FOMA
board to support it. The board is worried that his new
organization is a competitor that will draw on their
donors and volunteer base.
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Case Study 3: The For-Profit CEO Who
Wants to “Do the Right Thing”
In this case, a major national for-profit
corporation asks a professional to help it
create and maintain a new “Let’s Give Now”
feature on its website, in which 10 percent of
every purchase made on the website would
be given to a charitable cause. Consumers
would check a box allowing the corporation to
divide the contributions among a pool of 10
different charities, selected by the CEO of the
corporation.
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Next steps in three broad areas
• Education and formation – what might we do
to enhance the understanding and practice of
ethical fundraising?
• Management and leadership- what impact
might we have on organizational policies and
practices?
• Advocacy and public policy – how might we
influence the broader context for our work?