Ethical Challenges for Non-Profits - Research Paper Example

? ETHICAL CHALLENGES FOR NON-PROFITS (Compensation for its Executives) ID Number: of Name of School (University) Address of the School Estimated Word Count = 1,620 Date of Submission: March 15, 2012 ETHICAL CHALLENGES FOR NON-PROFITS Introduction The group of nonprofit organizations that are involved in certain advocacies in helping out to improve society form the so-called third sector, after the government and private sectors. They form the third leg of the triumvirate in the betterment of society but as nonprofits, they are not subject to the usual measures or criteria with regards to performance evaluations. In this line, they are mostly in the gray areas of governance, so to speak. These organizations perform a vital function and oftentimes subject only the guidance of their benefactors. Their workers fight many fronts, in diverse fields, such as helping eliminate racial discrimination, poverty, diseases, hunger and political persecution, for example. They provide an important service which is often not very much appreciated and in many instances, overlooked because they work without much fanfare. A good example are religious organizations which provide food or soup kitchens, helping homeless people get a warm meal in the middle of winter. Their efforts cannot be underestimated for they fill in the gaps where the government and the private sectors fail at times. By working and aiding the marginalized sectors of society, they provide hope and meaning to many lives. There are many pitfalls and benefits to capitalism but one of the most egregious failures is that certain sectors of society can get left out. Globalisation has been increasing due to the big innovations in communications and technology which helped move people, goods and services much easier worldwide, as shown by higher flows of capital in foreign direct investments (FDI) but one drawback is that in some instances, some people ended up poorer instead of being richer. People with conscience are rightly concerned with this inequality and this gave rise to corporate social responsibility (CSR) and this paper takes a deeper look at one aspect of this issue. Discussion Corporate social responsibility had become a buzzword in business sectors because it is now considered a part of doing business; it is one form how an economic entity gives back to the community which has sustained it and is now generally conceded a part of continuing success. A good number of big or global organizations have adopted CSR as a part of their business model. It is now an integral part of doing business, and in this connection, many of them had developed their own models of doing so. The lofty goals of CSR evolved from its own attempts of having a good code of ethics in the wake of some previously questionable business practices; the goals are intended to make a company compliant with legal regulations, ethical and moral standards, and a good way to practice and embrace generally-accepted international norms of doing business. The prevalence of CSR today had been partly due to the active advocacies of nonprofit groups in the prior years which are now bearing the fruits of their work only today. A good CSR policy put in place guides the firm in making the best decisions for all stakeholders involved. A business firm can opt for several modes in how to go about implementing its CSR but three forms have been suggested within the context of this issue in which there are some nagging concerns on how best to execute a CSR policy in view of their profit motives as for-profit firms. A key issue involved is one of costs, in which funds and resources devoted to this policy can be evaluated in terms of their efficiency and effectiveness. Activities and funds related to CSR must be maximized and the three options are to contribute (giving to charitable or nonprofit groups), to collaborate (by working closely and partnering with a chosen nonprofit organization) or lastly, to just build up an in-house program precisely for this purpose (Husted, 2003, p. 1). Accounting, measuring and evaluating CSR activities of for-profit organizations can be quite straightforward although there might be some occasional problems. A big issue when doing the effectiveness of corporate social responsibility activities is how to measure them effectively. The performance of executives in for-profit entities can easily be measured by concrete data, like their profits or bottom line. Bonuses, incentives and stock options are closely tied to performance as measured by such key areas like profits, market share, price per share, etc. but this is usually not the case when it comes to nonprofit organizations. There are no such objective criteria to be measured against executive performance but in some fuzzy concepts like what was their original goals, expectation and desired outcomes were. (Callahan, 2007, p. 1). Performance is gauged by a particular social project and considered in context where there are no clear-cut measurements. A desired feature for them are instead flexibility in terms of innovation and modification. Ethical Challenges – the inherent nature of the work of nonprofits makes it difficult to develop an objective set of criteria by which to measure the performance of its executives. This has been a long-standing quandary because the lack of key performance areas (KPA) can hinder an objective evaluation as to how the donated funds are used and whether employed as intended. The success of a non-profit organization is largely determined by the type of advocacy work it is doing, but even then, it is quite hard to give exact measures of performance. In this regard, it is a bit better to measure them not exclusively by their end results but also by other criteria, such as a thorough evaluation from their process and progress viewpoint (ibid.) because most of programs they had embarked on are on-going projects, sometimes with very long-term perspective before any results can be discerned or ascertained; success can be measured by desired outcomes. Strategic Planning – one way to achieve the mission and vision of nonprofits is to have a clear articulation of its goals right from the start. What the organization needs the most (both in internal and external resources), the issues to be tackled, what time frames and respective roles (Allison & Kaye, 2005, p. 25) each segment will play in the fulfillment of its advocacy. A big or crucial part of this planning process is how to source funds and how to spend these funds through a workable and realistic budget that will accomplish its stated objectives. The dependence of the nonprofits from donations and largess makes it imperative for them to employ funds efficiently. The difficulty of fund sourcing activities makes that mantra more pressing, complicated by a bad economy in which donors now require stricter standards by means of a good evaluation. A thorny point on most nonprofits is the issue of executive compensation of key people who work for the organization but whose performance is difficult to measure. The key question: “how much is too much” or “how much is enough” bugs most nonprofits with no clear answers. The complexity of this problematic issue is illustrated by the case of the Howard University, that is a nonprofit educational institution but somehow managed to give out substantial bonuses to its four key executives. This financial gesture was given at a time when ordinary staff were out on a six-day furlough per year in order to help the school conserve funds (Holcombe, 2012, p. 1). It is the height of insensitivity to give bonuses to a few select executives while staff were suffering. A response the university administration gave was the supposed justification to maintain its senior leadership in key or critical areas with an end view of mitigating any potential risks to the school, whatever that means. Unlike the doctor whose incentive was performance-based, three of them got huge bonuses predicated on this vague criteria which nobody seems to understand at all. Effects of Ethical Challenges – the example of Howard University can have dampening effects on the generosity of some donors, when they see how questionable practices can become. It has a demoralizing effect also on the level of motivation of the school workers who were not given a bonus, when they were made to go on furloughs with the resultant reduction in pay. The act, even if explained and justified by the administration, may fall on deaf ears and border on the incredible and unbelievable, because it was done during a difficult time of the economy. Donors would be hesitant to sponsor other school programs when much of the money went to just a few selected people. It seems to be an unethical move by the school administration. Recommendations – nonprofits can learn from professional sports organizations which have substantial experience with regards to executive pay and compensation caps. Executive pay can be a major issue for stakeholders, especially when their pay can reach stratospheric heights, as exemplified by the ridiculous salary of the chief executive at Volkswagen, whose pay doubled last year, although it still lags behind the pay of American executives (The Guardian, 2012, p. 1). This might be understandable as it is pay-for-performance, not unlike that in major sports teams (Dietl, Duschl & Lang, 2011, p. 1). Nonprofits can likewise adopt a similar pay scheme but they should develop evaluation sets because most nonprofits fear evaluation that might be negative. Conclusion At a time when there is increased scrutiny of nonprofits, the best way forward is to use transparency and feedback mechanisms as core values because there are no clear standards in the evaluation of how effective they are. Limiting executive compensation is the price of doing good but rewarded in terms of funding and trust from donors (Frumkin & Keating, 2010, p. 1). Getting a lesson from sports leagues can be useful, such as salary caps (Slack & Parent, 2005, p. 216). Reference List Allison, M. & Kaye, J. (2005). Strategic planning for nonprofit organizations: a practical guide and workbook. Hoboken, NJ, USA: John Wiley & Sons, Inc. Callahan, S. (2007). “How to end the evaluation tug of war.” The Chronicle of Philanthropy, 19(12). Retrieved March 13, 2012 from http://philanthropy.com/article/How-to-End-the-Evaluation-Tug/54822/ Dietl, H. M., Duschl, T. & Lang, M. (2011, August). “Executive pay regulation: What regulators, shareholders and managers can learn from major sports leagues.” Abstract. Business and Politics, 13(2), 1-30. Retrieved March 15, 2012 from http://www.degruyter.com/view/j/bap.2011.13.2/bap.2011.13.2.1357/bap.2011.13.2.1357.xml Frumkin, P. & Keating, E. (2010). “ The price of doing good: Executive compensation in nonprofit organizations.” Policy and Society, 29(3), 269-282. Retrieved March 14, 2012 from http://www.mendeley.com/research/the-price-of-doing-good-executive-compensation-in-nonprofit-organizations/ Holcombe, R. (2012, March 8). “University responds to outcry against 2010 bonuses to staff.” The Hilltop. Retrieved March 14, 2012 from http://www.thehilltoponline.com/news/university-responds-to-outcry-against-2010-bonuses-to-staff-1.2710961#.T2GNHsXxqHg Husted, B. W. (2003, October 5). “Governance choices for corporate social responsibility: to contribute, collaborate or internalize?” Abstract. Long Range Planning, 36(5), 481-498. Retrieved March 12, 2012 from http://www.sciencedirect.com/science/article/pii/S0024630103001158 Slack, T. & Parent, M. M. (2005). Understanding sport organizations: The application of organization theory. Champaign, IL, USA: Human Kinetics. The Guardian. (2012, March 12). “VW doubles chief executive's pay.” The Guardian, UK. 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