Ethical Concerns - Research Paper Example

Ethical Concerns “It takes twenty years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” Warren Buffet “The greatest threat to the not-for-profit sector is the betrayal of public trust, the disappointment of public confidence. Virtually all knowledgeable observers of the not-for-profit scene believe that an overwhelming proportion of not-for-profits are honourably run...that admirable context, however, does not provide much protection to the sector when a sequence of highly publicized disgraceful not-for-profit misdeeds occurs.” Joel Fleishman, Director of the Heyman Center on Ethics, Public Policy and the Professions, Duke University 1. Introduction Ethics play a vital part in the functions of any organization structured at any level. The impact of ethics is not felt at the organizational level alone but also affects society and community directly as well as other stakeholders. The level of ethical conduct is all the more important for nonprofit organizations as it serves as a cornerstone of their operational philosophy. A number of issues confront ethical conduct in nonprofit organizations at various levels that need to be looked into in order to assess the level of ethical conduct available. 2. Cooper’s Ethical Levels The work of Terry Cooper is often cited in the field of administration as per his attempt to bridge the gap between the philosophical aspects of ethics and its implementation. Although his work cannot be declared as watershed but it has become a focus for ethical decision making in administration. Cooper has delineated four distinct levels for ethical decision making. These levels are: Expressive Level: Within this level a person is expected to respond in a spontaneous and unreflective manner on an ethical issue. Level of Moral Rules: Within this level the person questions the ethical issue and looks for alternatives as well as consequences of actions. The response to ethical considerations is garnered under the influence of moral and ethical principles that have been acquired through socialization. Thus decision making on ethical situations is filtered through the lens of a personal ethical and moral bank. Level of Ethical Analysis: When situations arrive where the personal ethical and moral code seems insufficient and where the consequences of actions feel unjustified, the person is forced to examine their ethical and moral beliefs. At this level a person looks for alternative ethical and moral standards to augment their decision making and could be expected to disagree with prevalent moral and ethical standards. As a consequence of disagreement, the person may chose to become a whistle blower too. Post-ethical Level: At the post-ethical level, the person begins to question the view of the world and human nature. The reasons behind truth and life’s meaning are brought into question. The individual begins to examine the reasons behind ethical standards and their relevance to the world around them. As an individual moves progressively from one level to the next, the fundamental assumptions used to settle the decision making process are scrutinized in greater detail. The level of thinking used to make such decisions should be well comprehended and it must be ensured that the decision is strong and possesses a sense of public validity. [Coo98] 3. Ethical Problems in the Non Profit Sector The very identification of impropriety with philanthropic foundations and charitable organizations can cause major damage to reputation. The donations by the public to the nonprofit sector are intended for altruistic purposes only. The list of abuse of public money in the nonprofit sector ranges from misappropriation of funds for personal purposes to high levels of compensation for executives. [Gre04] Even though no sector can claim to be without scandals but scandals in the nonprofit sector have an instantaneous impact on the reputation. One of the gravest consequences of such scandals is massive media attention that is seen by the general public as a reflection of the nonprofit sector as a whole. Unethical behavior has numerous reasons for making the nonprofit community uneasy. While one aspect of such scandals is that public perception of the nonprofit sector deteriorates and public trust is lost, there are other more tangible costs as well. If unethical behavior is detected and identified in the nonprofit sector, the implications range from loss of public’s monetary support to governmental fines and penalties as well as chances for permanent dismemberment of the requisite organization. [Tho04] Another aspect of lost public trust is that it is hard to regain once it is lost. The gravest implications of this phenomenon are for the nonprofit sector because the nonprofit sector is largely based on monetary and other forms of support from the general public. The loss of contributors and clients to support a nonprofit organization may also signal its demise. The reasons for the occurrence of unethical behavior are an important aspect to analyze in such situations especially for the leaders of the nonprofit organization. There is dire need for upper level management such as the Board of Directors to be completely on board with the mission and culture of the organization. In case that the upper level management is either left out of the decision making process or fails to keep in touch with the key decision making processes, there are large chances that detrimental decision making would take place. The upper level management must exercise their powers to establish, implement and evaluate the organizational procedures and business ethics. [Jen04] The Board of Directors must also ensure that the organization is in line with regulations and laws and that the organization is being led by someone who has enough ethical standing to be an effective ethical administrator. [Mil031] Other than the internal control procedures put in place by organizations, a nonprofit organization must possess a strong code of ethics in order to create an ethical environment. The code of ethics must be propagated throughout the organization at all levels and must contain enforcement provisions that can be implemented and evaluated. The use of a proper code of ethics enables an organization to be self governing which in turn reduces the costs borne by the community. Moreover the code of ethics ensures that the organization can altogether avoid problems that would provoke governmental audits and inquiries. [Bri98] Ethical misconduct is greatly influenced by the ethical climate of any organization that is a poor ethical standard would lead to a compromise on ethics and vice versa. The leadership of the organization determines the level of ethical conduct directly at all levels within the organization. The ethical overtones for an organization are set up by the top executives and the ethical tones are filtered down to each appropriate leadership level in an organization. [Tho04] The executives in any organization represent important functions both in the daily activities as well as the long term projection of the organization. The imposition of ethical standards is up to the executives running an organization. The executives implementing ethical standards must themselves decide on a number of issues and balance certain priorities in order to maximize the ethical conduct of the organization. This is all the more important for nonprofit organizations where executives need to implement ethics in situations where friction may also be produced. A number of situations involving ethical decision making in nonprofit organizations is discussed below as viewed through the filter of Cooper’s ethical model. 3.1. Making Profits The primary objective of a NPO (non profit organization) is to produce enough liquidity to keep organizational objectives going. Generally the largest contributors to the organization are donors and contributors who provide liquidity to manage operations. Given also that the umbrella of NPOs covers a large domain, there are multiple points of views that need to be considered in order to make profits more ethical for NPOs. For organizations that are geared for purely humanitarian causes, there is the need for funds to manage routine operations as well as immediate responses such as in the wake of natural disasters. The routine operations comprise of costs such as human resources, physical resources, utilities and the like. A typical NPO should possess just enough funds to keep operations running smoothly. In case of emergencies it is common that NPOs raise awareness campaigns based on which donors and contributors increase their funding so that emergencies can be met with. It is up to the leadership of the NPO to ensure that large fiscal sums are not hoarded in any form such as liquid cash, investment holdings etc. because the presence of such surpluses is likely to encourage fraud and swindling. [Rob06] Though it is not illegal by any means for an NPO to possess large endowments but ethics dictate against such enterprise. As the NPO does not have any base level investors or other such concepts so there is little need to create large profits to pay off dividends of any kind. This furthers the basis for keeping profits at a minimal level that are just enough to keep the organization’s functions running. In contrasts, certain NPOs may possess complete business structure such as manufacturing, retail and sales. Again it may not be illegal to hold large profits but ethics dictate against such behavior. The leadership at the helm of affairs in such organizations should ensure that profits are kept at manageable levels. Moreover the Board of Directors as well as donors and contributors should ensure that a person with a strong ethical and moral standing is put in charge so that ethical business strategies are pursued. [Mil031] Often if the wrong kind of person is put in place, there are chances that the organization would be geared to make large profits which would be consumed using compensation policies within the organizational level. In terms of Cooper’s levels, the level of ethical analysis and moral rules should at least be observed by executives in NPOs to ensure that profits are kept at minimal levels. The use of the expressive level cannot be really justified as balancing profits for NPOs against expense is tough business. The constantly evolving nature of aid programs and other market forces mean that the executives in NPOs need to be on their feet to respond to incoming challenges and to keep profits just high enough to meet such challenges. 3.2. Balancing Multiple Stakeholder’s Interests Traditionally stakeholders were seen as people with an invested interest in an organization who would want the organization’s success in order to make their investments successful. [Ber991] However, of late the term stakeholder has come to encompass anyone whose support is essential to the success of the organization. [Fre83] This implies that stakeholders may be composed of individuals as well as groups with an interest in the success of the organization and may be placed anywhere in terms of interaction with the organization. A typical stakeholder mapping may include groups as diverse as the employees, community, shareholders, creditors, investors, government and customers etc. These groups can further be divided into primary stakeholders (who engage in economic and fiscal transactions with the organization) and secondary stakeholders (who do not have direct economic engagement but may be affected by the organization’s actions). [Shi03] In terms of the NPO structure, there are primary as well as secondary stakeholders who carry an interest in the organization. The primary stakeholders are directly affected by the actions of the NPO while the secondary stakeholders stand to be affected by the actions of the NPOs. Given the wide array of individuals and groups involved in the NPO operation structure, there is a constant need to balance the interests of multiple stakeholders. [Mic92] A typical NPO must balance the demands from its donors and contributors, its employees, communities being served and governmental agencies. In order to deal with these demands it is essential that the executives of a NPO place ethics at the forefront as a first line of defense. [Bou98] For example, a NPO such as an educational institution might have to balance the demands of the employees against the community they serve such as balancing funding between scholarships and faculty compensation. In order to balance these differing needs and interests, the executives are compelled to adopt ethical behavior so that an objective approach to administration can be achieved. More or less ethical behavior in this regard ought to be on the expressive level so that spontaneous ethical decision making can be achieved. 3.3. Needs of Primary Stakeholders The primary stakeholders of an organization are people who engage in economic transaction with the organization. The most common types of primary stakeholders for an organization include the stockholders, suppliers, employees, customers, creditors etc. However in the case of NPOs, the primary stakeholders’ category includes the employees, the contributors and donors as well as goods and services suppliers and possibly community groups that may be given cash incentives. Each group represents differing interests and needs. The employees of the NPO require fair compensation, training, personal development, a healthy work life balance and other such things in order to enhance the working situation. Perhaps the greatest ethical behavior is demanded in terms of the fair compensation of employees in NPOs possibly because of the large amounts of unethical behavior being displayed. Given that NPOs can settle the fair compensation of employees, there has been an upward trend to compensate nonprofit executives and other employees in highly lucrative terms. [Bry88] A large number of scholars have attributed this need to NPOs because nonprofit executives are seen dwindling in number and there is increasing need to hire the best possible help around. [Aga99] However the basic contention behind nonprofit work is to ensure that the donors’ money is being spent as best as possible. Utilizing donor money for large compensation raises ethical concerns that must be answered at the post ethical level because the decision makers need to question the core beliefs at work in hiring and sustaining such employment. Another major group that has primary stakeholder status in the NPO world is the donors and contributors whose money ensures liquidity for NPOs. There is a general trend for NPOs to declare themselves as purely philanthropic enterprises in order to attract the greatest number of donors. Donors are most often convinced using everything in the arsenal of NPOs including emotional arousals, social networking stunts [Wat09] [Wat07] and publicity campaigns. However once funds are extracted from donors, there is little accountability or traceability offered by NPOs except for lengthy and complicated audit reports that are hard to interpret for the common person. Again, there is hardly any legal stipulation to provide greater traceability but there are ethical concerns in keeping donors aboard through simplifying the spending process to understand it better. As more and more donors are kept on board there are fewer chances for fraudulent activity to take place because accountability would be enhanced. [Sni06] Again there is a dire need to evaluate such ethical concerns on the post ethical level by executives in NPOs to form better decisions. 3.4. Balancing Competing Interests The governance of NPOs is often carried out by people with a wide range of experiences and positions. The contention behind hiring such people is to have such people on board whose contacts in different areas such as the corporate sector, philanthropic groups, government agencies etc. allow the NPO to exploit as many resources as possible in order to achieve its aims. The general trend in the NPO sector is to hire these people at as many different levels and positions as possible. [Wil01] Therefore, well connected people can be found in NPOs from the bottom to the top in the form of supervisors, executives to the Board of Directors. The association of these people to more than one group and sector means that a conflict of interest may easily arise. [Sto071] For example a person on the Board of Directors of a large NPO might also be serving on the Board of Directors of one of its suppliers and this would lead to a direct conflict of interest. The trends in hiring executives for NPOs indicate that this phenomenon is on the rise and ethical considerations are finding little ground for existence. In order to ensure that conflicts of interest do not arise, it is preferable to hire people such that they do not have any other vested interests. [Bra92] Though this may be possible on the theoretical scale but this would not be practically possible as a substantial level of connections are required to operate in the NPO sector. [Dru90] Given these complexities, the only real answer to this dilemma is to hire people with a strong ethical and moral standing. Moreover the organization’s operational philosophy has to be highly ethical and its enforcement by the Board of Directors and other well positioned executives has to be mandatory. The actions of such executives ought to comply with Cooper’s ethical model on more than one level. The actions must be subject to the expressive level, the moral rules level and the ethical analysis level at the same time. The natural reaction to most ethical problems involving a conflict of interest by such executives should be expressive while more complicated ethical dilemmas should be handled on the moral rules and ethical analysis levels. 3.5. Allocation of Scarce Resources The resources available to a typical NPO are often limited and their use must be highly judicious in order to maximize the benefits achieved. Although the amount of funding available to charities in the United States has gone up to $3 trillion which represents an increase of 90% over the previous decade [Bou08] but the bulk of these figures are composed of small funds available to individual NPOs whose use has to be judicious. Other than the issue of limited funding, there is also the aspect of optimizing the resources available to NPOs in order to make best possible use of the public’s money. Another major resource available in NPOs is the human resources employed by the organization. A large amount of the NPO’s spending is directed towards compensation and other developmental procedures for the human resource. The use of human resources in an optimized manner is also essential to ensuring that all available resources are optimized before use. The use of available resources to a NPO are not dictated by any major laws but are served by ethical standards instead. As an example, the CEO of a NPO may decide to use his NPO staff in order to augment his other business interests such as by asking the NPO staff to perform small tasks for his other business. There are no legal stipulations to prevent such an abuse of power but there are ethical implications. It is up to the management of a NPO to realize that their resources are limited (because profit making is not a major organizational objective as discussed above) so the best possible use of resources has to be ensured. In order to optimize the scant resources, the inputs must flow from all levels of a NPO. The Board of Directors must ensure that both hard and soft assets are put to use such that organizational objectives are furthered alone. Similarly the lower management levels must take to protest if they see and feel an abuse of resources is taking place. The conglomeration of these ideas points to the fact that all levels of Cooper’s model are required in order to ensure the optimal use of a NPO’s resources. The expressive level ensures that resources are consumed as optimized by default through the actions of the entire management. The level of moral rules ensures that routine and long term decision making is optimized for resource usage too. On the other hand the level of ethical analysis is more required by low level management to keep a check on the utilization of scant resources while the post ethical level is demanded by all levels to formulate new modes of ethical behavior that tend to optimize the available resources. 3.6. Managing Diversity The increase of diversity in the workforce has had direct implications for NPOs as well as other business sectors and government sectors. It has become a large challenge to garner and manage a diverse workforce in order to reap the benefits of a trained workforce. The 2000 United States census shows that minorities are becoming majorities in six of the eight largest metropolitan areas. [SHR05] The emerging demographic imperative implies that organizations in each sector must develop the “capacity to attract, recruit and retain minority employees”. [Gaj05] Research and practice have demonstrated that merely hiring minority workers is not good enough to promote diversity but instead there is a need for diversity training and management. Diversity management has been a demanding task for larger Fortune 500 companies who have a lot of resources to help them out but it has been an uphill struggle for NPOs. The demand for increased services and a threat to funding has only exacerbated the problem. This has been intensified over the years by underinvestment in the workforce training and retention in the NPO and government sectors. The retirement of the NPO “Baby Boomer” class is now presenting challenges that only a diverse workforce would be able to take up. [Gaj05] Therefore there is little doubt that diversity management has become essential to the successful operation of a NPO. The executives at all levels in the NPO need to take new ethical standpoints as per diversity management in order to make it a success. For one thing the top level management has to ensure that employees at all levels develop an expressive level of ethics as per diversity in the workforce. This is only possible if the moral rules level and the ethical analysis level are initiated in the organization’s training systems. Unless people are not prodded to reexamine their beliefs as per other races and ethnics groups, there is little possibility that diversity can be managed. 3.7. Responsibility to Democratic Citizenry An NPO must gear itself for the greatest amount of transparency and accountability to the people who support its operations as well as towards other stakeholders. One of the best ways to garner a reputation for a NPO can be to ensure that its actions are transparent and its management is accountable. In terms of such accountability, the NPO structure has largely been responsible to democratic citizenry composed of people who both support the NPO’s operations and by the people who are affected by the NPO’s actions. [DiM83] This approach to accountability and transparency has further been strengthened by the use of social networking websites [Chr05] Such actions ensure that the NPO management structure keeps its stakeholders well aware of its activates and this in turn promotes greater transparency and accountability. As per Cooper’s model of ethical administration the expressive level and the moral rules level applies clearly as the NPO management expressively delineates information over its activities and dealings through the filter of its acquired ethical and moral bank. 4. Current Level of Ethical Standards The ethical standards of various sectors are analyzed by various kinds of watch dogs and other organizations on a regular basis. The results are often derived by the use of ethics audits in the form of surveys and questionnaires delivered to the various stakeholders of an organization. In the case of NPOs, similar methods are employed but with greater rigor as ethical standards form the cornerstone of an NPO’s operations and more importantly its reputation. A study conducted by the Ethics Resource Center titled the National Nonprofit Ethics Survey (NENS) was conducted in 2007 and was the fourth of a series of longitudinal surveys of workplaces in the United States. [NEN07] The results of the study showed a mixed state of ethics prevalent in the nonprofit sector but it was affirmed that the state of ethics displayed in the nonprofit sector are better than those at work in other sectors. A comparison of profit and nonprofit organizations revealed that nonprofit organizations displayed better ethical cultures and their employees were better aligned with the organization’s missions and values. Moreover if employees report ethical misconduct in nonprofit organizations, they are less likely to be repressed or to face retaliation and negative consequences. The nonprofit sector is also reported to display a strong culture and ethics program that is well implemented enough to warrant a near absence of ethical misconduct where properly implemented. On the other hand, the report raises a number of concerns as well. The level of conduct that tends to compromise an organization’s laws and standards has been on the rise and the year 2007 witnessed that such levels become comparable to levels of misconduct in business and governmental agencies. Another aspect worth noting is that frauds are much higher for nonprofit organizations than for either business or government organizations. The Boards of Directors for NPOs have been criticized for not using their powers totally in order to influence the use of ethics in the conduct of the management structure. It has also been indicated that in NPOs that have strong Boards there are greater levels of misconduct being observed. This clearly indicates that NPOs possess a high degree of ethics but this position is fast slipping as unethical conduct is on the rise. 5. Conclusion The use of ethics is essential to protecting the image and functions of a NPO and there are various aspects that need to be addressed by the management at various levels in order to ensure compliance with ethical conduct. The major issues that need to be focused upon include managing profits, balancing the stakeholder’s interests, avoiding and managing conflicts of interest, allocation of scant resources in an optimized manner and managing diversity in the workplace. As it currently stands, the level of ethical conduct is high in the nonprofit sector as compared to business and government sectors but a steady decline is being witnessed that needs to be reversed. In this connection, Cooper’s model of ethical administration is highly effective in delineating the problems and the required responses in order to deal with emerging ethical dilemmas. 6. Bibliography Coo98: , (Cooper, 1998), Gre04: , (Gregorian, 2004), Tho04: , (Thomas, Schermerhorn, & Dienhart, 2004), Jen04: , (Jennings, 2004), Mil031: , (Miller-Millesen, 2003), Bri98: , (Brien, 1998), Rob06: , (Robinson, Davidson, van der Mescht, & Court, 2006), Ber991: , (Berman, Wicks, Kotha, & Jones, 1999), Fre83: , (Freeman & Reed, 1983), Shi03: , (Shiller, 2003), Mic92: , (Michel & Hambrick, 1992), Bou98: , (Bouckaert & Vandenhove, 1998), Bry88: , (Bryson, 1988), Aga99: , (Agarwal & Malloy, 1999), Wat09: , (Waters, Burnett, Lamm, & Lucas, 2009), Wat07: , (Waters R. 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