Chap 3

3.
Ethics and accountability in nonprofit

management curriculum
Karabi C. Bezboruah
INTRODUCTION
What makes for an ethical nonprofit? To answer this, it is important to under-

stand the key aspect of nonprofit organizations – their focus on organizational
mission or their mission orientation. All programs provided by a nonprofit
organization are determined by its mission. According to Salamon and Anheier
(1992), nonprofits have five characteristics: (1) Nonprofits must be organ-
ized with established rules of operations, procedures, and bylaws that guide
the operations; (2) Nonprofits are privately incorporated and institutionally
separate and distinct from the government but work for public benefit; (3)
Nonprofit are self-governing entities and regulate their own operations; (4)
Any profits generated by a nonprofit must be reinvested into the organizational
mission; (5) Nonprofits are voluntary as volunteers are primarily engaged in
the leadership and operations. Support for such organizations by the public is
made in terms of voluntary donations of time and money. These characteristics
point to the fact that in the mission-driven work of nonprofits, the voluntary
board provides the governance function. However, there is no single own-
ership of nonprofits (Bhandari, 2010). While nonprofits are privately estab-
lished, they are answerable to the public. This is because they provide services
that benefit the public by institutionalizing operating procedures comparable to
the for-profit sector such as financial solvency.
Nonprofits tend to fill gaps in government services or act as policy imple-
menters for governmental agencies. Government grants, private donations, and
user charges are utilized to provide public benefit programs such as afterschool
education, child services, healthcare, and so forth. Thus, they are accountable
for their operations and finances. Additionally, the IRS regulations prohibit
nonprofits from engaging in activities that benefit private interests, which
provides the foundation for the public benefit as well as the ethical and legal
principles of operations. The governing board is responsible for stewarding
the organization and making it accountable. According to Carver (1997),
39
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40 Teaching nonprofit management
Table 3.1 Chapter objectives
Objectives NACC Guidelines

Examine concepts of ethics and 4.1 Values (trust, stewardship, service, voluntarism,
accountability by exploring code of ethics, civic engagement etc.) embodied in philanthropy
conflict of interests, and personal values and voluntary action
4.2 Foundations and theories of ethics as a discipline
and as applied in order to make ethical decisions
Understand the importance of ethics and 4.4 Trends associated with social responsibility,
accountability in nonprofit management sustainability and global citizenship within
cross-cultural and global contexts
4.5 Standards and codes of conduct that are appropriate
to paid and unpaid staff working in philanthropy and
the nonprofit sector
Examine cases to understand conflicts of 4.1 Values (trust, stewardship, service, voluntarism,
interest dilemmas civic engagement etc.) embodied in philanthropy
and voluntary action
4.4 Standards and codes of conduct that are appropriate
to paid and unpaid staff working in philanthropy and
the nonprofit sector
nonprofit boards hold the ultimate accountability for organizational action.

More specifically, nonprofits are accountable to the public, to their donors,
to the government, and therefore, have multiple stakeholders. The concept of
accountability (Williams and Taylor, 2013) includes upward accountability
(being held responsible by others), lateral accountability (taking responsibility
for staff and volunteers), and downward accountability (being responsible to
the needs of clients), which also includes public trust. Thus, nonprofits are
accountable to stakeholders within and outside of the organization, and their
conduct has implications for the reputation of other nonprofits.
This chapter discusses nonprofit ethics and accountability by aligning the
discussion to the NACC guidelines on teaching ethics shown in Table 3.1.
The chapter then defines the concepts of ethics and accountability, which is
followed by a discussion of the theories with practical teaching applications
for use in the classroom.
ETHICS
The term “ethics” is derived from the Greek word “ethicos”, meaning habit
or customs relating to morals. Ethics is defined as “well-based standards of
right and wrong that prescribe what humans ought to do, usually in terms
of duties, principles, specific virtues, or benefits to society” (Johnson, 2005,

Ethics and accountability in nonprofit management curriculum 41
p. 10). Nonprofits are perceived to be trustworthy and ethical as they are not
motivated by profits, and therefore would not be involved in any unethical
behavior. However, the 2007 National Nonprofit Ethics Survey found that
unlawful conduct and unethical behavior was increasing in the nonprofit
sector, with financial fraud much higher in this sector compared to the
for-profit and government sectors. It found that when the governing board
establishes and follows through on ethical policies, organizations exhibit
strong ethical standards. Several forms of ethical challenges can affect a non-
profit organization. Some common internal and external challenges to ethical
conduct are: accountability, conflict of interest, financial disclosures, surplus
accumulation, remuneration outside of the organization, salary and benefits,
personal relationships, contract processes, and fundraising, political campaign
activities, reporting, and stewardship (Grobman, 2011; Zack, 2003).
People have a sense of right and wrong, and these individual beliefs about
appropriate behavior are developed over a person’s lifetime. These beliefs
also help shape one’s professional behavior and interactions. Tschirhart and
Bielefeld (2012) argue that integrating a professional code of conduct and
ethics into organizational operations can help avoid conflicts. Ethical conduct
can also be developed and fostered by value-based leadership (Jeavons, 2005)
and application of incentives for proper conduct that signals organization-wide
accountability. Furthermore, nonprofits also are accountable to the expec-
tations of society. Public charities that are supported through donations are
held to higher standards and are regulated and accredited by agencies (Charity
Navigator, Better Business Bureau (BBB), Wise Giving Alliance, etc.) besides
the IRS (Grobman, 2015).
ACCOUNTABILITY
Accountability is being answerable to the diverse stakeholders of a nonprofit

(Young, 2002). It is maintained through proper reporting and publishing of
the organization’s activities and impact via annual reports, tax returns, news-
letters and so forth. It also involves being audited and evaluated by external
agencies for ethical financial conduct and program effectiveness. Calls for
accountability in nonprofits increased after some of the major organizations
were tainted by fraud and financial mismanagement scandals in the early
1990s (Kim, 2005). Accountability means answerability to the stakeholders for
the work conducted by the nonprofit. Organizations have established multiple
and complex monitoring mechanisms such as financial and program audits,
licensures, annual contract evaluations, and outcome-based assessments for
financial and program-related accountability. For example, United Way
requires strict and comprehensive measures of financial reporting, governance,
ethics, diversity, and operations for each of its chapters to ensure accountabil-

ity. Additionally, codes of ethics have been put in place by governing boards
to ensure lawful behavior by employees and volunteers in regular operations
(Dicke, 2002; Dicke and Ott, 1999; Salamon, 1999).
RELEVANT THEORIES
There are many theories used to explain nonprofit ethics and accountability.
The theories discussed in this chapter are outlined below.
Principal–Agent Theory
One popular theory is the Agency theory, also known as the Principal–Agent
theory. The Executive Director acts as the agent in leading the organization for
the Board of Directors, who are the principal. According to Perrow (1986), the
Principal–Agent theory assumes organizational interactions as a series of con-
tracts. He states that the principal is the buyer of goods or services, and the pro-
vider of the goods or services is the agent. “The principal–agent relationship
is governed by a contract specifying what the agent should do and what the
principal must do in return” (1986, p. 224). Since the agent is knowledgeable
and well-equipped to provide the services, there exists information asymmetry,
with the agent being in an advantageous position. Because of this goal conflict,
the principal will attempt to regulate the behavior of the agent to conform to
the norms as well as wishes of the principal. This theory, therefore, focuses on
accountability as it explains the relations between the internal organizational
actors, and the organization and external stakeholders (Coule, 2015). While in
nonprofit organizations, there is a lack of clarity regarding ownership and who
should be considered “principal” (Miller, 2002; Brody, 1996), the board serves
as a regulatory body by ensuring compliance and conformance to safeguard
founders’ interests by overseeing management operations (Cornforth, 2004).
The absence of a clearly defined “principal” in nonprofits can lead to misuse
of power and assumption of excessive risks resulting in unethical behavior
(Bhandari, 2010). Scholars have applied this theory in a variety of settings to
explain contractual relations between organizations, boards and directors, and
managers and employees (Van Slyke, 2007), executive compensation (Garen,
1994), and many other areas. Because of the presence of multiple stakeholders
with conflicting goals and interests, the agency problem is more complex in
nonprofit organizations.
Stewardship Theory
This theory “defines situations in which managers are not motivated by

individual goals, but rather are stewards whose motives are aligned with the

objectives of their principals” (Davis et al., 1997, p. 21). This theory also
assumes individual goal conflict between the principal and the steward, but
they are motivated by shared collective interests. Trust, reciprocity, goal
alignment, job satisfaction, stability, and reputation are some of the motivating
factors and governance mechanisms of the steward. There are high initial costs
of time and monetary investment to involve nonprofit boards as stewards of
the organization. This cost becomes necessary in a principal–stewardship rela-
tionship as information sharing and collective goal accomplishment enhance
organizational transparency and accountability. Bundt (2000) suggests that
this theory is better applicable to nonprofit management as it focuses on shared
information and collective goals, with the board partnering and supporting the
executive director. The stewardship theory is relevant to nonprofit ethics and
accountability because in instances of goal conflict arising from self-interests,
unethical behavior of a principal can impact the future of the organization.
Stakeholder Theory
This theory suggests that organizations have multiple stakeholders with varied
interests, and therefore their representation on the board is important to exer-
cise oversight and control over management. Stakeholders are “any person or
group that is able to make a claim on an organization’s attention, resources
or output or who may be affected by the organization” (Lewis, 2001, p. 202).
Stakeholders may be internal or external to the organization. For example,
managers and employees are internal stakeholders, and customers, competi-
tors, and suppliers are external stakeholders. There are also stakeholders that
interface with the organization. In nonprofits, the board of directors are the
interface stakeholders, as they represent the organization to the outside world
and facilitate the accomplishment of organizational mission (Savage et al.,
1991). The stakeholder theory is relevant to ethics and accountability because
the stakeholders should be acting in an ethical manner and be accountable to
the general public; however, conflicts of interest arise when stakeholders make
decisions based on self-interest.
In summary, the aforementioned theories have been applied to examine and
explain ethical and accountability issues in nonprofit management. Principal–
agent theories touted accountability as “the means by which individuals and
organizations report to a recognized authority and are held responsible for
their actions” (Edwards and Hulme, 1996, p. 967). The stakeholder approach
considers the existence of multiple individuals and groups that are within and
outside of the organizations with divergent interests and priorities, requiring
“continuous social, political . . . and moral processes” (Watson, 2006, p. 52).
Together, these theories explain ethical conduct and accountability in the
management of organizations. Coule (2015) suggests that accountability

in the agency theories is based on explicit and objective standards or rules,

and is enforced through monitoring and auditing. In the stakeholder-based
approach, accountability is based on objective rules and subjective standards,
and enforced through negotiation, monitoring and auditing. Combining these
theories can provide a more comprehensive assessment of nonprofit ethics and
accountability.
ETHICAL CHALLENGES AND GOVERNANCE OF

NONPROFITS
Ethical challenges are common and can arise at all levels in for-profit, nonprofit,
and government sectors. Some ethical issues within nonprofits can result in
criminal violations or civil liability; for example, fraud, misrepresentation, and
misappropriation of assets (Grobman, 2015). However, the common ethical
problems involve gray areas or activities that are on the fringes of fraud, or that
involve conflicts of interest, misallocation of resources, or inadequate account-
ability and transparency (Grobman, 2015; Rhode and Packel, 2009). Trust is
the hallmark of nonprofit organizations, and in a 2015 survey, a majority of the
respondents (80 percent) said charities do a “very good” or “somewhat good
job” of helping people. However, many were concerned about the finances:
33 percent said charities do a “not too good” or “not at all good” job spending
money wisely, and 41 percent said their leaders are paid too much. “Unwise”
spending of money included expenses on salaries or other administrative costs
and advertising (Perry, 2015). These surveys highlight the public perception
of and attitude towards the nonprofit sector that includes a wide variety of
diverse organizations ranging from small human service charities to large
charitable hospitals. Grouping these organizations within one sector confounds
the diversity in size, structure, funding streams, and missions. Most of these
perceptions are drawn from media highlighting cases of unethical conduct
and financial mismanagement by charities. Organizations such as the Nature
Conservancy, the Red Cross, the United Way, Educorp, and local foundations
in several communities were in the news for financial mismanagement. Such
ethical lapses, whether perceived or real, result in public distrust for the entire
sector, leading to increased calls for accountability and scrutiny of operations.
Accountability in nonprofits comes in many forms and can generally be
in the realm of fiscal, ethical, and performance accountability (Schatteman,
2013). Most nonprofits have set standards and guidelines for regular oper-
ations for maintaining procedural accountability. Additionally, nonprofits
must adhere to legal and regulatory standards as well, such as being registered
with state and federal agencies for tax exempt status, disclosure of financial
information annually through the IRS Form 990, and maintaining standards
for external watchdog groups (Schatteman, 2013). Some measures that are

called for to enhance accountability by nonprofits are: being transparent with

the activities and finances by voluntarily disclosing such information; having
organizational ethics policies; periodic review and accreditation by external
agencies; and program evaluation for nonprofit effectiveness and impact.
Nonprofit employees are held to a higher standard as they work to accom-
plish a public benefit mission, are motivated by mission more than money,
and are often regarded as equivalent to public sector employees (Rotolo and
Wilson, 2006). There can be a variety of ethical challenges in nonprofits
such as mission compliance, accountability to funders, fundraising, internal
human resource issues, ethical reporting, managing conflicting stakeholder
requirements, effective communication and so forth. An emerging challenge is
the use of personal social media and its impact on the organization, resulting
in a call for organizational social media policies for enhancing accountability
(Bezboruah and Dryburgh, 2012). Furthermore, employees or volunteers can
enhance trust by reporting any unethical conduct, financial mismanagement, or
unprofessional behavior without any fear of retaliation through whistleblower
protection policies.
Ethical Dilemmas
There are many gray areas of ethical dilemmas affecting nonprofit manage-
ment. Examples include funding education in low-income neighborhoods
with money earned from selling drugs, or buying office furniture from a board
member’s company, or paying rent for the use of the facilities owned by
a board member. While not all are financial misappropriation, they signal
impropriety and dishonesty, which affect the trustworthiness of a nonprofit.
As stated earlier, nonprofits are held to higher standards and considered
trustworthy because they are motivated by mission and not by profits. One
remedy is to have ethical policies and standards for the organization that are
effectively communicated to all its volunteers and employee (see Table 3.2).
Regular training and annual workshops on compliance and ethical issues can
help enhance accountability. Furthermore, as stewards of nonprofit organi-
zations, the board of directors can ensure adherence to ethical conduct and
accountability by following principles of good governance and ethical practice
listed in Table 3.2.

Table 3.2 Principles for good governance and ethical practice
Effective Governance Strong Financial Oversight

1. Board Responsibilities 21. Financial Records
2. Board Meetings 22. Annual Budget, Financial Performance and
Investments
3. Board Size and Structure 23. Loans to Directors, Officers, or Trustees
4. Board Diversity 24. Resource Allocation for Programs and
Administration
5. Board Independence 25. Travel and Other Expense Policies
6. CEO Evaluation & Compensation 26. Expense reimbursement for Non-business
Travel Companions
7. Separation of CEO, Board Chair, and Board
Treasurer Roles
8. Board Education & Communication
9. Evaluation of Board Performance
10. Board Member Term Limits
11. Review of Governing Documents

12. Review of Mission and Goals
13. Board Compensation
Legal Compliance & Public Disclosure Responsible Fundraising

14. Laws & Regulations 27. Accuracy and Truthfulness of Fundraising
Materials
15. Code of Ethics 28. Compliance with Donor’s Intent
16. Conflicts of Interest 29. Acknowledgment of Tax-Deductible
Contributions
17. “Whistleblower” policy 30. Gift Acceptance policies
18. Document & Data Retention and 31. Oversight of Fundraisers
Destruction
19. Protection of Assets 32. Fundraiser Compensation
20. Availability of Information to the Public 33. Donor Privacy
Source: Independent Sector (2018).
What Can be Done?
Scholars and practitioners suggest that upholding ethical conduct and account-
ability is an ongoing process. Regular review of organizational operations,
processes, and procedures can assist in the identification and mitigation of
issues that can hamper the reputation of the organization. Table 3.3 lists some

Table 3.3 Accountability checklist
1. Develop a culture of accountability and transparency.

2. Adopt a Statement of Values and Code of Ethics.
3. Adopt a Conflict of Interest Policy.
4. Ensure that the board of directors understands and can fulfill its financial responsibilities.
5. Conduct independent financial reviews, particularly audits.
6. Ensure the accuracy of and make public your organization’s Form 990.
7. Be transparent.
8. Establish and support a policy on reporting suspected misconduct or malfeasance, also known as
Whistleblower Protection Policy.
9. Remain current with the law
Source: Independent Sector (2018).
recommendations adapted from the Independent Sector that can ensure com-
mitment to the organizational mission and uphold public trust.
Let’s consider the following ethical dilemmas in nonprofit management for
classroom discussions:
1. Should the Executive Director get bonuses and raises for fundraising
success?
2. If money was donated for a specific program that already has excess
funding, should a nonprofit divert the money to another under-funded
program?
3. Should a nonprofit share its donor information with other organizations or
employees?
4. Is it alright for nonprofit employees to use personal social media to speak
in favor or against political candidates?
5. Is it alright to not mention earnings from mission unrelated business
income in the tax returns?
Students can work on these in small groups and then discuss the general
implications.
CLASSROOM ACTIVITY
The objective of this exercise is to assess the transparency levels of nonprofits.

Instructor: Group students into small groups of 3–5, and ask them the
following:
1. Access any nonprofit’s website and make a list of the information provided
for the public: tax returns; annual reports; policies for ethics, whistleblower
protection, conflicts of interest, and so forth. Each group will review a dif-
ferent nonprofit.
2. List stakeholders for your selected organization (including internal and
external stakeholders).
3. Access this nonprofit in BBB Wise Giving Alliance or Charity Navigator
and check its credentials/review.
4. What do you conclude from this exercise? Does having information make
an organization transparent and accountable? Why or why not? Compare
your notes with the other groups.
5. Based on this activity, what would you recommend to other nonprofits?
CASE STUDIES
1. Conserve and Benefit
Sunshine Org is a nonprofit focused on teaching children about nature and

environment conservation. The organization pursues its mission through
a park at the edge of a city in an urban area. It hosts school field trips, rents
out the facilities for weddings, office meetings, and other social events, and
charges fees for using the park for a variety of uses. The park includes a lake
that is used for boating, canoeing, and other water sports. This park is located
near a blighted and high crime neighborhood, and was undeveloped for many
years. The founder of Sunshine Org, Linda Brown, bought this land at a very
low price, and left it untouched with weeds growing all over the land. When the
city initiated development initiatives about five years ago, this neighborhood
began attracting more families, and housing quality improved. Linda then
cleaned up the land and let wildflowers grow, and maintained it regularly. It
led to new flora and fauna. With the waterfront view, the land value increased,
resulting in several offers from real estate developers for the land.
In order to maintain ownership, Linda established the land as a nonprofit
park in 2015, with the mission of environmental conservation. She serves as
the chair of the board of directors and is also actively involved in the man-
agement of the nonprofit. The other directors include family members and
close friends. The nonprofit provides educational tours, meetings, weddings,
concerts, and other events. The nonprofit’s office is located within the park as
well. For the services and activities offered, the nonprofit charges fees from its

patrons. The money generated from the fees is used to pay for the maintenance
and upkeep of the park, administrative costs, and for rent of the office facili-
ties. Being a nonprofit, the park is exempt from federal taxes, and with income
less than $50,000 per annum, it never completed the IRS annual reporting
return also known as Form 990.
Instructor preparation: This case may be read out loud in class prior to dis-
cussing the chapter concepts. Then, assign the students to small groups and ask
the following:
1. What do you understand by the following terms: ethics, accountability,

values, and conflict of interest? What is the difference between ethics and
morality?
2. Did you find any ethical issues in this case? If no, do you think this is
typical of all nonprofits that you are aware of? If yes, list them.
3. Are you aware of any code of ethics at your workplace? If yes, please share
how this is communicated with the employees/ staff.
Time (including group work): About 20 minutes.

Debrief: Go over the concepts and theories of ethics and accountability and
connect them to the questions listed above.
DISCUSSION QUESTIONS
1. Did you find any ethical issues in this case? How would you categorize
the issues present in the case? [Note: Instructors can use these prompt
words: ethical, moral, conflict of interest etc., only if the students are
struggling to categorize. It is better to let the students discuss in groups
and respond.]
2. List (if any) conflict of interest issues are present.
3. Draft a code of ethics for this organization, and recommend ways to
communicate as well as train employees on ethical conduct.
4. What measures would you recommend for addressing conflict of inter-
est dilemmas?
5. What measures would you recommend for addressing accountability of
the organization?
Time: 30 minutes.
Debrief: Acknowledge how there will be diversity in beliefs regarding what is

ethical and what is not. Connect the discussion to the stakeholders involved,
and how personal ethical values would shape the identification of professional

ethics and conflict of interest issues. Let students connect this case to their own
experiences with professional ethical dilemmas and conflict of interests.
2. Shock Therapy
People for the Ethical Treatment of Animals (PETA) is a nonprofit organiza-

tion that began in 1980 and became first a national, then an international, voice
for animal rights. Over its history, PETA has taken on a number of issues such
as the cruel treatment of animals in factory farms, in research labs, and in cir-
cuses. Its activities have included undercover reporting, protests, advertising
campaigns, and litigation. PETA has scored a number of successes. Undercover
investigation by PETA of a laboratory in Silver Springs, Maryland, led to the
first US police raid on an animal treatment facility. A protest campaign against
McDonald’s in 2000 led to its becoming the first major US corporation to
impose, on all their suppliers, minimum standards in the treatment of chickens.
While the ultimate goal of the organization is the liberation of all animals
from suffering caused by humans, PETA does not itself engage in the more
extreme forms of activism that characterize other groups, such as the Animal
Liberation Front (ALF). Instead, PETA aims at improving the living condi-
tions for animals and reducing the demand for animal products. This approach
has sometimes led to the criticism from more radical animal rights groups that
PETA is not so much about animal rights as about animal welfare.
The founder and guiding force behind PETA, Ingrid Newkirk, has long used
aggressive, attention-grabbing campaigns to bring the organization’s message
to the public. It would seem that nothing is too tasteless or offensive for PETA,
as long as people talk. Some of its noteworthy campaigns have involved
linking the treatment of animals with the Holocaust, with slavery, and with
certain infamous serial killers. PETA volunteers have disrupted fashion shows,
dragged themselves through the streets in leg-hold traps, and have dumped
money soaked in fake blood on audiences at fur fairs. Their tactics became
so notorious that in 1997 The Onion ran a satirical article, “Heroic PETA
Commandos Kill 49, Save Rabbit.”
Another technique PETA has used to attract attention is sex. To protest
against the running of the bulls in Pamplona, Spain, it sponsored a “Running
of the Nudes” two days before. To protest against the wearing of fur, they
featured attractive models (both male and female) in the campaign, “I’d Rather
Go Nude Than Wear Fur.” To promote vegan diets, they sent out “Lettuce
Ladies,” dressed in bikinis made of strategically placed lettuce leaves. PETA
have announced plans to host a soft porn website, www.peta.xxx.
Some of these tactics have drawn criticism from various women’s groups
for objectifying women. In an interview by Michael Specter, published in the
New Yorker on 14 April 2003, Newkirk commented on Pamela Anderson’s

appearance as a Lettuce Lady: “Who could ask for anyone better than Pam?
People drool when they look at her. Why wouldn’t we use that? We need all
the drooling we can get.” (Source: Connolly et al., 2013.)
1. Do you think there is anything unethical about the tactics used by
PETA in accomplishing their mission? Why or why not? List your
justifications.
a. Instructors: Assign the students to 2 groups (“approve” and “dis-
approve” of tactics) and ask them to debate by applying sound
reasoning and using concepts of ethics.
2. How would you rate the success of such campaigns to further
a mission? Why?
3. Are the activities (tactics used) involved aligned to the mission of the
organization?
4. Identify stakeholders of this organization. List all the parties to whom
PETA is accountable.
5. Research other campaigns of nonprofit organizations that used similar
or out of the box tactics to further their mission? How impactful are
they? What lessons can be drawn from them?
Time for Debate: 20 minutes; Time for the whole exercise: 45 minutes.
3. Donor Strategy
Affordable Housing for All is a regional nonprofit that works to provide

low-income families with housing options. It is one year into its new expan-
sion strategy – expand its services to a neighboring town to the West – selected
based on both need and feasibility.
A donor approached the Executive Director, Lisa, with the intention of sup-
porting the nonprofit’s expansion at a very significant level. But the support
comes with a demand; they must also expand their services to a town nearby,
but outside of the expansion plan. Lisa is conflicted. On one hand, the funds
would be more than enough to cover the additional cost and would also help
support the nonprofit’s current expansion plan. Also, the nonprofit would be
providing a beneficial service to the additional community, even if it wasn’t
the nonprofit’s original plan. Yet, Lisa is concerned that allowing donors to set
the strategic priorities of the nonprofit is dangerous and sets a bad precedent.
She is also concerned that taking on the additional area could compromise their
effectiveness in the other communities. (Source: Skeet and Harrington, 2016.)

1. Should Lisa take the donation? What steps should she take to make
a decision?
2. Restricted gifts are common, but generally go to existing programs or
ones proposed by the nonprofit. Is creating a new program crossing the
line?
3. If Lisa takes the donation, should she disclose to the board, staff, or the
community the nature of the arrangement?
4. What would you recommend in this situation? What steps would you
take to make a decision?
Time: 15 minutes.
CONCLUSION
Nonprofit organizations are mission driven. The board of directors is made

up of volunteers that govern and lead the organization to accomplish its
mission. Most of the programs are implemented by its employees and vol-
unteers. While employees and staff of nonprofits are motivated by a sense of
mission, we do find instances of financial mismanagement, fundraising fraud,
conflict of interest issues, inadequate or misrepresentation of reporting, and
other ethical issues. Such activities can negatively impact the public trust and
support enjoyed by nonprofits, resulting in program closure. Some of these
improprieties are obvious and deliberate while others fall in gray areas. The
principal–agent, stewardship, and stakeholder theories can assist in explaining
the expectations of the diverse internal and external stakeholders, and how
responsible nonprofit leadership can address these multiple demands. Instilling
a culture of ethical behavior from the leadership to the frontline workers can
enhance employee satisfaction, uphold public trust, and enhance support for
programs.
In conclusion, taking Tschirhart and Bielefeld’s (2012, p. 24) suggestion,
a simple mechanism to maintain ethical behavior is to ask the following ques-
tions before acting on a proposed action:
1. Is it legal? (Am I violating any laws or organizational policies?)

2. Is it balanced and fair to all concerned? (Will my action create a win–win
situation?)
3. How will it make me feel about myself? (Will I be proud of what I have
done and willing to tell others what I did?)

Table 3.4 Ethics resources
Code of Ethics
Charles Stewart Mott Foundation https://www.mott.org/about/values/
Fundraising Ethics https://www.councilofnonprofits.org/tools
-resources/ethical-fundraising
Leadership Ethics https://www.councilofnonprofits.org/tools
-resources/ethical-leadership-nonprofits
Financial Transparency https://www.councilofnonprofits.org/tools
-resources/financial-transparency
Sample Whistleblower Protection Policy https://www.councilofnonprofits.org/tools
-resources/whistleblower-protections-nonprofits
Independent Sector Checklist for Accountability https://independentsector.org/wp-content/uploads/
2018/01/Accountability-Checklist-v2-1-2-18.pdf
Business Ethics http://www.spibr.org/Ethical_Mgmt_by_Blanchard
_and_Peal.pdf
Code of Ethics for Board Members http://www.mtnonprofit.org/uploadedFiles/Files/
Org-Dev/Principles_and_Practices/Other_Sample
_Docs/NCN-Code-of-Ethics.pdf
1. What do you understand by nonprofit ethics? List at least five things
that nonprofit managers need to be cognizant of while upholding
ethical conduct.
2. Who are the stakeholders of a nonprofit organization? Do they have
similar expectations from the nonprofit? Why or why not? How would
a nonprofit maintain accountability to these stakeholders?
3. How do the theories (Principal–Agent, Stewardship, and Stakeholder)
explain nonprofit accountability? What is your opinion about a com-
bined theory to explain ethics and accountability? What recommenda-
tion would you make?
4. What information should a nonprofit post on their websites to inform
the public about its work? How would the public assess a nonprofit’s
practices and effectiveness from this information?
5. How would you make connections between a nonprofit employee’s
personal, professional, organizational, and social ethics? Make a list
of the attributes you would include for each. Discuss why you selected
these attributes.

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3.

Ethics and accountability in nonprofit

What makes for an ethical nonprofit? To answer this, it is important to under-

Karabi C. Bezboruah - 9781788118675

Table 3.1 Chapter objectives

Objectives NACC Guidelines

nonprofit boards hold the ultimate accountability for organizational action.

Karabi C. Bezboruah - 9781788118675

Accountability is being answerable to the diverse stakeholders of a nonprofit

Karabi C. Bezboruah - 9781788118675

This theory “defines situations in which managers are not motivated by

Karabi C. Bezboruah - 9781788118675

Karabi C. Bezboruah - 9781788118675

in the agency theories is based on explicit and objective standards or rules,

ETHICAL CHALLENGES AND GOVERNANCE OF

Karabi C. Bezboruah - 9781788118675

called for to enhance accountability by nonprofits are: being transparent with

Karabi C. Bezboruah - 9781788118675

Table 3.2 Principles for good governance and ethical practice

Effective Governance Strong Financial Oversight

11. Review of Governing Documents

Legal Compliance & Public Disclosure Responsible Fundraising

Source: Independent Sector (2018).

What Can be Done?

Karabi C. Bezboruah - 9781788118675

Table 3.3 Accountability checklist

1. Develop a culture of accountability and transparency.

Source: Independent Sector (2018).

The objective of this exercise is to assess the transparency levels of nonprofits.

Karabi C. Bezboruah - 9781788118675

1. Conserve and Benefit

Sunshine Org is a nonprofit focused on teaching children about nature and

Karabi C. Bezboruah - 9781788118675

1. What do you understand by the following terms: ethics, accountability,

Time (including group work): About 20 minutes.

Debrief: Acknowledge how there will be diversity in beliefs regarding what is

Karabi C. Bezboruah - 9781788118675

People for the Ethical Treatment of Animals (PETA) is a nonprofit organiza-

Karabi C. Bezboruah - 9781788118675

Affordable Housing for All is a regional nonprofit that works to provide

Karabi C. Bezboruah - 9781788118675

Nonprofit organizations are mission driven. The board of directors is made

1. Is it legal? (Am I violating any laws or organizational policies?)

Karabi C. Bezboruah - 9781788118675

Table 3.4 Ethics resources

Karabi C. Bezboruah - 9781788118675

Karabi C. Bezboruah - 9781788118675

Lewis, D. (2001). The Management of Non-Governmental Development Organizations:

Karabi C. Bezboruah - 9781788118675

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