Ethical Fundraising (Hardcover)

Chapter One

DIANNE LISTER, LL.B., CFRE

Overview

Scandals are reported with numbing frequency in the corporate, public, and not-for-profit worlds. While some ethical and legal transgressions are blatantly clear, more nuanced judgment and cultural interpretation is required when we assess behavior that is deemed questionable or inappropriate.

The term "appearance of impropriety" arises in the field of applied ethics. Some professional groups, such as the judiciary, explicitly state that members must avoid even the appearance of impropriety. The aspiration for untainted appearances is very old; what is new is the scope and force with which it is now applied to everyday living. Joseph Fulda argues that the Biblical aspiration ("And ye shall be pure before God and man") cannot and ought not to be the standard of morality by which secular society judges its members.

Synonyms for impropriety span a broad range: immodesty, indecency, rudeness, incongruity, impudence, unseemliness, incorrectness, or an erroneous or unsuitable expression or act. For the purposes of this discussion, impropriety must be something that a subset of society deems inappropriate, not merely a handful of individuals; there must be a community standard breached.

The concept of avoiding even the appearance of impropriety is often linked to a potential or perceived conflict based on personal self-interest, but it is broader and less well defined in application. This chapter focuses on reputation management-how the appearance of impropriety is linked to other standards of professional practice for professional fundraisers and their organizations and whether there is a case to be made for private and occupational morality. The reader is asked to consider whether the appearance-of-impropriety standard is a "garbage standard" as argued by America''s preeminent legal ethics professor, Geoffrey C. Hazard Jr., or this concept indeed applies within mission-based organizations.

The Link between Ethics and Fiduciary Duty

Defining ethics is complicated. Some philosophers have attempted to make ethics objective and universal, while others claim moral decision making is a lonely, intuitive, and wholly individual business of making fundamental choices. Some individuals anchor their ethics in religion; others believe morality is an odd mixture of received tradition and personal opinion. During the past 50 years, ethics has moved from the academic realm of the theoretical to the need for applied, day-to-day guidance in such fields as healthcare, law, business and, more recently, the environment and biotechnology. The Association of Fundraising Professionals (AFP) was the first international organization for professional fundraisers in the world to create a Code of Ethics in 1964.

For the purposes of this chapter, we are using the definition from Michael Josephson of the Josephson Institute of Ethics:

Ethics is a code of conduct, based on moral duties and obligations, which indicates how we should behave. Ethics deals with the ability to distinguish right from wrong and with the commitment to do right.

The complexity of understanding ethics increases when we consider mission-based organizations. In contrast to corporations, which focus on generating profits and increasing shareholder value through the creation of goods and services, mission-based organizations contribute to the common good, and focus on strengthening civil society and creating social value. They achieve their missions by promoting and upholding public trust. They are accountable to multiple stakeholders.

Most mission-based organizations work to serve charitable purposes and, across North America, they are accorded special tax privileges as charities. Few charitable organizations are self-funded, and most require private, philanthropic funds to run their operations and programs. Philanthropy sits outside of the economic marketplace; a donation can be defined as a voluntary gift made with no expectation of benefit.

The dynamics employed to identify prospective donors, educate them about or organizations'' missions, and solicit funding must be done in a clear and transparent way that honors the principles in the Donor Bill of Rights and Codes of Ethics of such professional organizations as AFP, the Canadian Association of Gift Planners, and the Institute of Fundraising (United Kingdom), to name a few. In addition to codes of ethics and standards of practice that bind individual practitioners, organizations such as Imagine Canada have created codes specifically to be adopted by resolution of the boards of charitable organizations to govern the behavior and practices of directors.

Fiduciaries are understood to be those to whom property or power is entrusted for the benefit of another. Under the useful glare of the public microscope, the boards of directors, chief executive officers, and professional fundraisers must have a heightened understanding of their roles as fiduciaries and the particular role that ethics plays within their organizations.

Reputation Management and Impropriety

Once integrity goes, the rest is a piece of cake. -J. R. Ewing, from 1978 CBS hit series, Dallas

In her book Ethical Decision Making in Fund Raising, Marilyn Fischer discusses what is required to act with integrity. One needs independent judgment, responsibility, and moral courage. Ms. Fischer refers to Plato''s The Republic: "[Moral courage] is the part which causes us to call an individual brave, when his spirit preserves in the midst of pain and pleasure his belief in the declarations of reason as to what he should fear and what he should not."

A good reputation is often linked with integrity. The reputation of an organization and of its individual players is its most valuable asset and its highest risk. Upholding the highest standards of ethical conduct and decision making makes good moral and business sense for mission-based organizations.

While most associations for professional fundraisers include references in their codes of ethics to acting with integrity, honesty and truthfulness, the Code of Conduct for the Fundraising Institute of New Zealand refers explicitly to reputation in its first principle:

PROFESSIONAL CONDUCT: Members shall at all times conduct themselves with complete integrity. They shall respect the dignity of their profession and ensure that their actions enhance the reputation of themselves and their Institute.

AFP''s Code of Ethics and Standards of Professional Practices does not explicitly refer to reputation. Its only reference to "ethical impropriety" is Standard No. 3:

3. Members shall effectively disclose all potential and actual conflicts of interest; such disclosure does not preclude nor imply ethical impropriety.

However, there are several sections that could, if violated, lead one to the conclusion that there was real or perceived impropriety, and thus potential reputational damage. Under the aspiration section of the AFP Code, is stated (in part) the following (emphasis added to those sections that can be linked to reputation and fiduciary duties).

AFP members aspire to: Practice their profession with integrity, honesty, truthfulness and adherence to the absolute obligation to safeguard the public trust Act according to the highest standards and visions of their organizations, profession and conscience Inspire others through their own sense of dedication and high purpose Avoid even the appearance of ... professional misconduct Bring credit to the fundraising profession by their public demeanour

The related Standards, which fall under the general umbrella of reputation, include Standards Nos. 1, 2, 3, 4, which address issues of not causing harm to the organization or clients of the profession; avoiding conflict of interest situations; and not exploiting relationships with donors, prospects, volunteers, or employees for the benefit of the member or the member''s organization.

Within the world of mission-based organizations, some strenuously argue that avoiding the appearance of impropriety is an important standard inasmuch as it protects an organization''s reputation. In contrast, others insist that the opportunity for subjective judgment-if not outright abuse by the accuser-limits the personal freedom of individuals. This tension comes to a head in considering whether a professional fundraiser or board member of a charitable organization can offset any reputational damage as a consequence of his or her behavior by claiming the actions were those of a private citizen.

Conflict of Interest and the Appearance of Impropriety

A conflict of interest is a situation in which someone in a position of trust has competing professional or personal interests. This is particularly of interest to directors of boards of charities and not-for-profit organizations who, under some legal jurisdictions, are "trustees" at law, as well as acting as guardians of the reputation of institutions.

Such competing interests can make it difficult to fulfill an individual''s duties impartially. A conflict of interest exists even if no unethical or improper act results from it. A conflict of interest can create an appearance of impropriety that can undermine confidence in the person, profession, or court system. A conflict can be mitigated by third-party verification or third-party evaluation, but it still exists. One might claim that even if the conflict is mitigated, the air of appearance of impropriety lingers.

Most organizational codes of conduct or rules governing conflict of interest describe how and when to declare conflicts of interest and how the individual ought to act in the specific circumstances.

For example, let us assume Susan Lewis is a board member of a children''s hospital. Her son, James, is the owner of a company competing for the architectural design for a new wing of the hospital and the value of the contract is $1 million. The board will make the ultimate decision. There is no adjudication panel. Susan would need to declare a potential conflict and recuse herself from the vote. This action would need to be recorded in the minutes and the public record of the decision.

Let''s change the scenario. James is bidding for business to supply computer software. The purchasing manager, Vladimir Gandsky, has issued a request for a proposal, indicating that the budget is $200,000, and this information is posted on the hospital''s website. The administrative staff of the hospital will make the final decision with no board consultation. Susan finds out at a weekend dinner party that her son will be bidding on the business.

Is there an ethical duty for Susan to alert the purchasing manager that her son is a principal of one of the companies bidding on the project? Would it make any difference if Susan and Vladimir were long-time members of a weekly book club? What if Susan sat on the Human Resources Committee that approved bonuses for senior staff, including Vladimir?

One can see that there are no hard-and-fast rules when it comes to perceived conflicts of interest or appearance of impropriety; sometimes the "smell test" is the best guide. A simple check is to imagine how this information, if reported on the front page of the local newspaper, would affect other stakeholders of the organization. Would other suppliers complain about the process? Would donors cancel their pledge commitments? Would potential volunteers feel wary about being engaged with this organization? Would employees feel embarrassed or upset by the media story?

The Continuum of Suspect Behavior

Let us move out of the relatively clear situation of conflicts of interest and dive into the murkier waters of impropriety. Consider the following scenarios as we test the behavioral continuum. At one end is illegal activity; the opposite end relates to behavior that falls within the private domain.

Background Facts

Tom Tenacious is a young bachelor and the vice president of external relations and advancement for a university in a mid-sized city. He has been asked by the university''s nominating committee and its president to approach a recently published author, Rosie Romantic, who is an alumna from the 1980s, to join the board of governors. It is an expectation of all board members that they make a gift to the university. The bonus component of Tom''s compensation relates in part to achieving certain revenue goals.

The board wants to address the gender imbalance on the board and add luster to its ranks. The president of the university sits on the panel of a national award that recognizes literary talent, and Rosie''s book has been short-listed for the competition. Rosie has recently and acrimoniously separated from her partner, who is a reporter for the city''s newspaper, the Daily Tattler.

Scenario A Tom arranges to meet Rosie for dinner at a local restaurant. He is enchanted with her, and after too many glasses of wine, he escorts her to the parking lot. Rosie reaches into her purse and hands Tom an autographed copy of her new book. He misinterprets this gesture and makes a sexual overture. Rosie bursts into tears and threatens to call the president and take this "to the papers." A crowd gathers.

Scenario B Tom arranges to meet Rosie for dinner at a local restaurant. Rosie knows Tom finds her attractive. She wants Tom to influence the president''s vote on the national literary award committee; she argues if she wins, then it is a big coup for the university to have her on the board. She does not agree immediately to come on to the board, and Tom takes her out for dinner on four subsequent occasions, charging the meals and alcohol to the university''s charge account. He promises to speak with the president, noting that Rosie has a great chance of winning the top prize even without his conversation. A reporter for the society column in the Daily Tattler snaps a shot of the couple leaving one of the city''s more upscale restaurants and writes: "Rosie Romantic seen on the arm of Tom Tenacious at the Lulu Lounge, again."

Scenario C Tom arranges to meet Rosie for coffee with the chair of the English Department on campus. Tom finds her attractive but sticks to the task of testing her interest in joining the board. Rosie mentions that the president sits on the national literary award committee. Tom confirms but offers no further comment. Two weeks later, Rosie indicates she does not wish to join the board. A month later she wins second place in the national literary awards. Six months later, Tom invites her out for dinner socially. A relationship develops. While discreet, they are not secretive. The Daily Tattler features a story on Rosie Romantic, with a comment, "Rosie has been seen around town frequently with young Tom Tenacious."

In Scenario A, Tom has, at the minimum, behaved inappropriately and may have committed the criminal offense of sexual harassment. Other questionable matters include whether he ought to have been drinking alcohol on a business meeting. In many institutions, alcohol cannot be expensed as a "cost of doing business." Was the restaurant lavish, or was it comparable to venues normally used on university business? The consequences of impropriety relate not only to the individuals directly involved, but spill over and may affect the employer''s reputation. It is not accurate to claim that impropriety is only experienced by the involved parties. An individual can be offended; the community will judge the behavior as unacceptable if it has crossed the threshold of impropriety. Tom''s overtures were not welcomed by Rosie. Others witnessed the incident. If this is reported in the media, Tom has potentially compromised the university and may damage its reputation. Predictable consequences for the university range from losing funding from donors who feel a loss of trust in the leadership of the institution, to hurting enrollment numbers if parents or students feel the administration is morally adrift, to causing employees to be upset by the actions of a colleague who represents their institution.

(Continues...)

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Excerpted from Ethical Fundraisingby Janice Gow Pettey Copyright © 2008 by Bob J. Calder. Excerpted by permission.
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