Chapter 3 Legal and Ethical Imperatives for Leadership – Best of Boards, 2nd Edition

Chapter 3
Legal and Ethical Imperatives for Leadership

WholeHealth is a nonprofit health system operating hospitals, specialty clinics, home health, and hospice services. WholeHealth was among four finalists submitting bids for a multimillion dollar contract to provide health services to the state’s employees. During a lunch break in the bidders’ conference, an executive assistant tidying the room found, in plain sight, the figures submitted by the three other competing health providers. Acutely aware of the significance of the contract for WholeHealth, the assistant alerted her boss, the vice president of medical care management, who instructed her to copy the paper and return it to the conference room. He reasoned that WholeHealth might or might not want to use the information, and having the information would keep all of their options open. When he met at the end of the day with Helen, the CFO, to brief her about the negotiations, he also told her about obtaining the competitor’s data. Shocked, she held up her hands and said, “Have you looked at them?” "Of course I skimmed them. We’re definitely in the ballpark, but not the lowest bid at this point." Helen interrupted, "Stop right there. I don’t want to know any more until I’ve had a chance to talk with Hal (WholeHealth’s COO).

The dilemma facing Helen and Hal involves both legal and ethical issues. Is it legal to have taken and copied a proprietary document? Is it legal to obtain a contract by dishonest means? Having obtained the information, what is the ethical thing to do?

Should WholeHealth admit the mistake and risk losing this contract, its reputation, and future business with the state (and possibly with others)? Loss of this or other contracts would have devastating effects on the organization’s programs and workforce.

Should WholeHealth acknowledge the situation and blame it on the workers who copied the bids? Separating the organization’s ethics from the individuals’ might spare WholeHealth from censure, but would this be a fair and just action? What message would it send to the rest of the workforce?

Should WholeHealth use the advantageous, if ill-gotten, information? The vice president argued that the ends (a big contract, good health care for state employees, and financial stability for WholeHealth) justify the means by which the bid was gotten and suggested that the information may have been intentionally left in the hope that WholeHealth would use it to get the inside track or in order to entice and entrap the organization in wrongdoing.

Should WholeHealth destroy the competitive information and place a firewall between individuals with the information and those who will take part in subsequent negotiations on the bid? This option would not permit WholeHealth to benefit from the information. Is that sufficient?

Whether in the public, corporate, or nonprofit sector, individuals in administrative and leadership positions face unique challenges as they strive to balance competing demands, values, and constituencies. With such responsibilities also comes great power. It is easy to identify leaders who have used their positions to improve communities and create healthy and effective workplaces. Unfortunately, it is perhaps easier to identify administrators whose decisions were personally ruinous as well as destructive to employees, customers, and other constituencies of their organizations. This chapter examines the ethical and legal standards that impinge on the paid and volunteer leaders of nonprofit organizations (NPOs) and suggests strategies for ensuring ethically and legally sound decisions.

Legal Accountability

The passage from the Book of Luke, “From those to whom much has been given, much will be expected,” aptly captures the position of NPOs in the United States. Voluntary and philanthropic organizations benefit society by addressing fundamental human needs; contributing to civic well-being through education, conservation, arts and music, and interpersonal associations; and acquiring and allocating resources. In light of these honorable aims, individuals contribute time and money to nonprofits, and governments acknowledge the role of nonprofits though tax exemptions. In exchange for these benefits, nonprofits are expected to be careful stewards of their resources, to be trustworthy in carrying out their missions, and to be responsible for self-regulation through trustees and governing boards. “Those who presume to serve the public good assume a public trust.” 1

The most fundamental level of accountability is legal. Nonprofits are expected to abide by local, state, and federal statutes. These laws pertain to a vast array of issues such as

  • governance,
  • solicitations and other financial transactions,
  • personnel matters,
  • representation of mission and activities,
  • delivery of services, and
  • zoning and property management.

Unfortunately, there are abundant examples of illegal behavior on the part of nonprofits, including

  • excessive executive compensation,
  • embezzlement,
  • diversion of charitable funds,
  • investment fraud,
  • mismanagement,
  • kickbacks,
  • “sweetheart” contracts with friends and relatives,
  • money laundering and conspiracy,
  • telemarketing scams,
  • fraudulent solicitation,
  • sexual misconduct, and
  • misappropriation of funds for personal uses. 2, 3

The penalties for illegal conduct vary, depending on the violation and determinations about the degree to which the error was incidental, accidental, or volitional. Punishments can include fines, restitution, placement in receivership, consent agreements governing future conduct, withdrawal of tax-exempt charitable status, and imprisonment. Nonprofit scandals also extract other prices, including the destruction of individual and organizational reputations, the erosion of trust, shame, and even suicide.

Legal compliance is a complex and far-reaching element of nonprofit leadership. Despite that, it is only the baseline for accountability and trustworthiness. It is not enough for an organization to behave legally; it must behave ethically as well.

Ethical Accountability

Like laws, ethics involve determinations between right and wrong. However, although laws specifically stipulate or forbid particular actions, ethics can either be specified (in professional standards or ethical codes), or they can exist as values and principles that must be interpreted and applied by individuals and organizations.

In the first instance, ethics take the form of rules for conduct. They are set forth by professional associations, accrediting agencies, and individual organizations to communicate expectations of behavior. For example, a profession’s code of ethics may have standards addressing conflicts of interest with patients, an accrediting agency’s code might address confidentiality and the proper handling of electronic records, and an individual organization’s code might address the process for respectfully resolving disputes or effectively diversifying the staff and clientele. Some ethical standards are ideal—that is, they exist to articulate an organization’s highest aspirations and to create norms of behavior that live up to those ideals. Other standards are enforceable rather than merely aspirational. Like laws, they can be used to set forth firm expectations and penalties for violations of those expectations. For example, a code of ethics that forbids exploitive relationships with a nonprofit’s donors or clients would lay the foundation for censure of employees and trustees who behave unethically.

In contrast to the ethics that are codified, ethics are also “the rules you carry around with yourself.” Each of us has a sense of right and wrong that is cultivated by our upbringing, our moral and faith traditions, and our experiences and values. Is it acceptable to lie on a resume? Is it okay to download copyrighted material? Or, is it okay to “borrow” a bidding sheet to get a competitive advantage for a state contract? Deciding what is ethical means looking at questions such as these and arriving at a yes or no answer based on principles such as honesty, integrity, trustworthiness, fairness, and responsibility. But even when a group of people embraces those principles, each may not apply them in the same way. Herein rests the complexity of ethical decision-making.

One school of thought about what is “right” takes the stance that if something is wrong, it is wrong in all conditions. Known as rule-based decision-making or deontology, this perspective would suggest that if it is ethical to be honest, one should be honest in all conditions. In viewing the case at the beginning of the chapter, deontologists would say that if taking and using the bid is right, then we should permit everyone to do it in all circumstances.

An alternative to rule-based decision-making is the utilitarian perspective. It maintains that what is “right” depends on the outcome or consequences. Sometimes this view is embodied in the notion that we should do what brings the greatest good for the greatest number of people. If the consequence of getting the competitors’ information is that it advantages WholeHealth, its employees, and patients, would that be a right decision, even if the way it was obtained was “wrong?”

A third perspective on ethics is a care-based approach, which would hold the good of the relationship as the defining characteristic of a “right” decision. Applying this view means that one must consider the effect a choice will have on the relationship involved in the dilemma and choose the path that preserves and honors the relationship. Preserving the trust of state contractors and fellow providers would take precedence in a care-based perspective over outcomes or rules.

Still another approach focuses on the principle of justice. It suggests that what is right is whatever one would choose to do without knowing what position he or she might hold in the matter. Under this model, what would be right for WholeHealth would be the option that they would choose if they didn’t know whether they would be a competing agency, themselves, or the state contractor. From this “veil of ignorance,” 4 WholeHealth would probably choose not to use the bid information; perhaps they would even admit to the error in taking it.

This is typically the point where readers pull out their hair and scream about hating ethics. Some just shrug and say, “If there are different ways to decide what’s right, does it make any difference what I choose?” Others conclude, “Look, I know what’s right and wrong. I don’t need to analyze it and I don’t need to worry about anybody else but myself.” All of these are understandable and commonly held positions. Although it is possible to empathize, these myths cannot stand unchallenged. Why?

Society, communities, groups, and organizations need ethics to function effectively. Common principles and standards of right and wrong bind us and guide us through complex decisions. They help us avoid the anarchy and chaos that arise when everyone acts according to individual standards and self-interest.

That said, ethical decisions fall along a continuum. Some choices are clearly ethical or unethical. Others present dilemmas in which principles conflict and analysis and discussion are needed to discern the proper path. Taking and copying proprietary information is unethical. Deciding what to do about it is a dilemma of competing principles. Honesty and trustworthiness would compel disclosure of the theft; fairness to other bidders and responsibility to WholeHealth’s wellbeing would argue for nondisclosure but also for destroying the stolen information so as not to unfairly advantage WholeHealth in the bidding. Both choices then, are “ethical,” so discussion involves which is the better, more principled choice between two acceptable alternatives.

Understanding different philosophies for determining what is right is indispensable for effective, open discussion of ethical dilemmas. Care-based, rule-based, outcome-based, and justice-based perspectives may lead to different choices, but their real gift is in illuminating the pros and cons of different options and emphases. Too much focus on outcomes means those in the minority always lose out to the majority. Too much emphasis on rules fails to account for the context in which rules are applied. Too much emphasis on the relationship may privilege loyalty over fairness. Too much emphasis on justice may mean sacrificing one’s well being for the least compelling option.

For nonprofits, ethical behavior is essential to public trust. NPOs and those affiliated with them are held to a higher standard than the law and a higher standard than other sectors of society. Ethical accountability is a business imperative.

Management, employees, contractors, volunteers, and directors are all responsible for the integrity of the organization. It is not sufficient to be doing the right thing while standing aside in the presence of unethical behavior. As citizens and nonprofit leaders, we must constantly wrestle with the tension between respecting the rights and prerogatives of others and the need to uphold organizational and community standards. Chapter 11 addresses this tension, examining when and how we act to support ethical principles.

Accountability in nonprofits means being both ethical and legal. Neither standard alone is enough: some things that are legal are not ethical. For example, it is legal for nonprofit executives and board members to fly first class and enjoy lavish meals and accommodations, but it is not an ethical use of funds for the small and struggling NPO. It is legal for a nonprofit to feature clients’ pictures and stories in fundraising appeals, but it is not ethical to reveal their private information in that way. It is legal to compensate the director of development by awarding bonuses based on funds raised, but such arrangements are considered potentially risky conflicts of interest. In light of their public trust, NPOs must operate in ways that are above reproach. Even behaviors that can ultimately be justified may alienate donors, clients, and other important stakeholders. When faced with ethical gray areas, management and boards should consider how news accounts, IRS Form 990 reporting, and other accountability mechanisms might view their choices. Finally, some actions are both illegal and unethical, for example, fraudulent reporting on the Form 990, intentional accounting misstatement, discriminatory treatment of patients and employees, preferential jobs for family members, and diversion of funds from their intended programs. These should not constitute ethical and legal dilemmas; however, the NPO must still be assiduous in identifying and addressing them when they occur.

Who is Accountable for Accountability?

Given the high accountability bar for nonprofits, who is responsible for staying on top of ethical and legal practices? Ultimately, everyone associated with an organization is accountable for his or her own actions and those of the group as a whole. The board of directors, however, holds particular legal responsibility for the direction and integrity of the nonprofit. This fiduciary responsibility, or position of trust, is both a legal and an ethical imperative for board members. The failure to ably carry out this role puts the entire enterprise in jeopardy.

Examinations of nonprofit scandals reveal several common symptoms of governance failures, including "failure to supervise operations, improper delegation of authority, neglect of assets, failure to ask the ‘right questions,’ lack of oversight of the CEO, failure to institute internal controls, absence of ‘checks and balances’ in procedures and practices, and isolation of board members from staff, programs and clients." 56 Although board members can’t know everything, they must have the systems and norms in place to ensure ethical and legal conduct. And they must have the capacity to seek and evaluate information and not simply to avoid scandal but to ensure that the nonprofit lives up to the trust bestowed upon it.

Outside the organization, other groups strive to assist in transparency and accountability. The IRS and other regulatory agencies, credentialing bodies such as the Council on Accreditation, and The Joint Commission conduct periodic, in-depth reviews and place a seal of approval on worthy organizations. Watchdog programs such as Guidestar, the Better Business Bureau Wise Giving Alliance, and The American Institute of Philanthropy provide benchmarks, ratings, and data to help prospective administrators, volunteers, and donors evaluate NPOs.

How to Instill Ethical and Legal Accountability

There are many strategies for ethical and legal accountability in nonprofits. None alone will suffice, but each is a step in the right direction. In the coming chapters, we address many of these key strategies in detail, but let’s review each briefly here.

Honest Communications

Board members, executive management, and staff have and use communication mechanisms to raise concerns, share observations, ask questions, and respectfully deliberate even when they disagree. This means that people put the well-being of the organization above their personal interests so that conflicts do not result in divisiveness, sabotage, or backstabbing. The communication mechanisms facilitate thorough and forthright appraisal of problems, opportunities, options, and consequences. The ability to communicate facilitates organizational innovation and growth, helps avoid legal and ethical quagmires, and promotes constructive dialogue about difficult legal, moral, or strategic issues.

Strong Relationships

The board, executives, and staff should be linked by knowledge of and respect for each other.7 Individuals need to know those with whom they interact most often—their interests in the nonprofit, backgrounds, activities, talents, weaknesses, interpersonal styles, and the like. Building these reciprocal ties allows a deeper understanding of individual approaches and motivations and creates cohesion that facilitates trust, cooperation, communication, accountability, and even confrontation when needed. Building social capital among the staff and leadership helps NPOs celebrate successes, make wise decisions, weather tough times, and keep the organization’s needs in the forefront.

Internal Controls

Internal controls refer to an organization’s systems for managing and monitoring resources, detecting fraud, and promoting accountability. Internal controls involve a variety of processes, linked to the organization’s objectives, that ensure that those objectives are met in an efficient and effective manner and that requirements for financial and legal compliance are met. As such, most of the individuals and elements in an NPO bear responsibility for some or all of these processes.

Clear Expectations

Clear expectations are inherent in internal controls, but they go beyond processes and procedures to shape behavior in other ways. Successful, ethical organizations set forth clear expectations for board members, executives, and staff that are communicated in the form of position descriptions, orientations, policies, board and staff development activities, and periodic evaluations. Healthy NPOs have a clear organizational direction that is linked to the mission and strategic planning or other objective-setting activities. They have well articulated expectations for outcomes, and these are used to evaluate management, assess efficacy and efficiency, make programmatic decisions, and serve as benchmarks for growth. Further, there are clear expectations for behavior, set and modeled from the top, that indicate the NPO’s commitment to transparency, integrity, honesty, and other ethical principles. These expectations can be conveyed in written or electronic documents (such as a code of conduct, policies, and procedures) and in daily interactions wherein the norms are part of the dialogue in committee and board meetings, personnel evaluations, and trouble-shooting sessions.

Skilled Boards

Boards of directors or boards of trustees have significant responsibility for the direction and well-being of their NPOs. In perhaps its most important function, the board hires and evaluates the CEO who is then responsible for leadership decisions that permeate the rest of the organization. Selection of a person with the skills, integrity, commitment, and vision to lead a complex organization sets the stage for the practices that will follow.

Involved and Informed Boards

Proper governance requires having the right people around the table. Often boards seek members with expertise in accounting, law, or the organization’s niche or mission (health care, the arts, or domestic violence, for example). Often NPOs seek members whose financial wherewithal or connections may benefit the organization. Board membership should reflect a mix of abilities and backgrounds, but all members should be united in their willingness to commit time and talents to governance of the NPO. Board members should be dedicated to the nonprofit’s mission and familiar with its operational environment. They should be objective and inquisitive. Although the board’s role is not to serve as a micromanager, it must avoid the other end of the continuum: a hands-off or rubber stamping function that may allow unethical or illegal activities to go unchecked.

Financial, Document, and Ethics Audits

At their essence, audits are periodic tests to determine whether an organization’s practices are in keeping with accepted standards. Therefore, financial audits examine and assess an organization’s financial statements, records audits examine patient files and treatment notes, and ethics audits review compliance with ethical standards. These and other assessments can be done internally or externally; some are voluntary (ethics audits), and others are mandatory (financial audits) or required as part of larger accreditation procedures (records audits). Audits should result in an objective appraisal of the organization’s compliance. As executives and board members receive the findings, they bear responsibility for action to address areas of weakness or failure. Audits can serve as early warning signs of dysfunction, incompetence, or corruption; it is incumbent on the leadership to act on the warning offered.

Compliance Officers

Most nonprofits have at least one individual tasked with responsibility for monitoring ethical and regulatory compliance. In some organizations, this may be part of a position’s larger portfolio of duties, or it may be the primary responsibility for a Chief Compliance Officer (CCO). Depending on the organization, the CCO might interpret and monitor compliance with federal privacy laws, serve on the audit committee, devise and oversee harassment policies, or consult with the board and other members of the management team.8 The CCO plays a role that is both proactive and reactive in regard to organizational integrity. He or she designs policies, educational programs, and structures to prevent and identify unethical or illegal behavior and offers mechanisms to encourage reports, investigating, and intervening as circumstances require. Compliance programs are not simply intended to avoid scandal but rather to foster trust and streamline communications so that all members of the organization see ethics as their responsibility.

Resolving Dilemmas

How should NPO staff, executives, and trustees determine the “right” course of action when principles are in conflict? Numerous variations exist, but the fundamental ethical decision-making model requires individuals or groups to consider and weigh the options available, striving to maximize “goods” and minimize harms in choosing a course of action. One example of a decision-making model follows a useful and memorable ABCDE format: 9

A.    Assess options

B.    Be mindful of process

C.    Consult

D.    Document

E.    Evaluate

The steps can be applied in any order—they do not need to be performed in a linear A to E fashion—and they can be applied either prior to arriving at a decision or retrospectively in determining whether an urgent or spontaneous decision was sound.

Assessing options means generating and weighing various possibilities, as indicated in the WholeHealth case at the outset of the chapter. Some options may be mutually exclusive; others might be combined or employed in a stepwise fashion. The key is to get as many alternatives on the table as possible and to avoid narrow, dichotomous thinking. It is rare that there are only two possibilities.

The next step is to consider the merits of each option. Which choices are legal? Which are congruent with ethical theories and with principles such as integrity, trustworthiness, responsibility, and fairness? Which are aligned with organizational and professional policies, values, and standards? What facts of the case are relevant for various choices? What information is needed to better understand the pros and cons of the various options?

As a result of this process, some alternatives will be ruled out as illegal, unethical, or not feasible. Others will be brought into sharper perspective. This step may be revisited a number of times in the decision-making process as new information and ideas are brought to bear on the dilemma.

Being mindful of process means considering not simply what to do but how to do it. What strategies are available for carrying out the options? Sometimes, considering the process for enacting an alternative makes it more viable or compelling—or less. Who should carry the message? Should communications be in person or in writing? Attention to process involves considering the time, place, participants, approach, and even the words in carrying out an ethical decision. Considerations of process also help rule out some strategies as illegal, unethical, or unsound. For example, it would be inappropriate to go to the media about an organizational problem without first considering or attempting established internal reporting or problem solving procedures. Deception, threats, and other such tactics are also ill-advised in that they undermine the very integrity that the individual is trying to achieve.

Consultation speaks to the benefits of dialogue and discussion. Seeking supervisory guidance, professional expertise, or peer feedback helps in the identification and evaluation of options, the evaluation of past decisions, and the generation of strategies or processes for action. Consultants may be in-house; current or former board members; part of local professional or nonprofit networks; affiliated with national NPO associations; or ad hoc resources with legal, financial, or other specialized expertise. And consultation is not just limited to people. Vast resources exist to guide board members and executives. Books and articles, best practice summaries, interpretive guidelines, and other tools are available commercially and through national nonprofit affiliates and associations. Resources such as these are also valuable in building an NPO’s capacity for identifying and addressing ethical challenges before specific dilemmas arise.

On occasion, individuals and organizations resist consultation in the name of patient privacy, proprietary interests, or other confidentiality concerns. Certainly confidential sources of assistance exist, and beyond those, individuals can seek advice without divulging the specifics of a situation. Valuable input can be obtained simply by sharing the broad outlines of a dilemma and the nature of the principles in conflict. Privacy, embarrassment, shame, pride, and fear are all understandable reasons to resist obtaining input in solving leadership dilemmas. However, the failure to seek and use expertise is negligent because the individual’s comfort is put ahead of the organization’s needs.

Documentation is an essential element of risk management. The old adage “if it isn’t written down, it didn’t happen” applies here. Personal notes, meeting minutes, and case records are all venues for recording the options considered and discarded, advice received, and processes used in reaching a decision in an ethical dilemma. When cases are precedent-setting, such records help create the foundation for congruent future decisions. If decisions come under scrutiny or litigation, contemporaneous documentation demonstrates that thoughtful processes were used to come to or reflect upon an ethical dilemma. It spells out the tradeoffs and principles brought to bear in choosing one direction over another. Reluctance to keep records and supporting documentation about a decision, its rationale, and the process by which it was made raises red flags about integrity and transparency. The principle of publicity asks the decision maker “Would you be comfortable if others knew about your decision—could it withstand the light of day?” Decisions that can’t withstand the principle of publicity should raise red flags.

Evaluation involves attention to the intended and unintended consequences of an ethical decision. Was the outcome what was expected? If so, to what can that be attributed: luck, the decision process, execution? If the outcome was not what was expected, can anything be done to remedy the situation and prevent a recurrence? Because ethical dilemmas sometimes involve a choice among multiple objectionable alternatives, evaluation cannot rest on the quality of the outcome alone. It must also address process. Were the right people involved? Were relevant facts and viewpoints weighted appropriately? Were consequences accurately anticipated? Were harms mitigated and benefits maximized? Were strategies for carrying out the decision used effectively?

Evaluation, documentation, and consultation go hand-in-hand. They not only address the immediate dilemma, but they also build capacity for more easily addressing future dilemmas.

Sometimes, the use of models such as this will identify an ideal solution to the dilemma at hand. At other times, though, the result is improved clarity rather than consensus. That is, the process generates options and illuminates the risks and benefits of each, but, ultimately, it is incumbent on the users to weigh the pros and cons to select and implement the one that they judge best. The model supplies the support and rationale for the given choice but not the choice itself.

What About WholeHealth?

At the outset of the chapter, we identified four options for Hal and Helen in ethically dealing with the improperly obtained bid information, though savvy readers may generate still other possibilities. Two choices involve acknowledging the error; one of these would place the blame on the worker who took the data, and in the other, the organization takes responsibility. In the third option, WholeHealth would destroy the information and exclude those who possess the information from further bid negotiations. The final alternative would have WholeHealth use the information for their strategic advantage.

How do the options stack up when weighed by ethical principles and standards, policies, and laws? The fourth choice, using the information, is clearly the least desirable. Although the organization may value competitiveness and financial success, it should not come at the cost of integrity, honesty, and legality. The message sent (of winning at any cost) would have destructive consequences for WholeHealth if applied to any situation, and the use of the bid itself could be ruinous to the organization if the act were ultimately revealed.

Similar concerns apply to the decision to admit the mistake but attribute it to the workers involved. Certainly, those involved in taking and copying the information should be held accountable, but making them the scapegoats to save the organization violates principles of fairness, honesty, and trustworthiness. We don’t know enough about WholeHealth to determine if such censure is congruent with the organization’s values or policies. Blaming the individual workers may send a message that WholeHealth does not tolerate deceit, but it may also send a message that the agency will not stand behind its workers when they are doing something in good faith that they believe coincides with the agency’s interests.

If WholeHealth admits that the documents were taken and copied, it would certainly be upholding principles of honesty, fairness, and trustworthiness. It might be exposing itself to legal sanctions for theft of the information, but it certainly would better position itself by being forthright in revealing the misdeed. The consequences of acknowledging the bid copying are hard to judge. Revealing it may damage WholeHealth’s reputation and jeopardize receipt of the current and future contracts, to the detriment of staff, patients, and the organization as a whole. On the other hand, forthrightness may play into WholeHealth’s favor, identifying them as an organization willing to take the moral high road, admit errors, and do what is needed to correct those errors. In this, it might renew or strengthen the confidence of funders, patients, and the public. It would also send employees a powerful message from the top about the company’s values.

Deciding not to reveal the information, but rather to mitigate the damage, presents advantages and disadvantages. It upholds the principle of fairness in the bidding process while not being wholly truthful or trustworthy in doing so. It protects WholeHealth from the damage that might arise from revealing improper behavior. As long as it remains a secret, the misuse of the bid and efforts to address it would have no effect on WholeHealth’s employees, patients, or reputation. However, keeping a secret is difficult. As often happens in scandals, efforts to contain the information may create greater damage than the initial error. If the bid copying is revealed at a later date, it could cast doubt on WholeHealth’s integrity and on whether the organization really avoided using the ill-gotten information. Legal and financial penalties might ensue, and it would be too late for WholeHealth to regain the high ground.

Assessing the options reveals that all have pros and cons, though some have greater disadvantages than others. The process for implementing the selected path should be part of future discussions: If the theft is to be revealed, who should be told? How? When? By whom? Hal and Helen must begin their consultation with the CEO, who should then involve the board chair. The two predominant leaders will likely relieve Hal and Helen from responsibility for the decision but might well seek their input throughout the process. The CEO and president should also consult with legal counsel, other board members, and staff responsible for communications and marketing. These discussions will help identify the legal implications of taking the bid, add new dimensions in weighing options, identify new options, and devise a strategy for rolling out (or containing) any information about the ethical dilemma. Individuals involved in the case may also seek personal advice and assistance from legal experts, spiritual leaders, mentors, or other trusted consultants. This is particularly vital if those charged with making the decision disagree about the direction to take. Dissent about the ultimate decision may create an irretrievable breach among those involved. Sometimes these fissures heal with time, but in other instances, people “vote with their feet” and leave rather than accede to a direction they find unwise or morally bankrupt.

The individuals involved should keep personal records of their conversations, advice, and inclinations in the case. Similarly, all should be involved in evaluations of the ultimate outcome, examining the wisdom and durability of the decision, the strategy employed for carrying it out, the intended and unintended consequences, and the lessons learned. Even cases that end in tragedy and scandal can be instructive to other leaders and NPOs that aspire to ethical and successful management.


NPOs, their board members, executives, and staff are governed by an array of legal and ethical obligations. Failure to adhere to these obligations can put individual careers and the enterprise as a whole at risk. Each NPO should promulgate a code of conduct and designate a compliance officer to ensure adherence to policies and laws. In addition, each individual must bear responsibility for personal integrity, sound judgment, and fair dealing. NPOs can enhance the adherence and ethical action by promulgating a systematic process for decision-making. One such framework is suggested and applied in this chapter. Numerous resources exist for increasing ethical and legal capacities at NPOs. These are discussed in chapter 11 and on our website,