Organizational culture starts and ends with board ethics

Organizational culture is made up of the values, beliefs and attitudes of the employees and leadership of that organization. Culture influences how employees treat each other, as well as how they interact with constituents, volunteers, vendors, donors and partners.

A culture based on ethical values and behaviors creates strong and successful organizations. And an ethical culture starts with the leadership:

• The board of directors
• Executive director
• Top managers.

Everyone within the organization gets a sense of its values through the words and actions of their leaders.

Examples of ethical values include honesty, fairness and respect. It also includes faithful adherence to the state and federal rules and regulations that govern nonprofit organizations. When leaders act in an ethical manner, they model the behavior for their employees. Their culture impacts not only employees, but also volunteers, constituents, community members, donors, and business partners.

Developing and following the rules

Boards of nonprofit and mission-driven organizations often are made up of a diverse group of people who bring different strengths and skills to the table. They also may bring different ideas of what constitutes ethical behavior.

Developing a code of ethics or code of conduct for their organization helps board members come to a mutual understanding of ethical behavior. It’s also a way to reinforce to board members that their actions influence and impact the organization in multifaceted and complex ways.

A code of ethics should draw on the mission and values of the organization. It may define conflicts of interest, transparent decision-making, employment and hiring practices, and vendor and donor relationships.

Once developed, the code should be widely distributed both inside and outside the organization.

“A strong ethical foundation is not just about avoiding negative consequences; it’s about building a resilient and respected organization that can make a lasting impact.” – Maya Tussing, Fairlight Advisors

Federal and state laws governing nonprofits

Ensuring that boards and organizations are in compliance with federal and state laws should also be part of the ethics-based culture of the organization and the board.

Many nonprofits and mission-driven organizations have tax-exempt status. The IRS has reporting requirements for organizations that are tax-exempt that, if not followed, could put an organization’s status in jeopardy.

The IRS has specific requirements for ethical behavior for board members and leadership of charitable organizations. The guiding principle is that they “must not be organized or operated for the benefit of private interests.”

The IRS also requires reporting on governance practices that “demonstrate accountability and transparency.”

In addition to federal requirements, nonprofits may be governed by state laws that address ethics as well.

Good governance means having solid processes in place — rules that build a foundation, policies that guide your next steps, and coordinated activities that ensure informed oversight. Good governance depends on people. Leaders set the tone at the top for collaboration, thoughtful deliberation, and giving all stakeholders a voice. Download our good governance guide today to transform data into strategic success and drive exceptional performance.

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Ethics is a board responsibility

The responsibility for ethical behavior anywhere within the organization falls squarely on the board because they are responsible for oversight and decision-making. The board sets the tone of the organization by creating and updating an ethics code or code of conduct for themselves and for others in the organization.

This is not a symbolic responsibility: Board members can be held liable for the actions of their organization and their employees. That liability can result in fines and even prison sentences. Unfortunately, there is not a law for every circumstance.

Adding to the confusion is that laws are subject to interpretation by people, lawyers, judges and courts of law. Legal counsel can help boards avoid liability. They can review ethics codes and advise when ethics are a factor in a decision and the law isn’t clear.

Creating and ethical culture is hard but valuable

A code of ethics is merely a code  unless a culture of ethics drives it. It’s good to develop a code of ethics on paper to send to vendors, employees and volunteers. However, the real test is whether the board and managers put the code into action.

Board members first need to identify the needs of their stakeholders and then make sure all their policies and systems align with those needs. Boards should prioritize scrutinizing the tone of their communications, effectively acting as role models and providing oversight to make sure that the organization’s values are being upheld right down to the employees and constituents.

Boards should make the creation and evaluation of an ethical culture part of their meeting agendas and planning sessions.

The dangers of unethical or even ethically murky behavior is clear: When leaders act unethically, it can cause others in the organization to make poor and selfish decisions. The loss of public trust that comes with unethical behavior can be difficult, if not impossible to regain. There’s a lot at stake for the board and the organization.

The best thing that board members can do for the board and for their organizations is to commit to developing a culture with strong ethical values.

Find out how BoardEffect management system helps build, maintain and support an ethical culture for your board. Request a demo today.