The role of ethics and compliance in the nonprofit boardroom
Issues around ethics and compliance have a strong presence in most nonprofit boardrooms — and if they don’t, they should. With the complexity of regulations affecting many areas and shifting ethical priorities around the environment, personal identity and newer issues like AI use, ethics and compliance can easily be a recurring topic at every board meeting.
In the corporate world, the responsibility for ethics and compliance often starts in the C-suite. About 60 percent of companies have a dedicated chief compliance officer, according to Deloitte. While this role may not be as prevalent in mission-driven organizations, the responsibility for this oversight can fall to one or more members of the board — individuals who may have little experience with this responsibility and need help to understand it.
We’ll examine how ethics and compliance strategies can affect your organization and how a board management solution can support these efforts.
Understanding the difference between compliance and ethics
Though closely related, ethics and compliance are not the same.
Compliance simply means following laws, rules or policies to the letter of the law. The government requires compliance from all incorporated entities, and it’s up to boards to establish policies that ensure it.
Ethics means doing what is right regardless of what the law says. As we see from history, it’s entirely possible to be ethical without being compliant; think of conscientious objectors. Our personal values system, including our character, values and core principles, guides us when we make decisions.
Benefits and costs of ethics on the nonprofit culture
The news is full of stories of ethical and compliance missteps, and there’s a good chance your opinions of an entity or brand have permanently changed due to one of these incidents, whether it involved a Texas ice cream company or a global car manufacturer. For nonprofits, the fallout from an ethical misstep can be equally devastating.
Building an organization’s ethical culture requires planning, commitment and follow-through, and board members might be concerned about the cost versus the benefits. But as one writer noted in Ethikos magazine, “Protecting reputation alone would be more than enough to justify a compliance and ethics program,” and doing the right thing has meaningful rewards. These can include:
- Avoiding litigation
- Protecting the organization and its employees from fraud and abuse
- Reducing waste, whether financial or of other resources
- Building a reputation that attracts top talent
In a workplace setting, strong ethics lead to improving employee morale. Organizations with strong ethics and compliance programs discourage employee misconduct and encourage employees to report misconduct by others. These outcomes can apply to volunteers and other stakeholders in a nonprofit setting.
As Jeremy Reis, Senior Director of Marketing for World Concern, points out, “Leadership isn’t just about deciding what to do, it’s also about knowing what not to do.”
“Leadership isn’t just about deciding what to do, it’s also about knowing what not to do.” – Jeremy Reis, Senior Director of Marketing for World Concern
Encouraging ethical, compliant behaviors in your organization
So, how can organizations use the relationship between ethics and compliance to prevent misconduct?
It’s obviously not possible to compel individuals to make the right decisions and do the right thing in every case. Nonetheless, it is possible for organizations to create an environment that supports desirable actions in the board, employees, volunteers and others.
A famous model called the “fraud triangle” shows how the overlap between opportunity, rationalization and pressure creates the perfect storm for fraud. Employers can’t always remove the external pressures individuals face and rationalizations they create, but organizational policies can and should be designed to balance internal pressures individuals face and limit the opportunity to violate the law.
A common way that organizations remove opportunity, for example, is by setting limits and careful oversight on spending and reimbursement. Pressures placed on team members to perform can increase the temptation to take unethical short cuts, while that temptation can be lessened with established expectations of behavioral integrity.
Establishing policies and programs for ethics and compliance
Without question, all organizations should have a strong and effective compliance program supported by thoughtful policies.
Organizations can educate employees by regularly producing messages about ethics, integrity and doing the right thing. Training and messaging form a large part of promoting strong ethics and compliance. The other part of the process is to hold employees accountable when they aren’t behaving in ethical ways.
Establishing ethics policies that promote values and integrity
In addition to regular messaging, boards should adopt and regularly review their policies that encourage ethical and compliant behaviors — and discourage misconduct. These may include:
- Statements of values, mission statements and other guiding documents
- Conflict of interest policies
- Document retention policies
- Guidance for ethical fundraising
- Whistleblower policies
Some of these will be clearly guided by regulations, while others will require education, discussion and reflection. Take recent concerns around concierge donor stewardship — a strategy some healthcare organizations are employing.
Using a board management solution to support ethics and compliance
Your organization’s board management solution can be an effective tool to encourage work around ethics and compliance. BoardEffect offers these relevant features:
- Secure workrooms for committees and teams to collaborate easily
- Approval workflows to ensure the relevant topics end up on the board agenda
- A searchable, organized document library that offers easy access for a deeper dive on big topics
- The tailored survey tool can be used to collect conflict of interest information
Ethics and compliance should touch everything a volunteer board does. At Diligent, we understand the importance of being good while doing good, and we offer BoardEffect to support mission-driven organizations in honoring their values and serving their communities.
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BoardEffect, as a Diligent brand, helps to serve more than 14,000 mission-driven organizations globally.
