Feature
Feature
Feature
T
he global financial crisis has highlighted the importance
of applied ethics in all sectors of the economy. Given the
increasing size and complexity of the Third Sector, it has
also brought into focus the need for ethical decision-making
in not-for-profit organisations as they face the challenges of board
governance, transparency, investment strategy, compliance with
government contracts and accountability.
As a former CEO of Mission Australia and Society of St Vincent
de Paul I am aware of the challenges we face in managing complex
organisations and the mistakes I have made over the years. We are
often confronted with ethical dilemmas that have no easy resolution.
Ethics relates to our personal and organisation behaviour and asks the
question: What ought one to do?
The business case for ethics is about managing risk, building capacity
in our organisations, being accountable to donors, partners and the
public and enhancing the reputation of the sector.
Ethics looks at the quality of our relationships with staff, clients,
partners and the broader community. It also involves a capacity to
critically reflect on our practice and develop a culture where staff can
express dissenting views. It means compliance with the law, relevant
regulations and codes of conduct. It is also about being true to our
own values and the values of our organisation.
Two of the enemies of ethics are hypocrisy and unthinking custom
and practice. We have seen examples of these in the systematic abuse
of children by church and government institutions in the Senate
Report on the "Forgotten Children". Under the guise of providing
quality care in institutions where there was no questioning of authority
or custom, innocent children's lives were destroyed by the abusive
practices of so-called "carers".
The St James Ethics Centre has developed a decision-making model
that assists executives and board members to work through the ethical
dilemmas that confront them. It is based on the following process:
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Finding out the facts of the story
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Identifying the interests of the key stakeholders
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Understanding various ethical perspectives
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Applying relevant norms, codes and laws
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Framing the dilemma and testing it
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Choosing a course of action
There is also a checklist of principles that can be applied to the actions
we choose, such as:
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Sunlight test: Imagine your decision is on the front page of the
newspaper. Would you be happy to support it?
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Golden Rule: Would you accept this course of action if it was done
to you?
There are many ethical dilemmas within the sector. In relation to
board governance, a director's duties and responsibilities are for the
overall performance and compliance of the organisation. Critical
issues include: Does the board follow ASX Best Practice Corporate
Governance principles? How does the board manage risk in the
organisation? Do board members understand the business? Is there a
conflict of interest policy?
The level of executive remuneration in NFP organisations is a difficult
issue. Take the example of the CEO of an employment organisation
which competes with commercial companies in a privatized market.
The not-for-profit CEO has similar government contracts, outcomes
and performance issues as his/her peers in the commercial companies.
Should he/she be on a private sector-equivalent package? If so, would
the board be happy for it to be published in the newspaper? We need,
but lack, published not-for-profit industry benchmarks.
Advocates of socially responsible investments argue that NFPs
should have investment portfolios which are consistent with their
values. A counter-argument is that maximizing the financial return
on investment is the best way to further an organisation's mission.
A Sydney Morning Herald article on 16/10/09 reported that the
investment arm of the Anglican Church's Sydney diocese lost $160
million after its highly geared share portfolio crashed in the global
downturn. How does the investment strategy align with the church's
values? Where is the risk management?
The sector's relationship with government is a major issue. Complex
compliance obligations often apply to government contracts that take
up a large amount of administrative time. Reporting frameworks
can limit the capacity of not-for-profit organisations to innovate.
In addition, in pursuing government contracts, a not-for-profit
organisation can lose sight of its original mission and the people it
serves. For example, in 2006 DEEWR offered $650 per person to
charitable organisations to provide financial counselling for sole
parents and people with disabilities who were cut off from their
income support payments for eight weeks for breaching job search
rules. How does an NFP executive respond to this offer?
Transparency in fundraising needs to be enhanced. Choice magazine
surveyed its members regarding charities and found that 81% of
respondents did not know what proportion of their donation reached
the charity's clients. It compared financial reporting by nine charities
and found that fundraising ratios (the percentage of donated funds
used for administration) are calculated inconsistently.
For example, in an appeal for homeless people, some donors expect
all funds to go to homeless people. However there are administrative
costs, such as employing fundraising staff and developing marketing
materials. In addition to be effective, you need skilled front-line
staff with adequate resources. What is an acceptable standard for
administration costs in fundraising? What do you disclose in the annual
report? In this area the Fundraising Institute of Australia has developed
principles and standards of fundraising practice for its members.
The size and complexity of the sector coupled with the challenges
outlined above illustrate the case for an independent regulator.
The Productivity Commission report in its draft recommendations
supports the establishment of a national Registrar for Community
and Charitable Purpose Organisations. Its functions would be to
register NFP organisations; endorse tax concession status; rationalize
inter-state fundraising; provide a single portal for corporate and
financial reporting; educate on governance issues and handle
complaints. The test of its success will be greater transparency and
accountability in the sector.
While there is a need for an independent regulator, there are many
ethical dilemmas facing the Third Sector that fall outside the ambit
of a regulating body. For that reason it may be helpful for NFP
executives and board members to build into their organisations an
ethical decision-making capacity that assists them in managing risk,
building sustainable organisations and promoting the reputation of
the sector. n
Patrick McClure, AO is Ethics Fellow, Not-for-Profit Sector, a joint role
of the Centre for Social Impact and the St James Ethics Centre. His
role incorporates running an education program on "Ethical Decision-
Making in the Not-for-Profit Sector", media commentary, presentations
to conferences, and consultancy to NFP organisations. Patrick is the
former CEO of Mission Australia. He can be contacted on mcclurep@
bigpond.net.au.
Ethical
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eTHiCAl DeCisiOn MAKinG in THe THiRD seCTOR
Launch of the Ethics Fellow