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 The following is excerpted from Splendid Legacy: The Guide to Creating Your Family Foundation, edited by Virginia Esposito. WHAT IS AN ETHICAL ORGANIZATION?
Ethics is so often thought of as right versus wrong that, for many people, it has come to mean little more than compliance with rules and regulations. And so it is — in part. There is no question that an ethical organization must, at the most basic level, live by the law. It is imperative that the trustees and staff of family foundations understand the relevant legal frameworks for their activities. They must know the right and avoid the wrong. But knottier aspects of ethics can arise where both sides are right and where the best resolution may lie beyond the guidance of the law. When the Institute’s survey of foundations asked respondents to share their principal ethical concerns, they responded with 12 key topics — almost all of which involved an interplay between right-versus-wrong and right-versus-right issues:
The first of these, self-dealing, is clearly illegal. It involves the deployment of foundation resources for the personal gain of one of its trustees or staff. Not always obvious, it can come in some tricky disguises, as when a trustee is part-owner of the public relations firm the foundation wants to hire, or when a family member leases office space to the foundation in a building he or she owns. No matter how efficient these may appear, they remain illegal. Three other issues can also have strong legal overtones: Conflict of interest. Should a foundation trustee sit on the board of a grantee? Doing so can provide great insight into the grantee’s activities and, depending on the nature of the activity, can be a tremendous learning experience for a trustee who may have deep interest in that particular field. But when that trustee begins to argue for the grantee’s interests at the expense of the foundation’s concerns, there can be real conflict. This issue can have legal ramifications if it skates too close to self-dealing, although in many instances it may be more a matter of ethics than of law. Transparency. This, too, can be a legal issue, as in the requirement of full disclosure in such documents as Form 990 of the Internal Revenue Service. But what about publishing an annual report: Are scarce foundation resources better spent on shining a light on internal workings or on making more grants? Diversity and pluralism. Some foundations strive to ensure that trustees, staff, and grantees reflect the multiple cultures of the communities they serve. Others focus on single cultures in particular need of help. When the issue of diversity and pluralism touches on fair hiring and promotion practices, it has legal ramifications. In general, however, decisions to fund within a broader or narrower cultural bandwidth are ethical rather than legal. _____________________________ But what about these others, where the law allows more latitude? Nepotism. Is it right to invite family members to serve in key positions within a family foundation, since they have such a strong stake in upholding the legacy and intent of the donor? Or do such family ties create managerial entanglements that impede the smooth functioning of the organization? Ethical investing. Is it right to invest the corpus with an eye solely for financial considerations, seeking the best return regardless of the nature of the stock to maximize the potential for programmatic giving? Or should trustees invest only in firms that don’t operate in sectors they feel are unethical — as tobacco, armaments, and gambling are seen by some to be — even if that restriction lowers the return and limits the charitable impact of the foundation? (Trustees are, of course, also held to the Prudent Investor and IRS rules that require them to protect the assets of the foundation.) Abuse of power and privilege. When a trustee steers funding to a certain nonprofit to win a seat on its prestigious board and move in more exalted social circles, that’s abusive — though it may not be illegal. But when a foundation uses some of its resources to elevate its public profile and attract better grantees and partnerships, isn’t that an acceptable use of power and privilege? What to fund — charity or systemic change. This question, a variant on the give-a-man-a-fish platitude, poses a tough dilemma. Do you ensure that foundation funds go directly to the worst hunger cases, the most gripping public health situations, and the neediest classrooms? Or, do you use them to build better nonprofits capable of strategically addressing the underlying causes of these ills — even if some of today’s sufferers get no relief? Arrogance in dealings with nonprofits. Not returning phone calls from potential grantees, brushing off well-meaning inquiries, and spending more time telling charities how to behave than listening to their perspective — these things are not illegal and may not noticeably harm a foundation’s early record of success, though they surely speak of arrogance. Yet if a budding foundation is to protect its time and resources to focus on first-intensity issues, must it not find ways to limit the energy spent responding to queries, pleas, and inappropriate proposals? Inside information about nonprofits. How much information about grantees should a foundation share with other foundations? If a particular grant was unsuccessful, does that give a family foundation the right to blackball the grantee with a few negative words? Yet if the foundation discovers serious problems in a nonprofit’s accounting, honesty, or competence, doesn’t it have an obligation to warn other potential funders? Lack of candor, and how to temper unbounded optimism. Learning to say No nicely is just as difficult in the foundation world as in other walks of life. On some occasions, a delayed No can lead to huge expenditures of time and energy on the nonprofit’s part — not to mention a hopefulness that will only be shattered. But on other occasions, a too-quick denial may shut off a promising project that, with coaching and fine-tuning, could become one of the foundation’s finest grants. Spending — long-term versus short- term. One of the Institute’s survey respondents put it neatly when he said, “If we look to the long term, we will conserve what we have today for tomorrow’s problems. But such are the problems today, that it can be argued that we must spend more of our wealth now.” Which is right for a particular foundation? These issues raise tough moral questions. How does a foundation decide which is the higher right? A framework for decisionmaking, put in place as the foundation is developing, can help trustees and staff recognize ethical issues as they appear. It can help the foundation identify the basic paradigms into which right-versus-right issues tend to fall — truth versus loyalty, individual versus community, short-term versus long-term, and justice versus mercy — where clashes between good values become the drivers of the foundation’s toughest ethical challenges. And it can help the foundation to apply some of the key resolution principles from moral philosophy — the ends-based principle of Utilitarianism, the rule-based principle anchored in Immanuel Kant’s categorical imperative, and the care-based principle rooted in the Golden Rule.
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