Putting teeth into ethical practices: good behavior starts at the top.

CONVERSATION AND CONSTERNATION ABOUT TRUST AND ETHICAL BEHAVIOR reached critical mass last year as people lost faith in nearly every institution. From the Catholic Church to corporate America and beyond, news of fraud and dishonesty prevailed. The buzz on ethics was so widespread that it hit the national audience by way of a public broadcast system (PBS) program last September titled "Endgame: Ethics and Values in America." The show opened with a video depicting an ethical dilemma that became the basis for questions that show host Carol Mann posed for live and online audience response. A panel of experts on the topic of ethics addressed the realities of ethical dilemmas and the tough choices involved in deciding how to act. The panel--which consisted of Michael Josephson, founder and president, Josephson Institute of Ethics, Marina del Ray, California; Jackie Joyner-Kersee, athlete and founder of the JJK Community Foundation, East St. Louis, Illinois; and David Kaczynski, brother of the Unabomber--offered insights into how ethics have been a central concern to certain decisions they've had to make.

Josephson pointed out: "Ethics is doing the right thing when it costs more than we want to pay. We start with knowing what is right and then having the courage to do what's right."

For Kaczynski, ethics came center stage when he realized that it was likely his own brother was the Unabomber, who had been terrorizing scientists with letter and package bombs for years. "I needed another person to help me sort it out," Kaczynski told show host Mann. He consulted with his wife and ultimately decided to go to the authorities with their concerns. "While my wife and I feel that we can hold our heads up--that we did the right thing--we still have a sense of the consequences for the other person...and when you make a decision like this, the chances are that it's not over. As for my case, I'm now working against the death penalty, advocating for my brother. I want to help create a world where human life has dignity."

Joyner-Kersee is faced with choices each time companies that have some unethical practices in their backgrounds offer donations to groups she represents. "We simply cannot accept these donations," she told Mann.

Josephson is cynical about our strength in the ability to do what we know is right. "It is very hard--and very lonely--to do the right thing," he says. The audience responses bore that out in the discrepancy between the percentage of people who said they understood what the fictitious characters in the video should do and the much smaller percentage of folks that said they would actually do it if placed in the same situation.

Nonprofit organizations are hardly immune to the tough choices and ethical dilemmas of which Josephson speaks. In this article, association staff and volunteer leaders talk about the fallout from fraudulent and unethical practices and what roles the nonprofit community can play in re-establishing public confidence in their industries, institutions, and charitable organizations.

A professional society recovers from a powerful punch

For the accounting profession, the flurry of fraudulent corporate activities being reported in fall 2001 threw a curve ball into the profession's collective mid-section. "Most certified public accountants feel absolute revulsion at the actions that a handful of their colleagues across the country have taken, which have so damaged this profession that at one time was thought to represent the pinnacle of ethical behavior," says J. Clarke Price, CAE, president and CEO, Ohio Society of Certified Public Accountants (OSCPA), Dublin. Price and other association leaders across the country were faced with an immediate loss of credibility of the profession they serve--and some far-reaching implications of not only pending legislation but of reactions by board members to what they have seen around them. Many volunteer and staff leaders have spent the last year attempting to rebuild the reputation of the profession and have learned that despite their best efforts, still more must be done to ensure that CPAs are viewed as independent and objective, to evaluate the appropriateness of existing industry standards, and to elevate the role of professional organizations in ensuring ethical practices.

Restoring confidence

"When I'm addressing the public and I ask a group of consumers if the accounting profession has taken a hit as a result of Enron, the Andersen failure, and now Tyco," says Price, "universally hands go up and people say, 'Absolutely.' When I turn the question around and ask them to answer it in the context of a CPA they work with, a CPA firm that does work for their company, a CPA they retain for tax preparation or financial planning, universally the answer is, 'No.' Since individual CPAs are still highly regarded, we have focused on them to restore the reputation of the industry. We have said to our members, 'You must through your actions define what this profession is all about; your behavior must be at the absolute pinnacle of ethical behavior.' Members are responding very well to that," says Price.

Other forms of crisis management kicked in almost immediately, according to Price and OSCPA's board chair, Sandra K. Pierce, herself a certified public accountant with the investment management firm of Parker Carlson & Johnson, Dayton, Ohio. While the board doesn't have a crisis management committee, Pierce says, "in this case, we set up a task force to be available to meet by conference call every week, if not more, in the early days. The board could not react and be available that often, so the task force consisted of some board members and other people that we thought would be particularly useful. They were the genesis of much of the thought process on how we should react--how we should not overreact-and how we should get information out to the membership."

OSCPA used multiple methods of communicating with the membership and the public.

1. Communication strategy. "We realized," says Price, "that our members were getting their information from various sources, some of which were more accurate and correct than others. So the staff developed a strategy that was more than communication; it includes ongoing e-mail messages on what is happening, what it means, what the regulatory bodies are doing, and what the national organization--the American Institute of CPAs (AICPA), New York City-is doing." OSCPA also gives members message points that they can deliver to clients, colleagues, staff, and others. Articles in publications (the entire theme of the November 2002 issue of OSCPA's member newsletter was ethics), radio spots, and newspaper ads have all been focused on emphasizing that the accounting profession, taken as a whole, is fully committed to restoring trust in CPAs, audits, and the work that CPAs do.

Says Price, "The staff primarily works with the board task force to coordinate activities and through normal committee processes of brainstorming to tweak the strategies that we are implementing."

2. Town hail meetings. "We conducted a series of complimentary town hall meetings across the state," says board chair Pierce, "planning them basically on the same geographic lines as our 12 chapters, which hosted them and invited area leaders. It was not only an important outreach of information, but it was a great information-gathering source through which to learn the reaction of the membership. As chair, my role is mostly to make sure that we are focusing on the important issues and that we are not avoiding them. After all, this is probably the most momentous thing that has happened to our profession in 100 years.

3. Hot line. OSCPA maintains a hot line for members--or anyone else in the community-to call if they have questions or concerns. Callers receive an objective response from staff as to whether or not a concern is founded. "It has received a lot of calls within the last year or so," reports Pierce. "In fact, as a result, the board has asked the staff to come up with an overall sweeping package of tools available to help members with ethical questions."

4. Ethics decision tree. Price notes that OSCPA is independent of AJCPA, the national organization, but that the two organizations have a history of working closely together. "AICPA is really out there in the forefront on this, and they are taking the lead in a variety of forums," says Price. "They've produced a simple four-page document, a decision tree, that lays out step by step a series of possible events and the responsibility that the CPA in the industry should follow in deciding what to do." (To view the decision tree, go to www.aicpa.org/members/div /ethics/BAI/baimemb.htm and click on "Ethics Decision Tree.")

Recognizing further work to be done

"One of our biggest challenges," says Price, "is reinvigorating and re-elevating this notion that I can trust you as a CPA to be independent, to be objective, and to do what is right." While accountants clearly have an incentive to do that, Price sees opportunities to make sure that it happens. For starters, OSCPA is starting to advocate a much closer relationship with the Ohio State Board of Accountancy. "If there are complaints against our members," explains Price, "our ethics committee conducts an investigation, makes a determination, and may levy a sanction or punishment. Although we can suspend or terminate membership, that action only affects a CPA's membership in 'the club.' It's the accountancy board that has the ultimate ability to say that you are no longer a CPA."

OSCPA board chair Pierce underscores the new government relations imperative of the association. With the Sarbanes-Oxley Act of 2002 creating a new accounting oversight board and imposing new disclosure requirements on companies and their CEOs and CFOs, "the business community must understand that if the law is allowed to trickle down to the state level--and the state enacts laws that mirror what was done at the federal level," says Pierce, "it will have a huge effect on the relationship between clients and auditors and what they can and cannot do. Will a mom-and-pop grocery store need to have an audit committee? Will they need to hire someone from a different firm than their accountant to do their taxes? The results of local legislation could be quite detrimental to the traditional relationship between CPA and client." Pierce sees the role of the state society as making sure that the state legislature understands the ramifications of enacting additional laws too quickly. "The pressure is there to do that," s ays Pierce, "when the media is looking for blood."

A trade association toes the line on ethics

The Direct Selling Association, Washington, D.C., approved its code of ethics in 1971. The code now applies to all 12.2 million salespeople in the United States who are independent contractors employed by DSA's approximately 175 member companies to conduct door-to-door and in-home sales. "Our companies have certain obligations that are rare, if not unique, in the self-regulatory area," says Neil H. Offen, DSA's president. "First, they have an obligation to communicate the existence and provisions of the code not only to their corporate executives but also to their field personnel. Second, the acceptance of the code is renewed by a pledge provision on our membership renewal and dues form. Third, each company has to appoint or reappoint each year a code responsibility officer in the company. And fourth, since we're a global organization--80 percent of our members are multinational--we've adopted the concept of extraterritoriality, which means we apply our code outside of our jurisdiction." Offen admits that the history of self-regulation in the association community has been replete with abuses of antitrust law. "However," he says, across the years numerous associations have truly advanced codes that protect the consumer primarily. The DSA code does both--it protects the consumer from abusive sales practices and the salespeople from abuse by their own company." One of the critical components of the code is the presence of an independent code administrator who reports to the board and can levy sanctions based on what's in the code. According to Offen, "By hiring an independent code administrator to administer a mediation program, we significantly minimize the chance of an antitrust suit--and it insulates the board from sitting in judgment of companies that are competitors."

Promoting understanding of ethics codes

It might seem like a daunting task to ensure that 80,000 individual sales representatives of decorative gifts and accessories for the home understand and abide by their company's ethical codes. Joey Carter, president and CEO of Home Interiors and Gifts, Inc., Carrollton, Texas, and current board chair of the Direct Selling Association, explains that it's a matter of incorporating the DSA code with his company's own code of ethics. "For purposes of recruiting," says Carter, "it's important that we talk about our company's inventory buyback policy [in the event that an individual leaves the company] and explain our fair earnings claims, which describe realistically what someone should expect to earn for a given effort."

The focus of the DSA code is on the consumer, with one of the key points being a three-day cooling-off period that allows a customer to change his or her mind after a transaction is made. Carter likens membership in DSA to a seal of approval, promoting recognition that his company supports DSA's ethical code and its task of raising the understanding of direct selling. "It's also somewhat of a partnership with our industry," says Carter. "If you attend a Home Interiors and Gifts show and your expectations are not met, the likelihood of your attending a Pampered Chef [a company that promotes in-home sales of cooking items] presentation--or any other show--is diminished. Key executives and volunteers involved at the executive level realize that our industries are intertwined in this way and that we have a self-interest in ensuring ethical practices." On an intercompany level, says Carter, "the code also discourages corporate leadership from going after another company's sales force."

There are numerous practices in place to ensure communication of both a company's individual practices and the specific DSA code of ethics.

* Printed material. "For the consumers benefit, the three-day cooling-off policy is printed on every sales ticket," says Carter. "In our company, all of our trade publications, brochures, and product literature have the DSA information and logo printed on them in case an issue should come up. There's also information directing customers or salespeople to an independent code administrator for arbitration in the event of a conflict with a company."

* Face-to-face meetings. DSA's president Neil Offen spends a lot of time promoting codes of ethics and their self-regulatory aspects to government and the private sector. "Right now," he says, "the European commission is looking at integrating ethical codes into law under a duty-to-trade-fairly initiative pending in Brussels." The World Federation of Direct Selling Associations, which globally represents the direct selling industry, conducts a world congress once every three years as well, with the association subsidizing travel expenses for code administrators to attend. "The WFDSA also provides educational programming on codes of ethics and on self-regulation," says Offen.

* Additional resources. "We provide an ethics resource kit," says Offen, "and we've translated it into eight languages so far." The kit, Ethics in Business: Our Promise to You, presents the history of ethics in the direct selling business, an overview of direct selling, and an explanation for employees and member companies of the high standards embodied in the code of ethics. Offen thinks that the Internet also offers great promise for self-regulation through codes. "It's a continuing dilemma," he says, "to publicize the code to the public; it's simply too costly. But the Internet will allow access to our Web site for people who have an issue or question and they'll see that there is a complaint process--a place where the consumer can go after a company has let them down--but before they go to the government."

Establishing ethics as a board priority

On the board level, explains Carter, "the ethics task force and the government relations committee both have board seats and a high level of visibility within the association. Ethics is imbedded in the organization, and one of the primary reasons that companies join DSA is to gain acknowledgment from our sales force and from the consumer that we have this seal of approval." At the board level, DSA also has the independent code administrator attend every meeting. The administrator reports in a general way (not specifying companies) on how many claims have been made, how many have been resolved, and, if something is beyond his authority, he'll put it before the executive committee.

As the Ohio Society of CPAs is doing, DSA plans to play a role, through its government relations efforts, to "see that we don't have overzealous legislation introduced that will put undue pressure on the independent contractor," says Carter. "We don't want them to have to be licensed in every state, fingerprinted, and have their photos put into a log book. Our association has to step up on the side of what is reasonable corporate governance.

A charitable organization loses its way

According to a national telephone survey conducted in July 2002 by Wirthlin Worldwide on behalf of Independent Sector, Washington, D.C., confidence in charitable organizations has been remarkably stable when measured both before and after the September 11, 2001, events. (To see the full report "Keeping the Trust: Confidence in Charitable Organizations in an Age of Scrutiny," go to Independent Sector's Web site at www.indepsec.org and click on "research.") But nothing erodes that confidence like misuse, or perceived misuse, of funds--a recent challenge for the United Way of the National Capital Area, Washington, D.C., which is struggling to rebound from months of controversy over its spending and management practices. As reported in The Washington Post on November 2, 2002, "The allegations have prompted federal investigations and led to a shake-up of the organization's leadership."

Enter Robert Egger, interim CEO of UWNCA. Egger, tapped from another area nonprofit, the D.C. Central Kitchen, is tasked with getting the organization back on track in time to salvage its 2002-2003 campaign. What went wrong? "It's referred to as founder's syndrome," says Egger. "One person in charge of an organization for 25 years; it's an invitation to disaster. It happened here, and what you're seeing is the cumulative effect of many years of slippage."

Egger admits that it's a surprisingly easy process for an organization to lose its course. "Raising money becomes so difficult that it becomes the only objective," he explains. "The barometer for success is not impact, but income. And that really is where we got lost." Egger also recognizes that "it's very easy for people, when confronted, to become defensive and get into a bunker mentality. I think that's what we saw here. When the public wanted to get to the bottom of things, the response was, 'we've done an audit, it's complete, and we didn't find anything.' That turned out to be a very cursory view, and the public got even madder because it appeared that the board was purposely trying to deceive them." He would advise that it's better to just let the news out. "For this to happen anywhere is a tragedy, but here in Washington, we should know better. We don't erase tapes; we don't cover up. How many more times do we have to see this drama unfold before we get it?"

To lead the organization back into the public's good graces, Egger is not only mounting a one-on-one campaign to restore confidence in UWNCA with corporate CEOs whose organizations have been the fountainhead of donations. He is also well down the road to articulating a vision for UWNCA that "will be so exciting that it will resonate quickly with staff, volunteers, and the greater business community."

Restructuring and rebuilding

In September, UWNCA board members accepted the resignation of its CEO and approved a series of reforms that included slashing $3 million from an operating budget of $7.5 million, a move that will significantly reduce UWNCA's workforce. Beyond that, Egger has a multi-pronged plan for moving UWNCA forward.

1. Instituting ethical processes. To make sure that the downsizing is done "fairly, respectfully, and following an ethical process," says Egger, "I've brought in on an interim basis an ethics officer. We also now have a code of ethics, which I was the first person to sign." Egger envisions these things as a court of last resort and plans to respark organizational spirit such that "the ethics officer is the loneliest person on the staff." Egger, who founded D.C. Central Kitchen, expresses a bit of confusion as to why such formality is needed. "In my previous experience, I saw the men and women who ate the food that we served at the kitchen. There's a certain level of honesty that such proximity gives. I felt as though I was surrounded by ethics officers every day because I was surrounded by the people that we served." Egger suggests that too many [nonprofit] offices are on the second floor. "Not only do they cost too much to run, but it's easy for the executive to get his or her compass skewed."

2. Coordinating media and message. "First and foremost," says Lori Kline, UWNCA's communication director, we have to constantly communicate--and that's something that this organization hasn't done in the past." One of the first contacts that UWNCA made was an e-mail message to all agencies that the organization serves, all the businesses, all the corporations that participate in the annual campaign. "We have been overwhelmed with responses, says Kline, "from people saying that they have been hanging with us for years and have never received any information before." Communication plans have included rolling out a series of ads that convey not only statistics that compel people to see why they should donate to UWNCA, but a larger message about how the community can leverage its resources to really make a difference. Egger is looking into the use of cable television and is also quickly reevaluating the strategy for the campaign films for this year. "I definitely want to work with every possible small media outle t as well. I'm a firm believer in the value of local newspapers as mechanisms to get information out."

The organization has launched a series of town hall meetings for its larger donors, and "we'll likely do something similar for the general public," says Kline.

3. Creating an environment that inspires staff. Egger's larger goal is to create a presence in the region that is so positive that people will be inspired to not only donate but to volunteer to carry the message forward. "I suspect that a lot of people who have been working at UWNCA have become like desperate salespeople. They were so desperate to raise money that they started making promises, cutting corners, and what we have now is a million relationships based on that. We shouldn't be doing any special deals--but create an environment where people love what they are doing and when they go out to solicit a new campaign partner, they won't have to do any kind of a hard sell."

Creating a vision for the future

The vision that Egger talks about is one with the long-term ability to make a real difference. "Charity--through nonprofits, churches, and government--will never succeed," he contends. "The only chance for longer-term effectiveness is to bring in business and the public. With these ingredients and a different formula, we'll get fission." Egger's formula includes pooling resources, with the United Way turning to the foundation community, the business community, the schools, and the public and saying, "Let's apply the same science as we've applied to financial resources to the other non-monetary assets that we have: time, energy, and brains. And let's take it one step further and make baby boomers aware that they can play a role in this and realize their potential as a great generation."

Finally, Egger thinks it's high time that the public was guided to a barometer other than low administrative overhead as a tool for evaluating the effectiveness of nonprofit organizations. "You want good administration, but no one has outlined the other things that you should see before you make a donation," he says. Egger suggests that in order to do this, the sector must come together and define its own effectiveness measures and then do some self-policing--before the government does it for them. "This is my biggest concern," says Egger. "We have a vested interest in self-policing."

The three examples profiled here show how significant nonprofit organizations are in promoting ethical practices. And while staff implementation of relevant strategies is critical, the board must be positioned to lead the charge.

Boards play a powerful role

"The board's number one responsibility--it's paramount charge--is fiduciary oversight," says Egger. "The United Way board has been overwhelmed by committee work. That's fine as long as you've done your first job: Ensure the integrity of the process by which money is collected and spent." Part of the repositioning of UWNCA includes shrinking the board from 47 members to 21. Eight will represent local regions with 13 spots remaining. "This is the first time in the chapter's history," says Egger, "that we'll have directors from the nonprofit community, which will greatly change the dynamics. What we need is not more board members but more community involvement in developing a different model of community service."

Ohio Society of CPA'S board chair Sandra Pierce credits her association's recent revamping of its board structure as a critical move in positioning it to react quickly to the current crisis. "Starting about six years ago," she explains, "we reduced a 48-member board with an executive committee of 12 to a 17-member board that is also the executive board. We keep the board focused on higher-level issues and an emphasis on the future. I think that's why in some ways we were able to react faster than many of the other state societies."

At the Direct Selling Association, says board chair Joey Carter, "the people at the board level are primarily CEOs and executives who recognize that the undergirding strength of our business is in the consumer relationship and in the relationship with our sales force. If that's not built on trust, given the nature of the independent contractor arrangement, we're severely limited. Also, having an independent code administrator at the board level allows us to stay on top of trends in claims, hear about what types of claims are diminishing, and those that are not going away."

In Carter's own company, the new regulations in corporate governance have influenced some decisions as well. While both the DSA board and Carter's corporate board feel comfortable with their accounting and audit practices, he says, "we have identified and adopted more tactics that will visibly show our commitment to those practices."

RELATED ARTICLE: Bringing Ethics Home

In the December 2001 issue of ASSOCIATION MANAGEMENT, Rushworth M. Kidder, founder and president of the Institute for Global Ethics, Camden, Maine, wrote: "In the 21st century, ethics is about survival." He'd drafted these words well before unethical practices brought down the companies that have been making headlines since last fall, pointing out that new technologies provide unethical individuals with the capacity to "wreck the world in unprecedented ways."

Kidder's essay "Ethics Is Not Optional" is one of many resources that suggest ways to create and nurture a values-based culture. To access articles on ethics from back issues of ASSOCIATION MANAGEMENT, go to www.amonline.org and type the title of the article into the search box. (ASAE members can access the full text, nonmembers the abstract.)

* "Talking About Ethics" (March 1999, April 1999) includes thoughtful conversations among ethicists in two articles.

* "Enron-Proof Oversight" by Charles Tate (August 2002) advises on how to ensure integrity of your association's financial reporting processes.

Additional resources include the following:

* The Center for Business Ethics, Waltham, Massachusetts, is dedicated to promoting ethical business conduct in contemporary society. The center helps corporations and other organizations strengthen their ethical cultures through educational programming and consulting. For more information, go to ecampus.bentley.edu/dept/cbe.

* For more information on Rushworth Kidder's Institute for Global Ethics, go to www.globalethics.org. Consider signing up for the institute's free weekly online newsletter "Ethics Newsline."

* The Josephson Institute of Ethics, Marina del Ray, California, is a nonprofit membership organization founded to improve the ethical quality of society by advocating principled reasoning and ethical decision making. The institute conducts programs and workshops for senior corporate and nonprofit executives, among others. For details go to josephsoninstitute.org/about.htm.

Carole Schweitzer is executive editor of ASSOCIATION MANAGEMENT. E-mail: [e-mail].