Staying on the Ethical Straight and Narrow

If you have a gnawing sensation in the pit of your stomach, you just might be doing something unethical. So says Elizabeth Schmidt, president of nonprofit management consulting firm Southpoint Social Strategies and professor of nonprofit law and practice at the College of William and Mary Law School.

Schmidt says conflicts of interest having to do with board members are very common in the nonprofit world, e.g., board members doing business with the organization where they stand to make a financial gain. She stresses that the entire board should always be aware that a board member (or an organization affiliated with a board member) is doing work for the nonprofit, and the person who might be doing the work for the organization should never vote on whether he or she will be the one doing the work. The price agreed upon should be extremely fair for the organization; in most cases, the board member should provide the service on a pro bono basis or at a reduced rate.

To avoid any perception of impropriety, Schmidt says organizations and their board members can engage in arm’s length transactions, where the business is conducted as if the two parties were unrelated. Profiting from a nonprofit is, under both state and federal laws, absolutely unethical, but a board member can do business with a nonprofit as long as he or she doesn’t make more money through that relationship than if the two parties did not know each other and were negotiating a fair market price.

Schmidt warns that organizations should be honest about their financial status and not try to hide any difficulties they might be having.

“It’s very easy to put a spin on something, but it’s not particularly ethical and in reality it could come back to haunt you,” she says.