The Leading from the Heart Workshop

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Nonprofit Policies
for the Age
of Corporate Governance
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You will be confronted with questions every day
that test your morals. Think carefully, and for
your sake, do the right thing, not the easy
thing. - Dennis Kozlowski, speaking to
the St. Anselm College Class of 2002
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Ex-Tyco Chief Executive Kozlowski Sentenced to 8
to 25 YearsHeadline / Bloomberg.com /
09.19.2005
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Strong Fundamental Values We must demand of
ourselves and of each other the highest standards
of individual and corporate integrity. We
safeguard company assets. We comply with all
company policies and laws.
Source The Tyco Guide to Ethical Conduct
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We safeguard company assets. Regency mahogany
bookcase, c. 1810, 105,000 George I walnut
arabesque tallcase clock, 113,750 Custom queen
bed skirt, 4,995 Custom pillow,
2,665 Ascherberg grand piano, c. 1895,
77,000 Chandelier, Painted Iron, c. 1930,
32,500 Pair of Italian armchairs, c. 1780,
64,278 Persian rug, 20 feet by 14 feet, 191,250
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In corporate America, crime pays. Handsomely.
Grotesquely, even.
Arianna Huffington Pigs at the Trough
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Ebbers luck runs out in sweeping victory for
fedsHeadline / USA TODAY / March 16, 2005
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Build Trust and Credibility Do what you say and
say what you do Respect for the Individual Treat
each other with dignity and integrity Create a
Culture of Open and Honest Communications
Everyone should feel comfortable to speak his or
her mind Set Tone at the Top Management leads by
example Uphold the Law Put the law of the land on
a pedestal Do the Right Thing Because its the
right thing to do
The Way We Work MCI Guiding Principles (f.k.a.
WorldCom)
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Employees who learned about improper corporate
adjustments appear to have feared senior
managements criticism or even the loss of their
jobs. It was common for employees to be
denigrated in public about their work.
Source Report of Investigation by the Special
Investigative Committee of the Board of Directors
of WorldCom
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WorldCom created a negative culture for
compliance. It emphasized making the numbers
before all else. Deborah House, VP and Deputy
General Counsel for Corporate Compliance, Fannie
Mae
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I said, Ship the documents to the feds. She
heard, Rip the documents to shreds.
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Theres a hole in the moral ozone and its
getting bigger. Michael Josephson
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Stephen D. Potts, Fellows Chairman Ethics
Resource Center
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MONEY MONEY MONEY MONEY MONEY MONEY MONEY
MONEY MONEY MONEY MONEY MONEY MONEY MONEY
MONEY MONEY MONEY MONEY MONEY MONEY MONEY
MONEY MONEY MONEY MONEY MONEY MONEY MONEY
MONEY MONEY MONEY MONEY MONEY MONEY MONEY
MONEY MONEY MONEY MONEY MONEY MONEY MONEY
MONEY MONEY MONEY MONEY MONEY MONEY MONEY
MONEY MONEY MONEY MONEY MONEY MONEY MONEY
MONEY MONEY MONEY MONEY MONEY MONEY MONEY
MONEY MONEY MONEY
These people arent supposed to have spare money
for these types of things. -Steve Lowney,
Deputy District Attorney, Santa Clara County
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The fact that this could have gone on for so
long was just appalling. Hugh Barnett,
President Goodwill of Santa Clara County
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Its as if we have given the CEOs weapons of
mass destructionat least economically. The
companies they run are bigger than ever. When
something happens, thousands can lose their
jobsand more people than ever are invested in
them. So a few can do a lot of damage.
Brian Shapiro University of Minnesota
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The stock market boom may be over, but the
business scandal boom is on. James Ledbetter,
Slate Monday, March
25, 2002
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As the level of the lake lowers, you start to
see the wrecks as they come to be exposed.
Thomas Donaldson, ethicist in Whartons legal
studies department
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We have seen the same phenomenon in business
that happens in medical ethics. When you get a
new technology, you have new problems. Thomas
Donaldson
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Its deeply embedded in our culture that
business is about greedy little scoundrels trying
to do one another in. Weve got this idea that
business means anything goes.
R. Edward Freeman, Director Olsson Center for
Applied Ethics
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People are basically honest. And theyre even
more honest when you watch them.
attributed to Alan Ace Greenberg The Bear
Stearns Companies
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Compliance

• Doing the minimum required by law

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MORE
Behaving ethically means doing more than the
rules require, and less than the rules allow.
or LESS
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An internal auditor is someone who situates
himself up on a hill overlooking a battle, far
from the noise of the guns and the smoke of the
explosions. And he watches the battle from afar,
and when it is over and the smoke is cleared, he
goes down onto the battlefield and walks among
the wounded. And he shoots them.
Robert Jackall relaying a statement from a
corporate executive
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With a compliance approach, you deal with
problems that are old, not new youre fighting
the last battle.
Thomas Donaldson Wharton ethicist
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CORPORATEGOVERNANCE
Requirement of boards and auditors to oversee,
direct, and report the organizations practices
on behalf of its shareholders.
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THE softer SIDE OF SEARS
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PROACTI V E

• to respond appropriately to prevent further
  similar offenses.

U.S. Federal Sentencing Guidelines Seven
guidelines used to determine whether an
organization shares responsibility for the
misbehavior of its employees adherence can
mitigate penalties and fines.
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Assign specific high-level individual(s) the
overall responsibility to oversee compliance with
such standards and procedures.
30
Were up about 25 percent in the past year.
Ed Petry, President

The Ethics Officers Association

• objectivepolitically savvypersonally and
  professionally matureknowledgeable of
  organizationknowledgeable of laws and
  regulationsdiscreetcrediblehigh integrity

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Use due care not to delegate discretionary
authority to individuals known to have a
propensity to engage in illegal activities.
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I look forward to pursing my new
responsibilities and continuing to make a
contribution as part of Rite Aids world-class
team. -Chris Hall
Senior VP-Real Estate and Planning former Chief
Financial Officer
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Take steps to effectively communicate standards
and procedures such as offering mandatory
training programs and disseminating publications.
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Ethics programs are associated with higher
perceptions that employees are held accountable
for ethics violations.
Source Ethics Resource Center 2003 National
Business Ethics Survey
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One of the most important roles we have as
leaders is to imprint these values on each new
generation of the company.

• Orin Smith, President CEO
• Starbucks

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Take reasonable steps to achieve compliance, such
as monitoring and auditing systems designed to
detect criminal conduct, and reporting systems
whereby employees and others can report
wrongdoing without fear of retribution.
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2003 viruses caused 55B damage, antivirus firm
says Headline / Computerworld / January 16, 2004
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The standards must be consistently enforced
through appropriate disciplinary mechanisms,
including discipline of individuals responsible
for failing to detect an offense.
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The cases against Wall Street are like stopping
someone speeding on a highway. The other cars
slow down for a while, and then, after a certain
number of miles, they speed up again. The
question is, how many miles before they start
speeding again? Eliot Spitzer NY Attorney
General
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Once an offense has been detected, take all
reasonable steps to respond appropriately to
prevent further similar offenses.
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Fool me once, shame on you. Fool me twice, shame
on me.
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Establish compliance standards and procedures to
be followed by employees and other agents that
are reasonably capable of reducing the prospect
of criminal conduct.
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One explanation thats common in the field of
business ethics, and this may sound shocking, is
that they just didnt recognize the ethical issue
for what it really was.
Thomas Dunfee, Wharton professor
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Was that wrong? Should I have not done that? I
tell you I gotta plead ignorance on this thing
because if anyone had said anything to me at all
when I first started here that that sort of thing
was frowned upon, you know, cause Ive worked in
a lot of offices and I tell you people do that
all the time.
George Costanza Seinfeld, Episode 29
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CODE OF CONDUCT
Policy covering the organizations stance on
and each employees responsibility forworkplace
issues, such as harassment, diversity,
conflicts of interest, violence, confidentiality,
and equal opportunity.
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MISSIONFIRST
THE CODE OF CONDUCT SHOULD RELATE TO THE MISSION
AND CLEARLY DEFINE ALL OF THE PARTIES TO WHOM IT
APPLIES.
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 The mission statement is not a trophy that
decorates office walls, but an organic body of
beliefs and a foundation of guiding principles we
hold in common.

• Howard Schultz, founder of Starbucks

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to whom it may concern
This Code of Conduct applies to the following
members of the Organizations community

1. All employees, including permanent full-time,
   hourly, fixed-term contract, and permanent
   part-time workers.
2. All direct service program volunteersthose with
   face-to-face contact with the Organizations
   clients.
3. All members of the Board of Directors.
4. All third-party service providers, including
   consultants, vendors, and contractors, when they
   are doing business with the Organization.

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THE CODE OF CONDUCT SERVES AS A GENERAL
GUIDELINE FOR BEHAVIOR THAT IS ACCEPTABLE AND
EXPECTED, ALTHOUGH IT MIGHT NOT NECESSARILY BE
ALL INCLUSIVE.
GENERALLYSPEAKING
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a good foundation
The following Code of Conduct describes
behavioral standards to guide us in meeting that
mission. We believe that these standards are
already understood and being followed by everyone
within the Organizations community. The
Organization is committed to the highest ethical
and professional standards of conduct as an
integral part of its mission. To achieve that
goal, the Organization relies of each community
members ethical behavior, honesty, integrity,
and good judgment. Each community member should
demonstrate respect for the rights of others.
Each community member is accountable for his or
her own actions.
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WHILE A CODE OF CONDUCT REQUIRES COMPLIANCE
WITH RULES AND LAWS, IT ALSO PLACES EMPHASIS ON
USING GOOD JUDGMENT.
LAWANDORDER
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Is it legal? Is it something you could tell your
spouse, children, mother? How would it look in
the newspaper?
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by the rules
The Organization and each member of its community
must transact the Organizations business in
compliance with all laws, regulations, and the
Organizations policies related to their
positions and areas of responsibility.
Understanding and following these standards can
be complex, so managers and supervisors are
responsible for teaching and monitoring
compliance in their areas. The Organization
expects all of its community members to meet the
following expectations when acting on its behalf
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its not easy being green
The Organization must comply with government
rules and regulations that protect the
environment and promote workplace safety. The
Organization must operate its facilities with all
of the necessary permits, approvals, and
controls, especially with respect to handling and
disposal of hazardous and bio-hazardous materials
and waste. Anyone working with or around these
materials must be familiar with the rules,
regulations, and policies that apply to them.
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FLSA, FLMA, HIPPA
All members of the Organization community,
especially managers and supervisors, must be
familiar with laws, regulations, and policies
related to employment matters, including the
policy against harassment, including sexual
harassment, and the policy on Equal Employment
Opportunity. Assistance is available from the
Human Resources director.
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fairlaborpractices
Fair Labor Standards Act of 1938
(FLSA) Stipulates minimum requirements for
compensation issues such as wages, overtime, and
equal pay, and specifies those employee classes
which are exempt from its provisions.
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Total back wages collected for workers
2003 212.5 million 2002 175.6 million
Source U.S. Department of Labor
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Are your employees suffering overtime?
Non-exempt employees are prohibited from working
more than 40 hours a week unless they are paid
time and a half of their hourly rate. Example
An administrative assistant attends a board
meeting one night to take minutes and the hours
put the assistant over the forty-hour limitation.
Did you pay the assistant overtime? Example A
bookkeeper attends your social fundraising event
on Saturday evening to help count money. Is it
overtime?
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Donning, Doffing, Walking Waiting,
L.P.A. Serious lawsuits only, please.
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thanks a lot, Enron
Every member of the Organizations community is
responsible, within the scope of his or her work,
for the integrity and accuracy of the
Organizations documents and records. No one may
falsely, or improperly, alter information on any
record or document. The Organization retains all
documents and records in accordance with the law.
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Lies will be found out, an eventuality in this
information-leaking world that no company or
person can ever presume to escape. John
Dalla Costa The Ethical Imperative
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Conflict of
gtgt INTEREST
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To guide the board and staff in independent
decision making, the organization must have a
conflict of interest policy with disclosure and
this policy must be enforced without fail. The
Sarbanes-Oxley Act and Implications for Nonprofit
Organizations Jointly published by Independent
Sector and BoardSource
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conflicting interests
The Organizations community members will take
every due and proper measure to ensure that there
is notand shall not appear to beany conflict
between the personal and private interests of the
community member and his or her responsibility to
the Organization. Conflict of interest arises
when a person participates in a decision about a
matter that may benefitor appear to benefitthat
person because of his or her direct or indirect
monetary interests in that matter. In the event
that such a matter arises, the person shall
formally disclose the interest, refrain from
attempting to persuade or influence other persons
participating in the decision, and shall not cast
any vote on the matter. It is the duty of any
person taking part in the operations of the
Organization to adhere to the Conflict of
Interest Policy at all times
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oh, you shouldnt have
2. No member of the Organizations community
shall accept or solicit any gift, favor, or
service that might reasonably influence the
community member in the discharge of his or her
duties, or that the community member knowsor
should knowis being offered with the intent to
influence his or her official conduct.
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full disclosure
Members of the Organization community must
disclose potential conflicts of interest to the
Board of Directors Directorship Committee as
soon as possible after they realize that a
conflict or potential conflict may have arisen.
The fact that a community member has a potential
conflict does not necessarily mean that it is
unethical or impermissible, but the matter
requires careful examination and monitoring.
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confidentiality
Respect and maintain the confidentiality of
information gained as a community member.
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mums the word
The Organization maintains confidential records
for a variety of business needs. Records include
detailed information about clients receiving
services, job applicants, employees, finances,
and future planning. The Organization keeps many
records confidential as a matter of federal law.
It keeps other information confidential to
protect the privacy of individuals doing business
with the Organization. The Organization expects
its community members to protect this information
by safeguarding it when in use, storing it
properly when not in use, and discussing it only
with those who have a legitimate business need to
know.
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Librarian fired for good deed that violated
confidentiality Headline / Johnson County Sun /
February 10, 2005
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sexual harassment
Verbal Abuse
INTIMIDATION
workplace
harassment
violence
Unwelcome comments
physical assault
Discrimination
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zero tolerance
Sexual harassment is any conduct, comment,
gesture, or contact of a sexual nature that one
would find to be unwanted or unwelcome by any
individual, or that an individual might
reasonably perceive as placing a condition of a
sexual nature on employment or career
development. Personal harassment means any
conductwhether verbal or physicalthat is
discriminating in nature, based upon another
persons gender, race, color, creed, ancestry,
place of origin, political beliefs, religion,
marital status, physical or mental disability,
age, or sexual orientation. Harassment is
discriminatory behavior, directed at an
individual, which is unwanted or unwelcome,
causes substantial distress in that person, and
serves no legitimate work-related
purpose. Workplace violence includes, but is not
limited to, intimidation, threats, physical
attack, domestic violence, property damage,
verbal statements that intimidate or create fear,
or physical assault with an instrument of any
kind that is used to inflict pain, harm, or
injury.
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caring for
vulnerable
people
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vulnerable clients
In the course of discharging their duties to the
Organization, community members may come into
contact with vulnerable individuals. These
individuals are those who may be at risk of harm
or harassment because of their age or disability.
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Workplace Health and Safety
When human beings are hurt physically, nothing
else matters. -Paul ONeill
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safe and sound
The Organization seeks a healthy and safe
environment for all members of the Organization
community and for visitors. Every community
member is obligated to perform his or her job is
a safe manner and to follow all safety rules and
procedures. Community members should immediately
report any hazardous conditions or job-related
illness or injury to their managers and
supervisors.
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No drugs.
No guns.
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drug- and weapon-free
The unlawful possession of a weapon, or the
unlawful use, possession, or distribution of a
controlled substance, in or on any premises or
property owned or controlled by the Organization,
or while conducting business on behalf of the
Organization, is prohibited. Any member of the
Organization community who is found guilty
(including a plea of no contest) or has a
sentence, fine, or other criminal penalty imposed
by a court for any offense involving a weapon or
a controlled substance that occurred in or on the
Organizations property, or while conducting
business for the Organization, shall report such
action to his or her supervisor or to the Human
Resources director within five days.
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getting help
Any member of the Organization community who
unlawfully uses, possesses, or distributes a
controlled substance on the Organizations
property, or while conducting business on behalf
of the Organization, regardless of whether such
activity results in the imposition of a penalty
under a criminal stature, will be subject to
appropriate disciplinary action, including
termination, or will be required to participate
satisfactorily in an approved drug assistance or
rehabilitation program.
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We now know that effective ethics
do not rely just on written codes of compliance
and telephone numbers. Employees cannot be
expected to consult a manual or pick up a phone
unless they first recognize the existence of an
ethical dilemma.
Dawn-Marie Driscoll, W. Michael Hoffman, Edward
S. Petry, The Ethical Edge
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One third say coworkers condone rotten ethics by
showing respect for successful people who use
them.
Most witnessed misconduct is abusive or
intimidating behavior, falsifying time records,
and lying.
Managers under thirty years old with less than
three years tenure feel twice the pressure to
compromise.
Younger employees with low tenure are the least
likely to report misconduct.
Top reasons for not reporting belief that no
action will be taken and fear report will not be
anonymous.
Less than three in five (58 percent) who report
are satisfied with the organizations response.
Transitioning organizations are twice as likely
to see misconduct or pressure to compromise
ethics.
Forty-four percent of all non-management
employees do not report misconduct they observe.
Senior and middle managers view their
organizations as more ethical than lower level
employees do.
Source Ethics Resource Center 2003 National
Business Ethics Survey
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help-line
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• Blowing the Whistle
• There is a price to be paid. There have been
  times that I could not stop crying.
  
• Cynthia Cooper, WorldCom internal auditor who
  disclosed how the company had covered up 3.8
  billion in losses through deceitful bookkeeping
  methods.

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Question and answer sections help to clarify
ambiguities. Include illustrations with examples
of the types of dilemmas employees might
encounter in their jobs.

Q A
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What if?

• You are having lunch with a computer vendor who
  does business with the organization. The vendor
  offers to pick up the check. What should you do?
• accept the offer because you consumed less than
  25 worth of food
• pay for the vendors lunch
• decline the offer and pay for your own meal
• suggest that you both sneak out without paying

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Whats next?
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Sarbanes-Oxley Act of 2002 Public Company
Accounting Reform and Investor Protection Act
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A
Audit-related functions should be performed only
by independent, financially literate directors.
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C
Create an independent corporate governance
committee to prepare guidelines for director
selection and performance.
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M
Managements compensation, determined by an
independent committee, should be based on
achievement of objective, pre-determined goals.

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Independent auditors must be rotated and may not
provide consulting services unrelated to the
organizations audit.
I
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L
Loans to directors and executive officers are
prohibited.
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Ethical If taking workplace ethics seriously
costs us money, or delays our success,
Dilemma why bother?
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why bother?

• A pattern of unethical behavior alters the way we
  view our actions. When we get into the habit of
  lying, cheating, or stealing, we distort reality,
  and minimize the consequences. The more we
  rationalize our bad behavior, the more likely it
  is that well continue to act unethically.

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Workers who believe their organizations act with
integrity are nine times more likely to stay in
their current jobs.
Source Walker Information - Commitment In The
Workplace The 2003 National Employee Benchmark
Study
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But when they mistrust their bosses, or are
ashamed of their organizations conduct,

4 out of 5
workers say they feel trapped at work and are
likely to leave their jobs soon.
Source Walker Information - Commitment In The
Workplace The 2003 National Employee Benchmark
Study
96
Leaders who are serious about ethics push it
down the organization in everything they do. 

• -Deborah House
• VP Deputy Counsel for Corporate Compliance
• Fannie Mae

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The Leading from the Heart Workshop

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