Money Talks, Ethics Walk

Posted by Laura Otten, Ph.D., Director on September 1st, 2011 in Articles, Thoughts & Commentary

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I do NOT believe for a moment that breeches of ethics and displays of questionable to unsavory to downright illegal behavior are more plentiful in the nonprofit sector than the for-profit sector.  But they do evoke a very different response for me.  Sad to say, whenever I read of an ethics violation in the corporate world—of which there have been far too many examples in the last 10 years—I now  just shrug my shoulders, and admit to saying, “That’s  to be expected,” and then move on.  (I know! That is so, so horrible! And so stereotypical! And so unfair.  I get it!  I am ashamed!)  But whenever I read of such a wrong doing in the nonprofit sector, I get infuriated.  I rant and rave.  (Fortunately, for those around me, most of it is done internally.)  And it festers within for far too long.

Trust me; I get it!  There are no more or fewer ethical folks in the for-profit world than in the nonprofit world.  I just expect more of folks in the nonprofit sector.  Foolish of me, I know.  But what can I say?

And so here we go again!  City Year—the nonprofit that is so regularly hyped as exemplary, lauded by Presidents, current and past.  Could those associated with it do wrong?  Alan Khazei is co-founder and former CEO of City Year, founder and as of a two months ago, CEO of another nonprofit, Be the Change an organization that builds coalitions of nonprofits to seek legislative change, and current Massachusetts Democratic senatorial candidate.

The Boston Globe recently discovered that while he was still CEO, he hired his brother, a Hollywood writer, to start, write for and create the media strategy for the Los Angeles office of Be the Change, paying him $40,000.  One problem—well actually, two, but let’s stick with the one, first:  he failed to inform the board of this arrangement, despite the requirements of Be the Change’s conflict of interest policy.  And when called on it by the Globe he defended his decision saying he and his brother are very close, his brother is very talented and it wasn’t that much money.

And so here we go again!  City Year—the nonprofit that is so regularly hyped as exemplary, lauded by Presidents, current and past.  Could those associated with it do wrong?  Alan Khazei is co-founder and former CEO of City Year, founder and as of a two months ago, CEO of another nonprofit, Be the Change an organization that builds coalitions of nonprofits to seek legislative change, and current Massachusetts Democratic senatorial candidate.

The Boston Globe recently discovered that while he was still CEO, he hired his brother, a Hollywood writer, to start, write for and create the media strategy for the Los Angeles office of Be the Change, paying him $40,000.  One problem—well actually, two, but let’s stick with the one, first:  he failed to inform the board of this arrangement, despite the requirements of Be the Change’s conflict of interest policy.  And when called on it by the Globe he defended his decision saying he and his brother are very close, his brother is very talented and it wasn’t that much money.

I don’t know what I find more bothersome:  his violation, as the CEO of the organization, of the organization’s conflict of interest policy, or his truly lame, weak explanation as to why he did what he did.  No other writer in Los Angeles is as great a writer as his brother? Conflicts only occur once you reach a certain financial threshold? Being close to someone is the new employment criterion?  Really, Al?  And you want to be the next senator from Massachusetts? With the heritage of Massachusetts’ Senators—on both sides of the aisle?  (Second problem:  why don’t nonprofits simply forbid nepotism?)

Next example:  Lynn Stout, the Paul Hastings Distinguished Professor of Corporate and Securities Law at UCLA, is being publicly criticized by her own dean and chancellor for her criticism of a $10 million naming rights deal UCLA has accepted for a new Institute for Business Law and Policy.  The donor Lowell Milken , UCLA’s 2009 Public Service Alumnus of the Year.

Most people of a certain age would immediately recognize the name Michael Milken and understand Stout’s questioning of UCLA’s thinking—for accepting the gift (and, from my perspective, giving the award).  But Lowell?  Well, he’s Michael’s brother who, though caught up in the junk bond scandal with his brother, wasn’t prosecuted and managed to escape jail.  He was, however, barred by the federal government from ever again working in the securities industry.  Stout questions the ethics of naming a business law institute after someone who clearly violated what most would consider basic business ethics, and wonders what kind of message that would send students.  Her chancellor, who says the decision was “thoroughly” vetted, and dean, who notes that Stout accepted Milken money to fund a conference, so why raise the ethics flag now, are not fans of her thinking.  A number of her faculty peers are in the dean/chancellor camp.  Money talks at UCLA, ethics walk?  Remind me not to hire a lawyer graduating from UCLA’s School of Law.

Swinging back to the east coast, and in our own backyard, is the deal that our very own School District of Philadelphia brokered to buy-out the contract of School Superintendent Arlene Ackerman.  Nearly a $1 million dollar buy out, approximately six months after her contract had been extended until June 2014.  (This in a school system with a dropout rate that ranges from 50%-62%, depending on where/who you read or talk.)  Okay, that stupidity aside, the problem is how they made the payment.  The School District only had a little more than half of the total to ante up.    So, they got anonymous, private donors to come up with the remainder.  Imagine, private donors bailing out the government! And nonprofits needing those private donors’ dollars even more as their government dollars shrink with the sinking economy!   And what promises—spoken or not—have these donors extracted?

It gets better.  These anonymous gifts are being passed through a nonprofit—Philadelphia’s Children First, Inc.  Sitting on the board of this nonprofit?  Arlene Ackerman! Also on the board?  Dr. Leroy David Nunery II, former Chief of the office of Institutional Advancement and Strategic Partnerships at the School District of Philadelphia and now Interim Superintendent of the School District of Philadelphia!  Rest of the board? Four out of nine are attorneys, each practicing at one of the major law firms of Philadelphia.  With one exception, they all seem to have extensive experience serving on nonprofit boards.   And just what is this nonprofit getting in return? Taking a percentage, as is not uncommon for pass through agencies?  Getting a promise for something down the road?  I weighed in the recent Philadelphia Inquirer article.

I’m sick to my stomach with the smells emanating from these stories and more.  It just isn’t that hard to be ethical, adhere to standards, protect the reputations of individual nonprofits and that of the sector as a whole.  So why do so, so many people, and the organizations driven by them, have such a hard time finding that solid, moral ground?

The opinions expressed in Nonprofit University Blog are those of writer and do not necessarily reflect the opinion of La Salle University or any other institution or individual.

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