Ethical Leadership in the Non-Profit Sector

Introduction

The success of every organization is dependent on the effectiveness with the type and style of leadership adopted. Leadership refers to the process of influencing others with the objective of accomplishing a particular common task. In the business environment, leadership mainly focuses at maximizing profits and reducing cost. However, in the 21st century, the focus of leadership is changing. According to Bono, Heijdenm, and Jones (2008), leadership has been changing to focus on nurturing strong ethical and moral standards within organizations. Consequently, there is a strong degree of correlation between ethics and leadership. The discipline of ethics entails appropriate and desirable morals and values within a particular society. According to Ward, Bochner, and Furnham (2001), ethics is an important consideration in the survival of every organization. This assertion emanates from the fact that the survival and success of every organization is dependent on the nature of the relationship that exists between the firm and other stakeholders. Ward, Bochner, and Furnham (2001) further assert that ethics is mainly concerned with a leader’s role and identity. In addition, integration of effective ethics in an organization contributes towards the development of a conducive working environment.

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In the course of executing their duties, managers assume the responsibility of ensuring that they incorporate effective ethics in order to enhance their firms’ success. Numerous ethical theories have been formulated in an effort to explain the concept of ethical leadership. The theories formulated focus on a number of issues associated with the leader’s behaviors, actions, character, and personality. Consequently, ethical leadership can be defined as the process of influencing others through incorporation of effective values, beliefs, and principles that contribute towards nurturing the right behavior. Ward, Bochner, and Furnham (2001) are of the opinion that ethics is a key ingredient to leadership.

According to Bono, Heijdenm, and Jones (2008), ethical leadership does not only focus on the leader. However, it also incorporates other stakeholders and followers, the situations faced by the leader and followers, and leaders’ skills and outcomes. In light of the above insight, this paper evaluates the concept of ethical leadership in a nonprofit organization by incorporating a number of aspects such as linking the concept of ethical leadership to firms in the nonprofit sector and identifying the importance of ethical leadership in nonprofit organizations. In a bid to illustrate the importance of ethical leadership effectively, this paper compares ethical leadership issues in various organizations, which include The Carter Center, UNICEF, and the Bill and Melinda Gates Foundations. Finally, the paper gives a conclusion and outlines a number of recommendations and timeline on how to nonprofit organizations can enhance ethical leadership in the course of their operation.

Identification of the ethical leadership in the non-private sector

Conventionally, leaders should influence their subordinates towards the attainment of a particular goal. This aspect is only realizable if the leader portrays high moral values and treats his or her subordinates with a high degree or respect. In light of the above argument, leaders carry the responsibility of creating an ethical environment. Bono, Heijdenm, and Jones (2008) define ethical leadership as the process of influencing the conduct and actions of other individuals with the objective of creating a strong interpersonal relationship. Such interpersonal relationship results from effective decision-making and communication (Shapiro & Stefkovich, 2008). Ethical leaders act as role models to their subordinates. As a result, they influence the actions of their followers positively. Ethical leaders communicate and justify their actions to their followers. Additionally, they are also ready to reward ethical conduct amongst their followers.

Nonprofit organizations are noble firms as demonstrated by their missions. Despite the fact that operations of firms in the non-profit sector are not motivated by attainment of profit, their survival and future operation is not dependent on the extent to which ethical leadership is incorporated. Their mission to operate as charitable and philanthropic organizations can end up in tatters due to unethical leadership. Findings of previous studies conducted on ethics in nonprofit organizations reveal that nonprofit organizations have nurtured a relatively strong ethical culture compared to for-profit organizations and the government sector. According to a survey conducted by Ethics Resource Center (2007) on ethics in the US, non-profit organizations have managed to develop a strong ethical culture at 11 per cent compared to the business sector and the government whose ethical standings are 9 per cent and 8 per cent respectively.

However, the ethical culture is experiencing a high rate of erosion. The erosion has arisen from the fact that employees in these organizations are increasingly engaging in misconducts. Findings of a study conducted by the Ethics Resource Center (2007) reveal that the most common types of misconduct being experienced in the non-profit sector include lying, conflict of interest, and abusive behavior. Additionally, numerous cases of unethical practices in the non-private sector with regard to misuse of the firms’ revenues have been evident. Firms in the non-private sector are experiencing an increment in incidences of fraud, “which entail alteration of financial records and documents coupled with lying to employees and other stakeholders” (Weiss, 2009, p.49). In 2007, financial fraud in the non-profit sector increased from 5 per cent to 8 per cent.

Employees in non-profit firms are not also reporting incidences of fraud they experience in the course of executing their duties to the top management. This aspect has led to a significant decline in ethical culture that the firms have been nurturing previously. This trend leads erosion of the non-profit sector, which hitherto stood out as a reputable sector. Such organizations are increasingly getting involved in unethical practices (Ward, Bochner, & Furnham, 2001). The Ethics Resource Center (2007) further asserts that the non-profit sector is experiencing governance problem. The governing bodies in the non-private sector have significant influence on employees’ ethics. Similar to the for-profit organizations, the success of firms in the non-profit sector is dependent on the effectiveness of their workforce. Additionally, firms in the nonprofit sector are experiencing significant growth in their operation, as evidenced by the high rate of their expansion with regard to organizational size. However, the governing bodies in the nonprofit sector have not equated the growth they are experiencing with the need to improve their ethics (Ethics Resource Center, 2007). The governance problem is further activated by lack of regulatory and legislative frameworks. Most governments have not implemented legislations that focus on regulating the operations of the private sector as it is with the private sector.

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The top management teams in the non-private sector have done little to promote good ethics. This aspect has greatly instigated the prevalence of unethical practices in these organizations. The findings of the survey conducted by the Ethics Resource Center (2007) on ethics in the non-private sector revealed that only 22 per cent of the respondents interviewed experience ethical leadership in their organizations. Employees in the nonprofit sector are of the opinion that the top-management teams’ actions set the tone for their actions and behaviors in a given firm. The top management teams’ failure to incorporate effective ethics has allowed subordinates to develop a lower ethical perception (Elias, 2004).

The relevance of ethical leadership in NGOs

Ethical leadership is of great importance to firms in the nonprofit sector. One of the most important aspects associated with ethical leadership in nonprofit organizations is the need to earn and maintain public trust. Earning public trust is a critical “asset in the survival and success of nonprofit organizations” (Beer, Eisenstat, & Foote, 2011, p.76). The need to ensure ethical leadership emanates from the fact that nonprofit organizations source their revenue from various sources such as donors, volunteers, and other charitable organizations. Additionally, they are not subject to income tax on their revenue. Providers of funds to nonprofit organizations are mainly concerned on how the involved parties utilize the funds issued to support different projects. Consequently, the financiers expect nonprofit organizations to be good stewards, transparent, and portray a high degree of integrity in the course of their operations. One of the ways through which they attain this goal is by portraying high ethical standards by sticking to the activities, for which the funds are issued (Beer Eisenstat, & Foote, 2011). However, the occurrence of unethical behavior can subvert the public trust earned and eventually the trust might melt away slowly by slowly. The existence of numerous scandals in the nonprofit sector has adversely affected the survival of firms in the nonprofit sector. Examples of such unethical practices include wastefulness, mismanagement, and fraud.

The significance of ethical leadership in the nonprofit sector is also underscored by the fact that they are facing numerous challenges emanating from the external environment. Some of these challenges associate with the fact that the non-profit sector is experiencing an increment in demand for its services. Other major challenges that nonprofit firms are experiencing relate to the fact that they do not have sufficient financial resources and are experiencing an increment in the intensity of competition. Despite the lack of legislations to control the operations of firms in the nonprofit sector, there is a high probability of firms in the non-profit sector to experience emergence of codes of ethics that they should adhere to during their operation.

Nonprofit organizations

Numerous non-profit organizations have come up across the world. The organizations’ operations run on diverse missions, goals, and objectives. Examples of such non-profit organizations include The Carter Center, Bill and Melinda Gates Foundation, and the United Nations Children’s Fund.

The Carter Center is a nonprofit entity that was established in 1982 by Jimmy Carter, the former US president and his wife Rosalynn Carter. Other key stakeholders in the establishment of the center include Emory University. The organization operates on an international scale covering more than 75 countries. Its main goal is to minimize human suffering, promote human rights, promoting public health, mental health, and ensuring effective conflict resolution. In a bid to achieve its goals, the organization has adopted a unique method of promoting public education, improving information accessibility, and aid distribution. The organization has more than 175 field officers and its slogan entails “waging peace, fighting disease, and building hope” (The Carter Center, 2012).

In the course of its operation, the firm has incorporated a number of programs that focus at enhancing the firm’s ability to achieve its goals. The center’s programs associate with its peace and health. The peace programs include democracy programs, conflict resolution program, and human rights programs. On the other hand, the health programs cover areas such as trachoma, malaria, guinea worm, mental health, schistosomiasis, and river blindness. In the course of executing its duties, the Carter Center is also charged with the responsibility of ensuring that it promotes peace in various political jurisdictions. Consequently, the organization is required to execute its duties with no impartiality.

UNICEF operates as a nonprofit organization whose objective is to provide humanitarian assistance and development to mothers and children in the developing countries. The organization was established in 1946 with the objective of providing healthcare and food assistance to children in developing countries that were adversely affected by the World War II. The organization operates as a fund with its headquarters in New York; however, it operates as a global organization. Its main source of funds includes governments and private donors. In a bid to achieve its goals, the organization has formulated and implemented diverse programs such as health, education, emergencies, protection, and nutrition. Over the years it has been in operation, UNICEF has been very effective in attaining its goal. One of the factors that have contributed to the firm’s success is implementation of effective and ethical leadership.

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On the other hand, Bill & Melinda Gates Foundation was established in 1994 under the leadership of Bill Gates and Melinda Gates. The foundation was established with the sole objective of reducing the level of poverty and improving access to healthcare by the American society. Additionally, the foundation also focuses on providing educational opportunities to the American citizens. Its headquarters are located at Washington, in the US. The firm’s operations run under the watch of three main trustees who include Warren Buffet, Melinda Gates, and Bill Gates (Bill & Melinda Gates Foundation, 2012).

Analysis of ethical leadership issue in non-profit organizations

Most non-profit organizations are committed towards nurturing strong ethical leadership within their organizations. One of the ways through which most non-profit firms have achieved this goal is by implementing terms and conditions that should be followed with regard to promoting ethical behavior amongst the employees (Bellou, 2003). In 2004, the Carter Center was charged with the responsibility of ensuring that the Venezuelan referendum was conducted in a free and fair manner. However, there were allegations, by the opposition, that the operations of the Carter Center would not be free and fair. The allegations arose from the fact that some stakeholders were of the opinion that the outcome given by the Center would be influenced by the US government (Delacour & Barahona, 2004). The opinion hinged on the fact that the US government is one of the major providers of funds to The Carter Center. The US government has formulated foreign policies that target other countries. Through the foreign policy, the US government is in a position to influence the political outcome of other countries.

Delacour and Barahona (2004), who are renowned political analysts, assert that considering the fact that the US government is the major financiers of the Carter Center, there is a high probability of the Center’s employees to experience external pressure from the US political class. Such external pressure would influence the outcome of major political events such events such as referendums as illustrated by the case of the 2004 referendum in Venezuela. Pressure from the political class would mostly hinge on the need for the US government to implement its foreign policy. According to Delacour and Barahona (2004), this aspect depicts a clear-cut case of conflict of interest.

In the course of their operation, conflict of interest is one of the major issues that nonprofit organizations have to deal with. Numerous cases of conflict of interest are documented in the non-profit sector. One source of conflict of interest in nonprofit organizations emanates in the event of the nonprofit board members or the main donor being given special privileges. Occurrence of such incidences can result in the nonprofit sector losing public trust. The Carter Center suffered a decline in the level of public trust, as evidenced by the 2004 dispute over its endorsement of the Venezuelan referendum. The Center reported that President Chavez won the referendum fairly. However, findings of other institutions such as the US World Report and Wall Street revealed that the entire exercise was characterized by intense fraud and irregularities. However, the Carter Center did not bother with the allegations. Instead, it released a report reaffirming its findings.

In its quest to safeguard itself from the adverse effects associated with conflict of interest, The Carter Center has incorporated a number of ethical steps that aim at minimizing the impropriety associated with conflict of interest. The firm has attained this goal by formulating and implementing a comprehensive conflict-of-interest policy. The policy restricts the firm’s employees from engaging in transactions that can result to a conflict of interest. Additionally, all the board members are required to disclose areas of possible conflict. Through effective disclosure of conflict areas, the firm stands a very good chance to formulate strategies on how to deal with such issues. The Carter Center has also implemented a policy that requires its employees to be free and fair in the course of executing their duties and disclosure. This move illustrates that the firm faces a challenge in the course of its operation with regard to implementation of ethical leadership. Consequently, it is paramount for the Carter Center to consider the possibility of integrating strategies that contribute towards the development of ethical practices amongst the employees.

On the contrary, UNICEF has been very effective in implementing ethical leadership. One of the ways through which UNICEF has managed to achieve this goal is by being committed to collective leadership. In the course of its operation, the firm appreciates the importance of attaining employee commitment (UNICEF, 2012).. Consequently, the firm nurtures a strong ethical culture through peer commitment. This element has played an important role in the organization’s effort to embed strong ethical values amongst employees. Beer, Eisenstat, and Foote (2011) are of the opinion that nurturing a strong ethical culture minimizes the probability of employees compromising the set standards. Additionally, a well-implemented ethical culture minimizes the risk associated with unethical practices.

UNICEF has also implemented a number of terms and conditions aimed at promoting ethical practices amongst its employees and other business stakeholders. One of the ways through which the organization has achieved this goal is by incorporating policy that promotes zero tolerance to unethical, fraudulent, and unprofessional conduct amongst its employees and other stakeholders. For example, employees and bidders who engage in fraudulent or unprofessional conduct face dismissal from the firm and the consequent prohibition from conducting business with the organization (UNICEF, 2012).. The organization has also implemented a policy, which aims at addressing cases of fraud and corruption. One of the ways through which the organization has achieved this goal is by requiring its employees and other business parties to adhere to the stipulated rules and regulations in the procuring process. Additionally, the firms’ employees are required to adhere to high ethical standards in the procurement process. The organization prohibits its employees from offering and receiving favors that would influence the outcome of the procurement process. The firm also restricts employees from engaging in fraudulent activities such as influencing the outcome of the procurement process. Consequently, employees are required to ensure that the procurement process is free and fair.

Conclusion

The above analysis illustrates that ethical leadership is a very critical aspect in the survival of firms in the nonprofit sector. Findings of previous studies conducted on the topic confirm that ethical leadership is one of the critical assets in the operation of nonprofit organizations. However, nonprofit organizations have experienced an increment in cases of unethical practices in the recent past, which are being propagated by the top leaders and their subordinates. Some of the most prominent unethical practices evident in nonprofit organizations relate to financial reporting such as fraud and conflict of interest. The ramifications of such conduct to an organization are enormous. Firstly, persistence of such unethical practices may result in the organization experiencing loss of public trust. This element can culminate into a major impact in the firm’s future operations. For example, considering the fact that nonprofit organizations mainly depend on donors, volunteers, and the public for funds, persistence of such unethical behaviors may compel the donors to cease providing additional funding and ultimately the firm may experience financial constraints hence adversely affecting its operational efficiency.

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Bill & Melinda Gates Foundation ranks as one of the most transparent nonprofit organization in the United States. Its success has emanated from the incorporation of effective leadership strategies by its trustees. The foundation’s operations also run under the watch of a management committee that assumes the responsibility of overseeing its organizational operations. One of the roles of the management committee is to provide effective and ethical leadership to the firm. The management committee meets occasionally to assess the performance of the various organizational teams and to facilitate cross-functional connections (Bill & Melinda Gates Foundation, 2012). Additionally, its trustees act as role models. Consequently, they are in a position to influence their employees to portray a high level of integrity, transparency, and act in good faith. Consequently, the firm has been in a position to reduce cases of misconduct such as financial fraud substantially. The ethical leadership in the firm has also contributed towards a firm’s success in the course of implementing its programs.

In its quest to promote a high level of operational efficiency through ethical leadership, Bill & Melinda Gates Foundation has integrated a high level of collaboration with various stakeholders both inside and outside the organization. As its trustees, Bill Gates, Melinda Gates, and Warren Buffet require the organization’s employees to treat every individual with a high level of honesty, fairness and honesty. The foundation’s trustees have been in a position to influence employees due to the implementation of visionary leadership. The adoption of visionary leadership has significantly enhanced the foundation’s ability to attain its goals. In 2012, Bill & Melinda Gates foundation received the First Global Health Leadership Award due to its effectiveness in implementing its health goals (Parsons, 2012).

On the other hand, the integration of ethical leadership increases the probability of nonprofit organizations attaining their intended goal. Additionally, incorporating ethical leadership can result in the firm nurturing strong ethics amongst employees, which results in the development of strong public trust. In a bid to promote ethics within their operations, diverse firms have implemented the concept of ethical leadership. One of the ways through which this goal is realizable is by formulating terms and conditions that stipulate how to deal with cases of unethical practices as illustrated by the case of UNICEF, which has implemented terms and conditions to deal with unethical practices such as fraud and corruption (UNICEF, 2012).

In the course of their operation, nonprofit organizations face a major challenge in executing their duties. Their freedom and independence of their operation may be compromised by the fact that they do not have their own source of revenue, which forces them to over-rely on donors. Due to financial pressure that nonprofit organizations may experience in the course of their operation, they may tend to be shortsighted in the course of executing their duties. The resultant effect is that they may experience an increment in cases of misconduct. Additionally, the major donors may influence the outcome of their findings and reporting as illustrated by the case of The Carter Center, which was marred by conflict of interest in reporting the outcome of the 2004 Venezuelan referendum. Consequently, it is vital for directors and executives of nonprofit organizations to focus on how to remain independent and to implement effective internal financial control systems.

Recommendations

In a bid to improve their operation and future survival, it is paramount for non-profit organizations to nurture effective and ethical leadership. This move will play a critical role in minimizing ethical failures that they might experience in the course of their operation. Therefore, to nurture ethical leadership, firms in the non-profit sector should focus on a number of issues. Some of these issues include:

  1. Nonprofit organizational leaders should set the tone for the subordinates to follow, which means that the organizational leaders should set an example for other parties to follow. In a bid to achieve this goal, the top leaders in nonprofit organizations should start by influencing the employees’ perception with regard to the ethical conduct that they should depict.
  2. In a bid to influence their subordinates, organizational leaders should ensure that they possess effective values, integrity, and character. This aspect arises from the fact that their values and visions should focus at benefiting the entire organization. Additionally, organizational leaders should also ensure that they have a comprehensive understanding of their organizational values. The first step towards the implementation of ethical leadership entails developing a comprehensive understanding and commitment of the core values, which will aid in the process of influencing the employees to act in the best interest of the organization.
  3. It is also important for the executives and directors to formulate and implement an internal control mechanism. The control mechanism should focus on how to minimize incidences of financial fraud. Additionally, a policy outlining how those who do not follow the set policy will be dealt with should also be outlined. This move will play a significant role in the firm’s effort to deal with misconduct such as fraud.
  4. The nonprofit organizations should ensure that the leaders selected portray effective leadership traits. Some of the traits that should stand out include honesty, justice, dignity, respectfulness, and community building. Some of the aspects that make subordinates to follow their leaders include their honesty and loyalty. The selected leaders should be ready to serve others; therefore, they should place the interests of the subordinates ahead of their interests. The leaders should also ensure that they are just and fair in the course of making and implementing their decisions. One of the ways through which ethical leaders can achieve this goal is by integrating the concept of equity. Consequently, it will be possible for the leaders to eliminate any form of bias.
  5. In a bid to nurture ethics in the workplace, it is paramount of nonprofit organizations to incorporate comprehensive ethics and compliance program. One of the ways through which nonprofit organizations can attain this objective is by formulating a comprehensive code of conduct. The code of ethics should detail a number of standards that should be followed in the employees’ course of operation. Additionally, the code of ethics should outline how the firm will deal with various ethical dilemmas that might occur in the course of its operation.
  6. It is also important for nonprofit organizations to invest in ethics training. This move will aid in ensuring that the firm’s leaders understand the most effective ethical practices that they should promote. The resultant effect is that the organization will be in a position to nurture a strong ethical culture.
  7. Decision to invest in ethics training arises from the fact most nonprofit organizations fail due to lack of effective ethical leadership by the top management.
  8. Organizational leaders should evaluate their employees’ ethical behavior. The evaluation should focus at gaining more insight regarding the employee’s behavior. Consequently, it will be possible for the leader to identify areas where employees are failing, and thus provide them with incentives to act ethically. Implementation of ethical evaluation program means that nonprofit organizations should shift from basing their ethics compliance programs on punishment, and focus on how best to change the employees’ behavior.

Timeline for implementing the above recommendations

Action Area Action Responsible party Timeline
Aligning the employees’ values with the organisational values The board charged with the responsibility of ensuring effective operation of non-profit organisations should ensure that their values align with the organisation’s values. Consequently, they should lead by example. One of the ways through which they can achieve this is by adhering to their organisations’ vision, mission, and values. The board of directors, middle level managers and supervisors should be in the forefront in promoting organisational values This process should be implemented continuously
Formulating and implementing the ethics and compliance program. Non-profit organisations should outline the various procedures and standards that employees should adhere to in the course of executing their duties such as preparing financial statements, procurement and dealing with clients. One of the ways through which the firms can achieve this is by outlining a code of conduct. The HR department in collaboration with other departments should formulate the code of conduct. department [The firm’s human resource managers] The ethics compliance program should be implemented continuously in the life of the organisation
Investing in ethics training Non-profit organisations should conduct a comprehensive internal analysis on their leaders’ ethics in order to identify the existing gaps. This will aid in designing an ethics program that focuses on the main areas of deficiency The organisation should outsource the services of the most qualified ethical training institute such as the Ethics Resource Centre Ethics training should be undertaken occasionally
Nurturing a strong ethical culture through cultural evaluation It is vital for leaders of non-profit organisations to nurture strong ethical culture. This goal can be attained by implementation of effective HR practices such as a reward system. The reward system should integrate both punishment and compliment. The ethical appraisal process should be undertaken by the HR department Ethical evaluation should be conducted occasionally.
Implementing internal financial control systems Directors of non-profit organisations should implement effective financial control systems in order to deter financial fraud. The financial systems should be implemented by the financial department in collaboration with the financial system experts Non-profit organisations that do not have financial control systems should ensure that they implement one immediately.

Reference List

Beer, M., Eisenstat, R., & Foote, I. (2011). Higher ambition: How great leaders create economic and social value. Boston, MA: Harvard Business Review Press.

Bellou, V. (2003). Identifying organizational culture and subcultures within Greek public hospitals. Journal of Health Organization and Management, 22(5), 496-509.

Bill & Melinda Gates Foundation. (2012). Co-chairs, trustees and management committee. Web.

Bono, S., Heijdenm, A., & Jones, E. (2008). Managing ethics. Northam, Australia: Roundhouse.

Delacour, J., & Barahona, D. (2012). Can the Carter Center observe Venezuela’s referendum impartially. Web.

Elias, R. (2004).The impact of corporate ethical values on perceptions of earning management. Managerial Auditing Journal, 19(1), 84-98.

Ethics Resource Center. (2007). National nonprofits ethics survey. Web.

Parsons, T. (2012). John Hopkins University honors Bill Gates and Melinda Gates with first global health leadership award. Web.

Shapiro, J., & Stefkovich, J. (2008). Ethical leadership and decision making in education. London, UK: Taylor and Francis.

The Carter Center. (2012). Waging peace, fighting disease and building hope. Web.

UNICEF (2012). EU Nobel prize money benefits children. Web.

Ward, C., Bochner, S., & Furnham, A. (2001). The psychology of culture shock. New-York, NY: Routledge.

Weiss, J. (2009). Business ethics; a stakeholders and issues management approach. Mason, OH: South Western Cengage Learning.

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