Hard-wire Ethical Values in Nonprofits: Stanford Social Innovation Review Article Offers Ways to Promote Ethical Conduct

STANFORD, Calif., June 3, 2009 — In the summer 2009 issue of Stanford Social Innovation Review two Stanford Law School scholars examine the ethical issues that arise specifically in the nonprofit sector, and suggest the best ways to promote ethical behavior within organizations.

“Ethical challenges arise at all levels in all types of organizations—for-profit, nonprofit, and government—and involve a complex relationship between individual character and cultural influences,” write Deborah Rhode and Amanda Packel. Drawing on the growing body of research on organizational culture in general, and in nonprofit institutions in particular, they identify four crucial factors that influence ethical conduct: moral awareness, moral decision making, moral intent, and moral action. Rhode is the Ernest W. McFarland Professor of Law and director of the Stanford Center on the Legal Profession, where Packel is associate director.

These factors contribute to organizational dynamics that play out in distinctive ways in the nonprofit sector, specifically in the following six areas: compensation, conflicts of interest, publications and solicitation, financial integrity, investment policies, and accountability and strategic management.

While ethical conduct in the corporate world has come under closer scrutiny, especially in the aftermath of the economic downturn, nonprofit leaders are not immune to greed and other ethical challenges. “Public confidence in nonprofit performance is at risk,” they write. “Only one in 10 [people] strongly believe that charities are honest and ethical in their use of donated funds.”

Also in the current issue of SSIR, Kiva’s path to nonprofit status is the featured “Case Study.” One of the fastest-growing nonprofits in history, the world’s first online peer-to-peer microcredit marketplace carefully weighed the pros and cons of nonprofit status, according to Stanford Graduate School of Business coauthors Bethany Coates, case writer in the Center for Entrepreneurial Studies, and Garth Saloner, the Jeffrey S. Skoll Professor of Electronic Commerce, Strategic Management, and Economics, and director of the Center for Entrepreneurial Studies, who will become the new Dean of the Stanford Business School in September. The article quotes Kiva cofounder Jessica Jackley (Stanford MBA ’07): “It’s a tax code, not a religion. … We do think like a business wherever it makes sense, and we have tried hard not to get sucked into any sort of false limitations of being a nonprofit.” Coates and Saloner describe the events that led to the mid-November day in 2005 when Kiva became a phenomenon, and they outline the lessons learned about the advantages and the costs of being 501(c)(3).

About the Stanford Social Innovation Review
The Stanford Social Innovation Review is published by the Center for Social Innovation at the Stanford Graduate School of Business. The award-winning quarterly journal is the preeminent publication for executives and leaders in the field of social innovation, covering the latest ideas, research, and solutions in an engaging and thought-provoking manner. The Center for Social Innovation cultivates leaders to solve the world’s toughest social and environmental problems. Center participants lead corporate efforts to improve sustainable practices, manage nonprofits through strategic growth, and launch social enterprises that bring life-changing solutions such as loans to small businesses and safe lighting to the world’s poorest places. The Center provides research, education, and experiential programs that reach across the usual silos separating the business, nonprofit, and government worlds and that promote development of innovative solutions to build a more just, sustainable, and prosperous world. For more information, visit the Stanford Social Innovation Review website at www.ssireview.org.