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Public Integrity, Summer 2007, vol. 9, no. 3, pp. 245–263. © 2007 ASPA. All rights reserved.
ISSN 1099-9922/2007 $9.50 + 0.00. DOI 10.2753/PIN1099-9922090304
An Analysis of Codes of Ethics of Nonprofit, Tax-Exempt Membership Associations Does Principal Constituency Make a Difference? GARY M. GROBMAN
Abstract
This article considers and explores the connection between the nature of the principal constituencies of nonprofit, tax-exempt, national and international trade and profes- sional associations and the contents of the formal ethics codes promulgated by those associations. An empirical study analyzes differences in ethics code content based upon whether the association constituencies are principally nonprofit, for-profit, or government. It includes a content analysis of 150 association ethics codes and tests whether the constituencies of such associations influence code content.
The nonprofit sector has recently been under scrutiny for proven and alleged ethical lapses, contributing to a more cynical attitude by the public with respect to the mo- tives of those who lead nonprofit organizations. The alleged deceptive fund-raising practices of the American Red Cross in the early months following the September 11, 2001, terrorist attacks focused the public’s attention on the fund-raising practices of one of the most trusted national charities. An about-face on the policy occurred, contributing to the firing of the organization’s CEO (Wilhelm and Williams 2001); more recently, scandal affected several local chapters of the organization (Atkisson 2002; WNDU 2005). In the wake of Hurricane Katrina, hundreds of new charities
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blossomed overnight, many of them illegitimate, prompting the Federal Trade Com- mission to issue warnings to unwary donors (Federal Trade Commission 2006). The 1980s and 1990s witnessed even more embarrassing scandals that rocked the voluntary sector and increased public cynicism concerning the destination of its charitable largesse. Among others, the scandals involved the United Way of America, televangelists Jim Bakker and Jimmy Swaggart, the national Episcopal Church, Covenant House, the National Association for the Advancement of Colored People (NAACP), and the Foundation for New Era Philanthropy (Coble 1999). These episodes have focused attention on increasing the accountability of America’s tax- exempt charities, although Americans continue to have a basic trust in the nonprofit sector generally (Independent Sector 2002).
Creating an ethics code is one strategy among a menu of options that organizations use to demonstrate a commitment to and involvement in promoting an ethical work- ing environment. Other strategies include forming an ethics committee, establishing an ethics helpline to resolve ethical dilemmas, offering training to employees, and conducting ethics audits (Weber 1996).
The purpose of this article is to explore the role of ethics codes in organizational life and to begin the discussion of what provisions are appropriate or the norm for professional and trade associations. Among the topics addressed are the functions of a code, typical content of a code, and some history about the organizations that have codes. This paper provides an empirical study identifying patterns in the content of ethics codes of a sample of nonprofit, tax-exempt trade and professional associations within a small, distinct geographic area.
Literature Review
A number of writers have defined the component elements that constitute a code of ethics. Among them are “systematic efforts to define acceptable conduct” (Plant 2001, 309), “a collection of aspirations, regulations, and/or guidelines that represent the values of the group or profession to which it applies” (Pritchard 1998, 527), and “a published statement of the set of values and moral aspirations of a given profes- sion, developed in an effort to prevent corrupt behavior as well as communicate professional behavioral standards to the public at large” (Bruce 1998).
Codes of ethics are viewed as a means for expressing one’s professional identity (Weaver 1993) and as “a mark of a profession” (Pritchard 1998, 530). Weaver (1993) suggests two divergent explanations for the adoption of ethics codes in organiza- tions. The first is to promote ethical action. The second is for instrumental reasons related to profit maximization, such as to avoid irreparable harm to the organization that may result from unethical behavior. Another instrumental reason is to give the impression that the organization can police itself and thus avoid costly regulation. A code can also serve as a vehicle to address social issues, such as discrimination or social welfare, or to clarify relationships among members of an organization.
A code serves as “an important focus for group loyalty and shared values,”
The author gratefully acknowledges the contributions of Dr. Jeremy Plant of Penn State University, who served as chair of the doctoral dissertation “An Analysis of Ethics Codes of Nonprofit, Tax-Exempt Membership Associations: Does Principal Constituency Make a Difference?” upon which this paper is based.
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Pritchard observes (1998, 530). She adds that, historically, professional associations typically had a monolithic base of membership, drawing their members from a pool with the same social and cultural background. Today’s professional association is likely to be much more diverse, and its members not as likely to share a common moral philosophy. Thus the code is a strategy that serves the purpose of laying out the common values to which the group aspires.
Codes of ethics are a method of control over the behavior of subordinates, particularly when highly detailed. As Frankel (1989) points out, codes may offer organizational guidance to individuals facing novel situations, provide a basis for public expectations, strengthen an organization’s sense of common purpose, deter unethical behavior, and offer support to those who feel they are under pressure to act unethically.
Another function of a code of ethics is to provide guidance to organization members in resolving dilemmas when they must choose among competing values (Plant 2001). A code of ethics is viewed as a tangible method for organizations to es- tablish a need to encourage or compel ethical behavior and demonstrate a commitment to that end (Wood 2000), and a way to transmit ethical values to an organization’s members (Wotruba, Chonko, and Loe 2001). Also, a code is a statement to external stakeholders, serving as a “warranty to customers and cli- ents of how a business will conduct itself in regard to basic moral principles like honesty and fairness” (Pritchard 1998, 530). Some observers view organizational ethics codes as simply a mechanism to fend off litigation (Dobson 2005). One distinguishing feature of a profession is simply having a code of ethics (Adams, Tashchian, and Stone 2001). Developing an ethical code often brings to the fore controversial issues of what is morally right and wrong professional behavior.
Codes of Ethics Typologies
The literature of public administration is rich with efforts to find some order and structure in the content of ethics codes. This article seeks to build on previous ef- forts to find common themes among highly individualized and diverse documents. Pritchard (1998) writes that codes typically include an introductory set of general, aspirational principles that are indistinguishable from those adopted by other pro- fessional groups. Hemphill (1992) suggests that associations should include three types of provisions in their codes: economic provisions, environmental provisions, and socio-political provisions. Economic provisions relate to relationships between producer and consumer. Environmental provisions emerged in the 1990s, and in- clude provisions relating to environmental issues, health and safety, and product liability. The socio-political code includes principles addressing political partici- pation, bribery, philanthropy, the local community, and affirmative action issues (Hemphill 1992).
Jamal and Bowie’s (1995) three-part typology of association ethics code contents includes constructs related to avoiding moral hazards, maintaining personal courtesy, and serving the public interest. Moral hazards develop as a result of information dissymmetries that are commonly described by principal-agent theory (Waterman
Developing an ethical code often brings to the fore controversial issues of what is morally right and wrong professional behavior.
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and Meier 1998). In many cases, a client observing a professional is not able to de- termine whether he or she is behaving appropriately. Among the moral hazards that occur are those emanating from conflicts of interest, defined by Tom L. Beauchamp as “a conflict between a person’s private or institutional gain and that same person’s official duties in a position of trust” (Jamal and Bowie 1995). Other hazards are mak- ing political contributions for the purpose of influencing the awarding of business, or accepting referral contingent fees, because the person receiving such a fee will feel an obligation to the professional providing the fee at the expense of the client (Jamal and Bowie 1995). Maintaining professional courtesy encompasses avoiding false, misleading, or deceptive advertising or advertising that is undignified (e.g., jingles, showmanship, or exaggeration) or coercive, harassing, or overreaching (Jamal and Bowie 1995). Putting the public interest first means that a professional will consider the effect of putting the safety of the public paramount over the economic interests of the client.
A typology of ethical constructs (adapted from O’Boyle and Dawson 1992 and Tucker, Stathakakopolous, and Patti 1999) includes seven distinct descriptions of a particular ethical statement:
1. Integrity provisions: General provisions that encompass morality, honesty, sincerity, candor, responsibility, and trust.
2. Equality: Treating everyone the same (in the public administration context, “treating like cases alike”) and not showing favoritism.
3. Economic Efficiency: “Producing the right kind and right amount of goods and services the consumer wants at the lowest possible costs and within the legal mores of the community.”
4. Equivalence: Fairness in the exchange between the buyer and the seller, imposing equal burdens on them.
5. Distributive: The behavior of a superior in distributing the benefits of col- lective activities to all in the group who generated those benefits.
6. Contributive: Everyone in a group who receives collective benefits has the duty to contribute to producing those benefits.
7. Environmental: Political and environmental externalities, such as pollution, health and safety, and product liability. Also includes anti-discrimination provisions.
Weaver’s (1993) typology consists of organizational provisions (compliance and sanctions provisions, responsibilities to stakeholders, the character of organizational communication including record-keeping), employee issues (substance abuse policies, workplace safety and quality, conflicts of interest, nepotism, moonlight- ing, contacts with the media and government officials, use of company property, confidentiality, bribes, and kickbacks), legal matters (e.g., compliance with anti- trust laws, nondiscrimination, compliance with OSHA laws), the organization’s status in society (e.g., maintaining the reputation of the organization’s name and providing for honest advertising), and responsibility to society (e.g., engaging in community and charitable activities, protecting the environment, conserving en- ergy, and protecting the safety of the public). Gaumnitz and Lere (2002) provide a nine-part typology of ethics code provisions consisting of confidentiality, honesty and integrity, responsibilities of employers/clients, obligations to the profession, independence and/or objectivity, legal and technical compliance, discreditable or
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harmful acts, social values, and ethical conflict resolution. These typologies are diverse, but not necessarily contradictory. One factor that makes ethical issues hard to group coherently is their complexity; any action by an individual can be explained by multiple motivations.
Methodology
According to C.S. Benson, codes of ethics vary based in part on whether the or- ganization is nonprofit, for-profit, or government (in Plant 2001). The principal research question to be answered in this study is the following: Do the codes of ethics of U.S.-based national and international membership associations exempt under IRS Section 501(c) differ from each other based upon whether their memberships consist of principally nonprofit, for-profit, or government organizations or those employed by these sectors? Content analysis was em- ployed to answer this question. The technique of content analysis refers to the absence or presence in a text (in this case a code) of a word or set of words or of synonyms for that word (in cases where the intent is to convey a particular meaning) that relate to a particular construct. The intent was to eliminate overlap among the constructs in this study.1
The population for the analysis consisted of tax-exempt national and international trade and professional associations based in the vicinity of the nation’s capital.2 The intent was to capture virtually all of the major trade and professional associations in the United States, while at the same time controlling for the effects of geography. To select this population, a search was performed of the Associations Unlimited database for national and international associations based in Washington, D.C., Virginia, and Maryland. Each of these organizations was compared against the most current Internal Revenue Service Master List.
Once the population was chosen, the next step was to discriminate among groups that had predominantly for-profit, nonprofit, and government memberships. The principal way this was accomplished was by utilizing the Standardized Industrial Code (SIC) in the Associations Unlimited database.3
