September 18, 2008 | Read Time: 4 minutes
When it comes to protecting their employees who speak out against illegal or unethical behavior, many grant makers and other nonprofit organizations have voluntarily adopted whistle-blower policies in the wake of a 2002 law designed to cut down on corporate malfeasance.
The 2002 law, known as Sarbanes-Oxley, was passed after the scandals surrounding Enron, MCI, and other big companies, but many good-governance experts say charities should follow them too.
Most notably, the Panel on the Nonprofit Sector — a group of nonprofit leaders brought together to discuss the issue by Sen. Charles Grassley, Republican of Iowa, and other politicians — in 2005 issued a report encouraging charities and foundations to adopt and publicize their own policies on whistle-blowers based on the provisions in the Sarbanes-Oxley law.
The law makes it a criminal offense to knowingly retaliate against whistle-blowers who have reported accurate information about institutional wrongdoing to officers of the law.
The panel also urged the nonprofit world to begin “a vigorous sector-wide effort to educate and encourage all charitable organizations to adopt and enforce policies and procedures to address possible conflicts of interest and to facilitate reporting of suspected malfeasance and misconduct by organization managers.”
Groups such as the National Council of Nonprofit Associations, in Washington, a coalition of state nonprofit associations, have encouraged charitable organizations nationwide to develop practices similar to those found in Sarbanes-Oxley.
The Evangelical Council for Financial Accountability in Winchester, Va., an organization that represents many religious charities, has also created guidelines for its members.
State Rules
Other statutes, including a handful at the state level, require organizations to protect employees who speak out; they include laws against discrimination. Nonprofit health-care organizations and hospitals that receive subsidies through federal programs such as Medicare and Medicaid must also comply with the federal False Claims Act, which protects whistle-blowers who report instances of fraud against retaliation.
Still, some observers question whether Sarbanes-Oxley and similar laws are strong enough to protect those who speak up about wrongdoing in the corporate world, much less at nonprofit organizations.
Whether the full force of Sarbanes-Oxley can be applied to the governance of nonprofit groups has not yet been fully tested in court.
Because of that, a comprehensive and clear policy on whistle-blowers should be put in place by each organization and enforced by boards of directors, says Scott Harshbarger, former president of Common Cause, in Washington, and now the vice chair of the Ethics Resource Center, a group in Washington that conducts research and promotes ethical behavior at organizations.
“It’s crucial that, as a sector, we come up with some best practices on this because laws right now just aren’t strong enough to guarantee protection to whistleblowers,” says Mr. Harshbarger, now a lawyer in Boston who has many nonprofit groups as clients.
“Even though there are laws, there are wide gaps in them,” he says. “We’ve said in the past that we in the nonprofit sector can regulate ourselves on this, but we’ve demonstrated at times that we can’t.”
Adding Protections
Some grant makers and nonprofit organizations have worked to fill those gaps.
The John D. and Catherine T. MacArthur Foundation, in Chicago, has incorporated within its bylaws a section on reporting illegal or unethical conduct that advises staff members to report their complaints to the grant maker’s general counsel or vice president of human resources.
If those individuals are not responsive, whistle-blowers can relay their concerns to the chair of the foundation’s audit committee. Although the foundation can’t promise complete confidentiality as it investigates employees’ claims, its policy guarantees against discrimination, firing, or threats.
At the American Heart Association, in Dallas, an ethics hotline is managed by a third party, and is available to employees or others who want to report misconduct. Developed as part of an ethics policy the organization wrote in 2003, the hotline handles anonymous complaints and writes down information, which is then reviewed by the organization’s chief legal counsel, an ethics administrator, and an internal audit director.
“We thought it was important to put checks and balances in the system, just in case one of the complaints was about one of those individuals,” says Bill Achenbach, executive vice president for human resources at the organization, which receives two to three complaints each month via the hotline. It then investigates them until they are resolved.
While he applauds the fact that several organizations have drawn up and published stronger policies, Mr. Harshbarger says not enough groups have done so. What’s more, he’d like to see the nonprofit world institute some kind of system on its own that would uphold high standards for whistle-blower protection.”What gets me is that we resist policing ourselves. I realize there’s no one-size-fits-all solution here, which is why you don’t want a Sarbanes-Oxley for all nonprofits, but we even resist looking out for each other on this,” he says.
The stakes are too high for groups, which often suffer collectively when ethics problems strike even one high-profile organization, Mr. Harshbarger adds.
“Enron had a mechanism too,” he says. “But if you just have people mouthing the words and not embracing the spirit of it, it doesn’t mean anything. The public is willing to give us the benefit of the doubt on this. I wonder how long we’ll be able to rest on those laurels.”
