State Associations Draft Ethical Standards to Bolster Trust in Charities

In the past decade, scandals in the non-profit world have left many organizations seeking guidance about what constitutes ethical behavior.

Non-profit associations in several states have been grappling with that issue, hoping to increase public confidence in charity while also providing benchmarks for organizations to measure their own practices against those of their peers — and possibly forestalling government regulation.

State associations in Maryland and Minnesota have now weighed in with separate Standards for Excellence, which are intended to promote ethical behavior and accountability among each state’s non-profit groups and to strengthen public trust.

The Maryland Association of Nonprofit Organizations published its 55 standards last month and is now testing the process of certifying non-profit groups’ compliance with them. The Minnesota Council of Nonprofits has issued a proposed draft that lists more than 90 standards, which it plans to discuss at a series of meetings around the state starting later this month. It expects to adopt a final version at its annual meeting in October.

Both documents cover such areas as the composition and responsibilities of governing boards, conflict-of-interest policies, program evaluation, financial accountability, and fund-raising practices. Both draw from earlier codes drafted by organizations as varied as the American Association of Museums, American Cancer Society, Council of Better Business Bureaus, Council on Foundations, Evangelical Council for Financial Accountability, InterAction, National Charities Information Bureau, and National Society of Fund Raising Executives.

Both sets of standards are accompanied by a list of “guiding principles” to which the associations require all their members to subscribe. The associations also urge their members to adopt the standards, which flesh out the principles in greater detail.

Organizations can apply for certification as being in compliance with the Maryland standards, which entitles them to mention that fact in their advertising. The process is not restricted to the association’s 809 members. (The Minnesota Council of Nonprofits has not decided how it will implement its ethical standards.)

“We’re fairly confident that this will provide a valuable service to the donor community in helping them to identify well-run non-profit organizations,” says Peter V. Berns, executive director of Maryland’s association, which is also called Maryland Nonprofits.

But he says the standards’ chief benefit may be to spark discussion within non-profit organizations about their own varied principles and practices. Groups may need that spur to embrace the standards they know they should follow.

“There are very clear expectations about what constitutes good non-profit management, but a wide gap between the expectations and the practice,” notes Mr. Berns. For example, in a recent survey of Maryland non-profit leaders, 81 per cent said that organizations should have a system to evaluate their performance, but only 48 percent of the organizations had such a system in place for even a part of their programs. Similarly, three-quarters of the leaders said organizations should have a conflict-of-interest policy, but only one-fifth of the groups polled had adopted one.

Under the new program in Maryland, organizations that wish to be certified must submit an application with supporting documentation and an application fee. The application is reviewed first by the association’s staff and by a three-member peer-review team drawn from non-profit executives, board members, and consultants. It then is sent for final approval to the standards review committee, which comprises a larger pool of such peers. The certification remains in effect for three years, after which a group must reapply.

Four Maryland organizations are now going through a pilot phase of the review process, Mr. Berns says. The association will begin distributing applications more widely later this month, and it expects to announce the first group of certifications in the fall.

“We’ve been thrilled with the reaction,” says Mr. Berns. “Our members have told us it’s a very helpful tool they can use to raise issues with their boards about how they operate.”

Jon Pratt, executive director of the Minnesota Council of Nonprofits, says the standards are a mark of the philanthropic world’s maturity. “Non-profits are a bigger part of the economy now,” he observes, “and there are higher expectations.” Confronted with disclosures of charity frauds or other scandals, says Mr. Pratt, “we would like to be able to say, ‘This violates the standards of our industry.’ Unfortunately, we didn’t have any standards” in recent years when charitable groups were tarnished by the shortcomings of a few prominent non-profit organizations.

The standards are intended to encourage non-profit groups to excel rather than merely to meet minimum levels of acceptability, Mr. Berns says. Particularly challenging, he notes, is a provision requiring a group to have “defined, cost-effective procedures for evaluating, both qualitatively and quantitatively, its programs and projects in relation to its mission.”

“We debated long and hard how to state that requirement and how we would interpret it,” Mr. Berns says. In the end, the peer-review panels were given the task of interpreting whether an organization has met that benchmark.

On the perennially thorny question of fund-raising expenses, both associations say such costs should be “reasonable” over time. More specifically, they say, an organization should receive in charitable contributions at least three times its fund-raising costs, when averaged over five years.

Among the other standards adopted in Maryland and proposed in Minnesota:

A non-profit group should periodically (at least twice a year, says Minnesota) review its mission to determine if there is still a need for its programs, and programs should be modified or scrapped as needed.

The board should have at least seven directors, unrelated to one another. (Maryland permits as few as five, but says seven is preferable.) Board members’ terms should be limited. (Minnesota specifies that a member serve no more than three consecutive terms of no more than three years.)

Board members, employees, and volunteers who have significant decision-making authority should sign conflict-of-interest statements disclosing any relevant financial interests, says Maryland, and such statements should be updated at least annually. (Minnesota says an organization should have and implement written policies “to prevent actual, potential or perceived conflicts of interest” — language that also appears in Maryland’s guiding principles.)

Fund raisers, whether employees or consultants, should not be compensated based on a percentage of the amount they raise or other commission basis.

Minnesota has proposed some additional points on which Maryland is silent: that all employees be paid “a livable wage” (which it defines as at least twice the poverty level), for example, and that each group promote “environmental sustainability” and demonstrate a “commitment to accessibility” to people with disabilities.

Though Maryland’s code is less detailed than Minnesota’s, it is comprehensive enough for the purpose, Mr. Berns says. “Some people might argue that we ought to have included something else, but they won’t be able to dispute that, if an organization is doing all the things we say in this code, it will be doing a damn good job,” he declares.

Copies of “The Standards for Excellence” are available from Maryland Nonprofits, 190 West Ostend Street, Suite 201, Baltimore 21230; (410) 727-6367; fax (410) 727-1914. The cost is $2 apiece for members and $3 for non-members, plus sales tax if applicable.

Copies of the current draft of the “Standards for Excellence” proposed by the Minnesota Council of Nonprofits are available from it at 2700 University Avenue West, Suite 250, St. Paul 55114; (612) 642-1904. It is also posted on the council’s World-Wide Web site: http://www.mncn.org.