This document discusses the role and duties of nonprofit boards and common ethical challenges they may face. It outlines the three main duties of boards as the duty of care, duty of loyalty, and duty of obedience. It also discusses defining and managing ethics and conflicts of interest. Some ethical situations boards may encounter include board member selection and relationships, CEO selection and compensation, contracting, and fundraising practices. The document provides guidance on policies and procedures to help reduce ethical dilemmas.

1. The Role of the Board and Ethics Minnesota Hospital Association January, 2011

2. Topics We Will Cover Board Duties Defining Ethics Reducing Ethical Dilemmas Managing Conflicts of Interest Ethical Challenges

3. Nonprofit Boards - Three Duties Duty of care: actively participate in organizational planning and decision-making make sound and informed judgments Duty of loyalty: put the interests of the nonprofit before any personal or professional concerns avoid potential conflicts of interest Duty of obedience: ensure that the organization complies with all applicable federal, state, and local laws and regulations remains committed to its established mission

4. Ethics – A Defining Conundrum Definition one: “ The branch of philosophy concerned with evaluating human action. Some distinguish ethics, what is right or wrong based on reason, from morals, what is considered right or wrong behavior based on social custom.” Definition two: “ Ethics may be defined as the actions an individual takes on himself to ensure his continued survival across the dynamics. It is a personal thing. When one is ethical, it is something he does himself by his own choice.”

5. Ethics is Not Easy Ethics is all about the gray areas Ethics is not about good vs. evil Choosing between good things Choosing between bad things

6. Reducing Ethical Dilemmas The organization should have good policies and procedures in all areas of governance, management, and operations The organization must follow the policies Leaders must set a good example Reward others for setting a good example Keep policies and practices updated

7. Conflicts of Interest Conflicts are almost inevitable A conflict is not necessarily illegal Conflicts must be disclosed in writing Conflicts must be managed through policy

8. Some Board Ethical Situations Board selection and membership Employing the CEO Contracts Fundraising

9. Board Selection and Membership Board recruitment policies Board terms and term limits Board and board member assessment Ethical challenge: Board members who are related to each other

10. Selecting, Compensating, and Evaluating the CEO Board-led processes Including third-party data and experts Standard processes and written instruments Dependable schedule Ethical challenge: The “dream candidate”

11. Contracts Arms-length written bid processes Advance disclosure of potential conflicts of interest by vendors & suppliers as well as board and managers Ethical challenge: The car dealer/board member

12. Fundraising Avoid incentive compensation for fundraising – staff or volunteers Discuss ethics of major gifts with donors before the gift is given Ethical challenges: 1. The producer 2. Bad gifts and the boards that ask for them

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