Checks and Balances to Prevent Bad Behavior

The news is filled with instances of offensive and unacceptable behavior in the work place. It’s happening in all types of organizations, both business and nonprofit. In hindsight, it’s pretty easy to see the bad behavior pattern. We wonder how these instances could occur unchecked, sometimes going on for years.


After the news story breaks and more details come out, we learn that the bad behavior was tolerated from a powerful individual to keep the revenue streaming in or because the victims did not have an independent person to turn to for help. Often, the offensive and unacceptable behavior was enabled and/or explained away by other individuals in the organization who stood to lose money and/or position by speaking up.


What’s missing from every instance of work place behavior “gone wrong” are the checks and balances needed to identify and address problems. We usually think of checks and balances as applying to finances – reconciling bank accounts and segregating financial transaction tasks to prevent one person from having too much control. But the analogy definitely applies. Unchecked control and bad behavior can result in lawsuits and reputational damage, as we have seen.


Examples of bad behavior in the news are often extreme and not typical of most work places. Three checks and balances below, when implemented in a typical organization, promote an ethical culture where bad behavior will not be tolerated.


  1. “Tone at the Top” – Organizations must make it clear that bad behavior will not be tolerated. Clear and convincing policies should convey the organization’s values and expected behaviors. Leadership must also set an example through its actions.


  1. Confidential Reporting- No matter what leadership does to promote an ethical culture, some individuals will still engage in unethical, or even illegal, activities. Establish a confidential tip line or other mechanism for independently reporting real or suspected fraudulent behavior or ethical violations without fear of retaliation.


  1. Take Clear Action – Set up an independent mechanism to follow-up on confidential reports of bad behavior. Act on the results consistently. Remember that lost revenue when an unethical person is separated from your organization pales in comparison to lost revenue and costs associated with lawsuits and tarnished reputation.


Checks and balances alone do not guarantee that bad behavior will be stamped out. However, they can go a long way to establishing an ethical culture where bad behavior is just not acceptable.

Managing Nonprofit Risk

Nonprofits are always focused on serving the community, raising funds, and recognizing volunteers. They often overlook identifying and managing the organization’s risks. That can result in some nasty and expensive surprises.


Nonprofit organizations have all the risk exposures that for-profit businesses have. Plus, they are exposed to other risks peculiar to nonprofits, like risks associated with taking donations and engaging a volunteer workforce.


Failure to appropriately manage nonprofit risk can result in reputational damage and a drop in fundraising. In addition to the “normal” processes and insurance coverages used by for-profits, nonprofits should also manage risks related to these four groups of stakeholders:


  1. Directors & Officers

Board directors and key officers, such as the Executive Director, are responsible for making decisions and taking actions using donated funds. The Board should have a robust set of financial policies to establish risk tolerance and decision-making parameters. To further protect those individuals, consult an insurance specialist about appropriate coverages for various liabilities, based on activities and size.


  1. Employees

Every work environment requires guidance for its employees to communicate employer and employee responsibilities, work conditions, benefits, and rights. Employee or Personnel Manuals assist with training and holding people accountable. Employee candidate screening, especially for staff who work with vulnerable populations or financial assets, is a common risk mitigation tool.


  1. Volunteers

Even though they don’t get paid, volunteers should also have set of procedures to guide their recruitment, training, supervision, and expected conduct. Volunteers should also undergo a screening process and be supervised to ensure that she or he is following the organization’s rules and standards. Volunteers involved with serving vulnerable populations or handling donations should undergo additional screening, training, and supervision.


  1. Clients/Participants

Most for-profit businesses provide services or goods to anyone who needs them. Nonprofits can’t necessarily do that because they have a mission and policies that strictly define who is eligible to receive their services. Managing the risk of providing service outside the mission is mitigated by clear, consistent client in-take and screening procedures.


Nonprofits that manage risk for their directors, employees, volunteers and clients experience fewer surprises that can interrupt service delivery and damage reputations. Getting ahead of those risks with a few preventive measures allows nonprofits to focus time and energy on the mission — serving the community.

Does “Tone at the Top” Really Matter?

You’ve probably heard about the ethics issues at Uber and Fox News. News reports and dinner conversations chalk it all up to the “Tone at the Top” that allowed those issues to occur. So what does that phrase, “Tone at the Top”, really mean? Who sets the tone, and how?


Leadership – the Board, CEO, CFO, or COO – sets an organization’s “tone” regarding ethical culture. Leaders determine which actions and behaviors are rewarded, and which actions are not tolerated. Leaders demonstrate commitment to openness, honesty, integrity, and ethical behavior – or they do not.


Inappropriate Tone at the Top is exhibited by showing disdain for policies and rules, paying lip service to compliance, emphasizing profits over ethics, and deflecting accountability. Fraud cases litigated against Enron and WorldCom used “poor Tone at the Top” as evidence in those successful prosecutions.


Leaders can promote an ethical culture and avoid the risks related to “Tone at the Top” by taking these four actions:


  1. Communicate expectations.Organizations must clearly state that they will not tolerate unethical conduct. Give examples and define terms to eliminate ambiguity. Clear policies convey the organization’s values and expected behaviors. Reinforce the policy with a written code of ethics and an ethics training program.


  1. Lead by example.Leaders must set an example and act in line with all expectations, whether they are formally defined or just common practice. Employees, volunteers, and others are more likely to follow the organization’s code of ethics when they see that leaders are actively following it. Walking the Talk matters.


  1. Support and reward integrity.Leaders should support a culture of doing the right thing by recognizing individuals for ethical behavior. Recognition could be a monetary incentive program, or some other special acknowledgement or reward. Celebrating instances of behavior that you want more of makes for a memorable team experience.


  1. Implement confidential reporting.Confidential tips are how many frauds and other inappropriate activities are detected. Reporting real or suspected fraudulent behavior or ethical violations without fear of retaliation is essential.


These actions alone do not guarantee that everyone in the organization will act in an ethical manner. They are the first steps to setting an appropriate Tone at the Top to direct and support your organization.