ohio travel association day 2
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B O A R D R E T R E A T 2 0 1 1
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AGENDAOBJECTIVES FOR TODAY INCLUDE:
Review of individual responsibilities of nonprofit board members
OTA board “contract” Discuss the board’s “front burner” issues
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“Directors are like parsley on fish— decorative but useless.”
Irving Olds, former board chair of U.S. Steel
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“All over the world, people just like us serve on all sorts of boards. Some work incredibly well. Some leave members shell shocked or
numb with frustration.”
The Montessori Foundation“Serving on a Nonprofit Board”
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The days of “sitting” on a nonprofit board are over.
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“Many organizational leaders...come to the charitable sector motivated by the mission of the organization and may not always have the requisite governance and financial knowledge.”PANEL ON THE NONPROFIT SECTOR
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the top
things10Your Nonprofit Board
Needs to Know (plus One Bonus Tip)
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No. 1It’s a whole
new ballgame.
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“You will be confronted with questions every day that test your morals. Think carefully, and for your sake, do the right thing, not the easy thing.”
Commencement Speaker St. Anselm College, 2002
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“Ex-Tyco Chief Executive Kozlowski Sentenced to 8 to 25
Years”Headline / Bloomberg.com / 09.19.2005
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Strong Fundamental Values
“We must demand of ourselves and of each other the highest standards of individual and corporate integrity. We safeguard company assets. We comply with all company policies and laws.”
Source: The Tyco Guide to Ethical Conduct
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“We safeguard company assets.”
Regency mahogany bookcase, c. 1810, $105,000
George I walnut tallcase clock, $113,750
Custom queen bed skirt, $4,995
Ascherberg grand piano, c. 1895, $77,000
Chandelier, Painted Iron, c. 1930, $32,500
Pair of Italian armchairs, c. 1780, $64,278
Persian rug, 20 feet by 14 feet, $191,250
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“In corporate America, crime pays. Handsomely. Grotesquely, even.”Arianna Huffington Pigs at the Trough
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“”
We’ve got this idea that business means
anything goes.
R. Edward Freeman, Director Olsson Center for Applied Ethics
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“It can be easy for non-profits to feel that the problems of the private sector don’t relate to them...”
–Stephen D. Potts, Fellows Chairman
Ethics Resource Center
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“...that the ‘good people’ who populate the non-profit world are, by nature, more trustworthy.”
–Stephen D. Potts, Fellows Chairman Ethics Resource Center
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“This is a dangerous assumption.”
Stephen D. Potts, Fellows Chairman Ethics Resource Center
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“Anderson woman pleads
guilty to Humane Society theft”
Headline / The Herald Bulletin / 05.11.2009
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“Her attorney...presented the court with several character letters from acquaintances and co-workers, and said Sullivan provides live-in care for her sick mother.”
Justin SchneiderThe Herald Bulletin
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“We haven’t had a serious review of the tax-exempt laws since 1969. The world has changed since then, and so has the charitable community.” –Senator Chuck Grassley,
Senate Committee on Finance
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The New 990(version 2.0)
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WAKE UPT h i s i s y o u r
c a l l
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2. You have a duty of care.
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Board members have an obligation to make informed decisions and to act with care in their actions.
Duty of Care
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Commonly described as the “care that an ordinarily prudent person would exercise in a like position and under similar circumstances.”
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New York’s Board of Regents replaced eighteen of Adelphi University’s 19 trustees for acting “blindly, recklessly and heedlessly” in determining the compensation of the university’s president.
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The legally requires every board member to participate in meetings, provide
operational and policy oversight, and exercise a reasonable level
of care in making decisions on the organization’s behalf.
duty of careR
EMIN
DER
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Where on the agenda does it
say I get to speak?
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The board chair is the conductor responsible for making sure every performer contributes.
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Board members who regularly miss meetings are neglecting
the duty of care.
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Come prepared!
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THREE: You have a duty
of loyalty.
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DUTY OF LOYALTY
Directors are obligated to set aside personal concerns and make decisions that are in the
best interest of the organization.
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Conflict of>> INTEREST
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The Lucy Webb Hayes National Training School for Deaconesses
and Missionaries(Sibley Hospital)
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BESTI n t e r e s t
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full disclosure
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4) You have a duty of obedience.
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M E E T H MANHATTAN EYE, EAR & THROAT HOSPITAL
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“mission drift”
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DUTYOFOBEDIENCE
Directors must remain faithful to the purpose
of the organization, and operate within the stated
bounds of its mission.
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DEADHANDCONTROL
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“The duty of obedience is often overlooked...precisely because it is so basic as to
be almost invisible.”
Rob AtkinsonProfessor of Law, Florida State University
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a.k.a. duty of compliance
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Comply with:Articles of
incorporation
By-laws and other governing documents
Local, state, and federal laws
Registration and reporting requirements
IRS regulations
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5. You have a duty to manage accounts.
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Directors are responsible for ensuring the
organization’s financial
soundness.
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“One of the primary duties of the board of directors of a charitable organization is to ensure that all financial matters of the organization are conducted legally, ethically, and in accordance with proper accounting rules.”
PANEL ON THE NONPROFIT SECTOR Report to Congress and the Nonprofit Sector on Governance, Transparency, and Accountability
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Nonprofit boards need accounting geeks
who understand finances themselves and who can
make the numbers meaningful to
everyone else.
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“Accountants aren’t just boring geeks
anymore. We’re hot!”Eva Rosenberg, author of Small Business Taxes Made Easy
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You have one employee.
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THE EXECUTIVE DIRECTOR IS THE SOLE EMPLOYEE OF THE BOARD OF DIRECTORS
only one
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of meddling by self-proclaimed expertsB E W A R E
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They think nothing of going around the executive
director and crossing the sacred line that separates
board members from employees.
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3000 vs. 36
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INSURANCED & O
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“Most of the lawsuits filed against nonprofit directors and officers involve some form of employment practices liability. Insurers are
becoming more keenly aware of this exposure and some have made subtle policy changes
that restrict coverage in these areas.”
Alliance of Nonprofits “Key Facts About Insurance and Legal Liability”
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“…while acting in an official capacity…”
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Volunteer Protection Act of 1997
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“A volunteer of a nonprofit organization generally will be relieved of liability for harm if the volunteer was acting within the scope of his responsibilities and if he was properly licensed, certified, or
authorized for the activities.”
Volunteer Protection Act of 1997 Section 4. Limitation on Liability for Volunteers
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Is it really worth the risk?
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7. Although they’re not your employees, it’s your responsibility to ensure that staff members behave ethically.
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“People are basically honest. And they’re even
more honest when you watch them.”
attributed to Alan “Ace” Greenberg The Bear Stearns Companies
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“Criminal liability can attach to an organization whenever an employee of the organization commits an act within the apparent scope of his or
her employment, even if the employee acted directly contrary to company
policy and instructions.”
United States Sentencing Commission
Paula Desio, “An Overview of the Organizational Guidelines”
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PROACTI V E
U.S. Federal Sentencing Guidelines
Seven guidelines used to determine whether
an organization shares responsibility for the
misbehavior of its employees; adherence can mitigate penalties
and fines.
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Establish compliance standards and procedures for employees and other agents to follow that
are reasonably capable of reducing the prospect of
criminal conduct.
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codeofconduct:POLICY COVERING THE ORGANIZATION’S STANCE ON—AND EACH EMPLOYEE’S RESPONSIBILITY FOR—WORKPLACE ISSUES, INCLUDING HARASSMENT, DIVERSITY, CONFLICTS OF INTEREST, VIOLENCE, CONFIDENTIALITY, AND EQUAL OPPORTUNITY.
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“Was that wrong? Should I have not done that? I tell you I gotta plead ignorance on this thing because if
anyone had said anything to me at all when I first started here that that sort of
thing was frowned upon, you know, cause I’ve worked in a lot of offices and
I tell you people do that all the time.”
George Costanza Seinfeld, Episode 29
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“One explanation that’s common in the field of business ethics, and this
may sound shocking, is that they just didn’t recognize the ethical
issue for what it really was.”
Thomas Dunfee, Wharton professor
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Assign specific high-level individual(s) the responsibility
for overseeing the overall compliance with standards
and procedures.
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C E OChief Ethics Officer
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Exercise “due care” not to delegate discretionary authority
to individuals with a known propensity to engage in
illegal activities.
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“I look forward to pursuing my new responsibilities and continuing to make a contribution as part of Rite Aid’s world-class team.”
-Chris Hall Senior VP-Real Estate and Planning
former Chief Financial Officer
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57 percent of job
applicants believe that telling lies during a job interview is acceptable
SOURCE: SHL
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“Marge, it takes two to lie.One to lie and one to listen.”
– Homer Simpson
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Take steps to effectively communicate—to all levels
of employees—the rules and expectations, such as holding
mandatory training programs and distributing written materials.
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“Ethics programs are associated with higher
perceptions that employees are held accountable for
ethics violations.”
Source: Ethics Resource Center
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78% vs. 39%
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Take reasonable steps to achieve compliance, including
the use of monitoring and auditing systems designed to detect criminal conduct and methods for employees to
report suspected wrongdoing without the fear of retaliation.
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“More Companies Squeezing Employee
Internet Use”Headline / AccountingWEB.com / April 12, 2007
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Call our ethics hotline:
1-800-VIO-LATE
help-line
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Consistently enforce the standards through appropriate
disciplinary mechanisms, including punishing individuals
responsible for failing to detect an offense.
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WorldCom created “a negative culture for compliance. It
emphasized making the numbers before all else.”
– Deborah House, VP and Deputy General Counsel for Corporate Compliance, Fannie Mae
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Once an offense has been detected, take all
reasonable steps to respond appropriately and prevent further similar offenses.
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Fool me once, shame on you. Fool me twice, shame on me.“ ”
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why bother?
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THE softer SIDE OF SEARS
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“This mitigating credit under the guidelines is contingent upon prompt reporting to the authorities and the non-involvement of high
level personnel in the actual offense conduct.”
Paula Desio, “An Overview of the Organizational Guidelines”
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8. Although they’re not your employees, it’s your responsibility to ensure that staff members are treated fairly.
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fairlaborpractices
Fair Labor Standards Act of 1938 (FLSA)
Stipulates minimum requirements for compensation issues such as wages, overtime, and equal pay, and specifies
those employee classes exempted from its provisions.
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“New lawsuit claims back pay for some
part-time employees” Headline / FederalTimes.com / 04.17.2007
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Non-exempt employees are prohibited from working more than 40 hours a week unless they are paid time and a half of their hourly rate. Example: An administrative assistant attends a board meeting one night to take minutes and the hours put the assistant over the 40-hour limitation. Did you pay the assistant overtime?Example: A bookkeeper attends your social fundraising event on Saturday evening to help count money. Is it overtime?
Are your employees “suffering” overtime?
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Donning, Doffing, Walking, & Waiting, L.P.A.Serious lawsuits only, please.
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FMLA
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“Termination of employees seeking
FMLA leave continues to be the primary reason
that employees filed a complaint.”
U.S. Department of Labor 2008 Statistics Fact Sheet
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9. The watchdogs are watching.<fundraising
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NEWexpectationsin fundraising
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privacy
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Ask your donors if you can publicly
recognize their gifts or if they prefer to
remain anonymous.
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Organizations should establish policies that govern the acceptance and
disposition of charitable
GIFTS
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RESTRICTED vs.UNRESTRICTED
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“Potential donors seek more information than ever before when determining whether to respond to a
charitable appeal.”– Art Taylor, BBB Wise Giving Alliance
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Spend at least 65 percent of total expenses on program activities.
Spend no more than 35 percent of related contributions on fundraising.
Avoid accumulating funds that could be used for current program activities.
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FLATRATE(Not commissioned.)
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10. SOx is coming.
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Sarbanes-Oxley Act of 2002 Public Company Accounting Reform and Investor Protection Act
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CORPORATEGOVERNANCE
Requirement of boards and auditors to oversee, direct, and
report the organization’s practices on behalf of its shareholders.
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“BoardSource
WHILE NEARLY ALL OF THE PROVISIONS OF THE ACT APPLY ONLY TO PUBLICLY TRADED CORPORATIONS, THE PASSAGE OF THE BILL SERVED AS A WAKE-UP CALL TO THE ENTIRE NONPROFIT COMMUNITY.”
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AAudit-related functions should be performed only by independent,
financially literate directors.
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in·de·pend·entAdjective. Free from the authority,
control, domination, or influence of somebody or something else.
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“All nonprofit organizations that conduct outside audits, particularly medium to large organizations, should consider forming an audit committee and should separate the audit committee from the finance
committee.” –BoardSource, “The Sarbanes-Oxley Act and
Implications for Nonprofit Organizations”
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financial EXPERT
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IIndependent auditors must be rotated and may
not provide consulting services unrelated to the
organization’s audit.
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Changing auditors every five years ensures fresh scrutiny. If that’s not practical, an option is
to ask the auditing firm to assign a different reviewing partner
every five years.
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“Nonprofit organizations would be well served to adopt the Sarbanes-Oxley rule of preventing auditing firms from providing non-auditing services.”
BoardSource
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exceptions:AUDITING FIRMS OFTEN PROVIDE TAX SERVICES AND PREPARE FORM 990 FOR THEIR NONPROFIT CLIENTS. SUCH ARRANGEMENTS MAY ACTUALLY REDUCE A NONPROFIT’S EXPENSES.
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MManagement’s compensation should
be determined based on achievement of objective,
predetermined goals.
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“Senators critical of salary expenses at Boys & Girls Clubs
of America” Headline / The Washington Post / 03.13.2010
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Without specific, measurable, and well-communicated grading criteria, outsiders will assume the worst about how evaluation decisions are determined. W
AR
NIN
G
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Could you defend it?
QUESTION:
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DDevelop procedures for handling confidential
and anonymous complaints.
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“Employees who learned about improper corporate adjustments appear
to have feared senior management’s criticism or even the loss of
their jobs. It was common for employees to be denigrated in
public about their work.”
Source: Report of Investigation by the Special Investigative Committee of the Board of Directors of WorldCom
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SAFETY FIRST
Organizations must focus on identifying and
removing problems, not on shooting the messenger.
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MMonitor, justify, and carefully administer
intentional document destruction.
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I said, “Ship the documents to the feds.”
She heard, “Rip the documents to shreds.”
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LLoans to directors and executive officers are
prohibited.
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At best, insider loans raise conflict-of-interest questions. At worst, they could qualify as
illegal executive compensation.
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avoid groupthink!
bonus tip:
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A demonstrated tendency for a group to stay together and remain united in the pursuit of its goals and objectives.
C O H E S I O N
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Good Cohesion
results in higher individual effort
More personal job satisfaction
Higher team tolerance for disruptions
Less turnover
Greater adherence to group norms
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Cohesion can also have negative effects on group performance. And when it’s bad, it’s really, really bad.
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“Because people value their membership in cohesive groups, they are willing to
adjust their behavior to group standards.”
SUSAN CAROL LOSH, Ph.D. FLORIDA STATE UNIVERSITY
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GROUPTHINK occurs when the pressure to
conform within a group interferes with the group’s
decision making ability.
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A B CExhibit 1 Exhibit 2
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Solomon Asch
Subjects went along with the clearly erroneous majority 33 percent of the time
74 percent conformed to the majority at least once
28 percent conformed more than half the time
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“The tendency to conformity in our society is so strong that reasonably intelligent and well-meaning young people are willing to call
white black.”
Solomon Asch 1951
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consensusgroup
Groupthink stops members from suggesting ideas that might deviate from the collective opinion, causing a deceptive appearance of
when, in fact, only one approach is considered.
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the top
things10Your Nonprofit Board
Needs to Know (plus One Bonus Tip)
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B O A R D R E T R E A T 2 0 1 1