Even the appearance of impropriety can be detrimental to philanthropic foundations and charitable organizations. The public relies on the nonprofit sector to utilize funding for the intended use. No sector is without scandal. However, the result of any nonprofit agency or foundation identified with abuse or impropriety is unflattering media attention that reflects on the sector as a whole. There are numerous reasons why nonprofit society should be concerned about unethical behavior. In addition to the damage to the public perception and the loss of public trust, there are tangible costs associated with unethical behavior once discovered including government imposed fines or penalties.Industry Canada Not for Profit Organizations

Adhering to a code of ethics allows the organization to self-govern, thereby reducing costs to the community and avoiding many of the problems that may remain hidden from government audits and inquiries Professional ethics and the culture of trust

The Code of Ethics has Advantages and Disadvantages.

Conflict of Interest

Not for profit organizations are especially prone to and vulnerable to conflit of interest scandals. Conflicts of interest corrode trust and stakeholder trust is vital for the survival of most charities. Charitable organizations are especially prone to these conflicts of interest ironically because of the high number of volunteers who are for the most part of exemplary good will.

The consequences of an actual or perceived conflict of interest are very serious for NFPs; moreso than for other organizations. The reason for this is that everyone hates a hypocrite, especially when someone seems to be benefiting themselves behind the guise of charity; people become outraged. This can happen even when there is no real hypocrisy, corruption, or abuse of trust, but only the appearance of such. Loss of public faith in a charitable organization could be devastating. If publicity about a possible conflict of interest within a charity becomes at all widespread, donations could disappear overnight.

In recent years, the Nature Conservancy, the Red Cross, a handful of United Way chapters, and local foundations in several communities have found themselves the target of negative headlines. Such ethical lapses—or perceived ethical lapses—undermine the trust the public holds in the entire sector.

Recent Scandals involving charities or not for profits include:
Madonna's Raising Malawi Charity
Three Cups of Tea Scandal
Family Connections

Journal of Business Ethics; Charitable Conflicts of Interest, Chris MacDonald, Michael McDonald, Wayne Norma, August 1, 2002

The Ethics of Marketing Good Corporate Conduct

Companies who contribute to charitable organizations hope that these contributions won't go unnoticed by consumers, investors and members of local communities. Companies want consumers to know about the good that they do, and rightly so, in order to help their bottom line. The problem arises when a company spends far more on advertising their good deeds than they spend on the good deeds themselves. This questionable behaviour is not morally praiseworthy and can be seen as unacceptably misleading.

It is not wrong to market moral praise for good corporate social responsibility, it is wrong for companies to use the values associated with the moral good and with right action as a mere means to gaining greater profit.

Journal of Business Ethics; The Ethics of Marketing; Good Corporate Conduct, Mary Lyn Stol, November 15, 2002

Web Resources

For more information and resources on ethics, check out these websites: Gives information on ethics int eh states and courts, cases on ethics, federal issues, ethics laws, legal practice, practice areas, and even legal reference. This website provides guidance for those in the professional world. the purpose of this site is to serve as a starting point for those interested in ethical challenges faced in the world of nonprofit organizations

Canadian Charity Law assists Canadian charities, their staff and boards of directors, to understand their legal and ethical obligations when operating a Canadian registered charity.

Ontario Trillium Foundation builds healthy and vibrant communities by strengthening the capacity of the voluntary sector, through investments in community-based initiatives.

Ethical Issues in Corporate Sponsorship

Charity Investors encourages and assists charities and their trustees in the development of an ethical and socially responsible approach to their investments through education, research and the provision of resources.