Understanding Fiduciary Duties and Ethical Practices in Non-profit Organizations

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Explore the key aspects of fiduciary duties, ethical conduct, and the challenges related to embezzlement in non-profit organizations as discussed at the VFW Auxiliary Senior Vice Presidents Conference. Learn about the duty of care, loyalty, and obedience imposed by law, along with important takeaways on ethical decision-making and the significance of the Business Judgment Rule.

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VFW Auxiliary Senior-Vice Presidents Conference Debra L. Anderson March 22, 2021

FIDUCIARY DUTIES & SEXUAL HARASSMENT 2

TAKE AWAYS Be informed of the law Be ethical consider what is right and what is wrong Act in the best interest of the VFW Auxiliary Consider consequences of your actions Be sensitive to other perspectives 4

IN THE NEWS Ex-employee pleads guilty to embezzling $1.5M from Garmin and Black & Veatch Former bookkeeper for family owned business pleads no contest to stealing $100,000 to $300,000 Former state level VFW leader charged with stealing $2,500 VFW member is suspected of taking over $100,000 from the VFW bank account over the course of the past two years 5

WHY? There is no typical profile of perpetrators Three common factors in embezzlement cases: Financial pressure Opportunity Rationalization 6

FIDUCIARY DUTIES Increasingly being used in the non-profit world You are a fiduciary and certain duties are imposed by law 7

FIDUCIARY DUTIES Act in good faith in relation to the organization Act primarily in the interest of the organization rather than personal interests or the interests of a particular constituency Three Specific Duties: Care; Loyalty; Obedience (or Fidelity to Purpose) Comprise Business Judgment Rule 8

BUSINESS JUDGMENT RULE Applies to the business of decision-making by boards of nonprofit associations Related to all three fiduciary duties Act on an informed basis, in good faith, and in the honest belief that the action taken is in the best interests of the association 9

DUTY OF CARE Exercise due diligence in managing the organization s affairs Three Elements: - Must act in Good Faith - Must act with the same care that an ordinarily prudent person would use in a similar position under similar circumstances. - Must act in what you reasonably believe is the organization s interest. 10

PRACTICAL STEPS TO SATISFY DUTY OF CARE Retain competent help Rely on management Use committees Create a record of the decision-making process Promote open debate and record dissent 11

CASE OF THE BULLISH BOARDS Board A Instant Gratification Assoc. Board B Very Methodical Assoc. Value of investments in both nonprofits suddenly plummet. Who s at fault? 12

ANALYSIS Both board made the same decision by different routes. Only the Very Methodical Board shielded by the Business Judgment Rule. Their decision was made on an informed basis with advice from consultant, after considering options, and in good faith, believing it to be in the best interest of the organization. 13

DUTY OF LOYALTY Act with undivided loyalty to the organization and in the organization s interest rather than any personal interest or interest of some other person or organization Prohibits conflict of interest Disclose financial benefit from a transaction 14

PRACTICAL STEPS TO SATISFY DUTY OF LOYALTY What s in it for me? Disclose potential conflicts of interest Abstain from votes if there could be a conflict Seek counsel 15

A CONCRETE EXAMPLE Better Homebuilding Assoc., a nonprofit, is endorsing poured concrete foundations as safer Sam Solid, a Board member, owns 40% of the stock of a cement distribution company, Central Cement, Inc. BHA s endorsement will clearly increase the revenue of Central Cement, Inc. 16

ANALYSIS The question will be whether Sam used his position to enrich himself. He was certainly aware of the benefit of BHA s endorsement and if he votes for it, he will have some explaining to do. The best course for Sam should be to disclose his interest in the decision and abstain from any deliberations, as well as the final vote. 17

DUTY OF OBEDIENCE Duty to assure that the organization is operated: To fulfill its mission In accordance with the law In compliance with its By Laws Duties are imposed individually and collectively and we can be held personally liable 18

PRACTICAL STEPS TO SATISFY DUTY OF OBEDIENCE Review Charter and By-Laws Consider whether proposal is consistent with our purpose Annually review activities 19

GOING TO THE DOGS National Homelessness Initiative assists homeless men, women, and children in large urban areas Received several large contributions Voted to use the contributions to create an animal shelter Has the Board violated its duty of obedience? 20

ANALYSIS Act in accordance with the stated purpose of the organization s charter. But what s wrong with helping animals? Failure to act consistent with the governing documents can result in a loss of trust by the public. 21

MALICIOUS ACTIONS FROM OUTSIDERS Beware of emails & other correspondence That changes accounts of vendors That asks for payment or money on short notice, by-passing normal procedures 22

PROTECT YOURSELF Understand expenses and ensure they are reasonable. Do comparisons. Conduct fiduciary education/training Document meetings and decisions Seek independent advice when needed Provide oversight on financial matters 23

FIDUCIARY DUTIES CONCLUSION Common Sense Rule Focus on priorities of the nonprofit Represent the nonprofit in a favorable light Use good judgment in handling the organization s business Act in the interests of the organization Follow the rules 24

SEXUAL HARASSMENT AWARENESS What is Sexual Harassment? What to do about it? 25

WHAT IS HARASSMENT? Harass: To annoy or bother someone in a constant or repeated way; To annoy persistently; to create an unpleasant or hostile situation for especially by uninvited and unwelcome verbal or physical conduct 26

SEXUAL HARASSMENT Continually annoy someone because of sex, sexual orientation, or gender identity 27

SEXUAL HARASSMENT Sexual harassment is defined as unwelcome behavior of a sexual nature. Unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature constitute sexual harassment when this conduct: Affects an individual s employment. Unreasonably interferes with an individual s work performance, or Creates an intimidating, hostile, or offensive work environment. 28

SEXUAL HARASSMENT Quid pro quo submission to sexually harassing conduct as a condition of employment. ( This for that. ) Hostile environment physical, verbal, or visual behavior that creates an intimidating, hostile, or offensive working environment. 29

UNWELCOME BEHAVIORS Physical behaviors fondling, patting, kissing, putting your arm around somebody Verbal behaviors whistling, sexually charged banter, jokes with a sexual reference, conversations about sexual activities, comments about anatomy, sexist terms, inappropriate comments/swearing Visual behaviors porn, leering, sexual gestures, emails, gifts of a sexual nature, artwork of a sexual nature 30

SEXUAL HARASSMENT The victim or the harasser may be a woman or a man. The victim does not have to be of the opposite sex. The harasser can be the victim s supervisor, a supervisor in another department, a co-worker, or a non-employee. Unlawful sexual harassment may occur without economic injury to or discharge of the victim. The harasser s conduct must be unwelcome. 31

EXAMPLES WITHIN THE VFW Post canteen female bartender harassed by customers/members Department HQ office employee harassed by visiting member Inappropriate joke emailed to veteran s spouse by service officer Department officer sending inappropriate emails or texts 32

SEXUAL HARASSMENT Think before you speak Respect the workplace Keep your hands to yourself Learn to speak up 33

PREVENTION Have a policy Conduct training Have a complaint procedure Investigate complaints Take appropriate action 34

INVESTIGATIONS Conduct an investigation Designate a proper investigator Assess and define the scope of the investigation Identify key players Collect and preserve necessary documents Conduct appropriate witness interviews Write report with findings and recommendations Take appropriate action 35

SUMMARY Recognize what constitutes harassment. Train employees to recognize harassment and what to do if they have a complaint. Investigate complaints. Take action. 36

TAKE AWAYS Be informed of the law Be ethical consider what is right and what is wrong Act in the best interest of the VFW Auxiliary Consider consequences of your actions Be sensitive to other perspectives 37