October, 2007
Inspection News and Views from the American Society of Home Inspectors

Association Policies: The Good, the Bad, and the Ugly


Some associations love to write policies. It sometimes seems that these associations mistake policy writing for progress. If they can pass four or five policies at a board meeting, they feel that they have furthered the mission of the organization. Forget the fact that their industry is losing market share, membership is down, and the scholarship fund is dormant. If they have written a rule, they have done their job. Motion to adjourn?

There are some basic policies that are good for any association. They form a good first line of defense against liability. There are others that could be harmful unless done correctly. And then there are those policies that are worst of all: the ones that weren’t necessary in the first place and eat up board time and resources.

The Good

Conflict of Interest Policies is a great example of one policy that every association should have. This is a change from past “best practices.” Many associations have followed the law on conflicts of interest, but not reduced the rules to a written policy. Now the Internal Revenue Service asks to see a written conflict of interest policy before it will grant 501(c)(3) status to a new entity.
Why the change? It is a combination of Sarbanes-Oxley trickling down to nonprofits, and the ongoing hearings in the Senate on nonprofit abuses. They focus on insiders using nonprofit resources for their own benefit. We who live in the nonprofit world know that insider abuse is a fairly rare occurrence and may not be stopped by a conflict of interest policy. Nonetheless, it does no harm, and it can have a positive effect of permitting staff to point to concrete rules when a volunteer leader crosses the line.

Figuring where to draw the line is the hardest part. The general definition of the conflict of interest — a personal or financial interest that might prevent the insider from putting the best interests of the association first — is fairly vague. Each nonprofit must carefully consider what types of behaviors need to be disclosed and require recusal from discussion and vote. Thinking through potential conflicts before putting pen to paper will help the association have rules that further its mission rather than cause resentment.

An Anti-Trust Policy also is an excellent one to commit to paper. “There should be no discussion for the purpose of fixing prices … etc.,” is an official policy that each organization which includes competitors should not only have written but should prominently display so that members will be reminded of it at appropriate times. Remind members of the anti-trust rules at every meeting. Reprint the anti-trust policy in the conference material or read it out loud. Review the rules at opening general sessions. Put them on the organization Web site. Every association can choose just how actively they want to disseminate the policy. But every association should have one. And it should not be kept in a drawer.

Whistle-blower Policies have become popular after Sarbanes-Oxley. The criminal penalties attached to terminating staff for reason of having reported a federal crime are one of two provisions in Sarbanes-Oxley applicable to nonprofits. The law does not require an organization to have a policy stating that it will not fire an employee in violation of federal law. It would seem to state the obvious. This is one case, however, where stating the obvious can be a good thing. If a terminated employee trots off to the Feds claiming she was terminated for having blown the whistle, having a written whistle-blower policy will show that the association knew the rules, and created a bias point in its favor.

A current downfall of the whistle-blower policies is that many advisors are urging associations to use commercial services that accept anonymous complaints. This is a dangerous practice. When an employee can make an anonymous complaint against another employee, with no accountability, and no cross-examination, the potential for abuse is tremendous. So many of these complaints are not susceptible to proof. Without the ability to cross-examine the complainant, the damage to reputation will occur as soon as the allegation is reported to the board. A good whistle-blower policy will protect the complainant from being fired for having stepped forward, but it does not have to
protect the complainant from testifying to allegations.

Investment Policies also are good to reduce to writing. The ratio of fixed income instruments to equities is an important element to have in writing, to prevent an investment advisor, investment committee or CEO from being carried away with a hot tip or market rally. It also will show members or donors that some considered thought had gone into the process when the inevitable market decline occurs and earnings are reduced. Luckily, the law does not require nonprofit volunteers to be investment geniuses. But they do have to be prudent, and a prudent investment policy will help prove the point.

The Bad

Codes of Ethics are a favorite target for reform. In the last decade, many associations have written codes of ethics for their staff, their board, and their members. There are several complaints about these types of policies.

The first is that the word “ethics” carries the opposite charge for noncompliance: the charge of being unethical. A favorite in these types of codes of ethics is something along the following lines: “A widget manufacturer shall maintain a professional demeanor at all times and shall treat all others with respect.” When the second vice president loses his temper at a board meeting, or barks at a member, is his behavior unethical? Can the offended member demand an ethics hearing? Unfortunately, it is not a rare occurrence.

At a recent drafting session for a code of ethics, the hired ethicist recommended inclusion of a requirement that all members of the profession donate 10 percent of their time to performing services to the poor. That is a wonderful aspirational goal. Do we want members of the profession deemed unethical if they failed to meet the goal? Absolutely not.

If an association must reduce morality and courtesy to written rules, because regulators or others in their community demand it, consider using the title “code of conduct” rather than code of ethics. At least it gives the nonrecurrent or unintentional violator a better opportunity to avoid being labeled “unethical.”

The Ugly

The No. 1 failure in association policies: They often represent an attempt by the current board to tie up the association governance for years to come. The current board believes that if it can just get down in writing every permutation of every situation, it can ensure that the association will be kept on the right track — the board’s — for years to come.

But we all know that life does not work that way. When the unexpected occurs, the then-current board of directors is in the best position to decide what to do. They were elected by the then-current members to make those tough decisions, and they are in the best position to know the facts and ramifications based on every relevant factor.

So we should let them do what they were elected to do. Govern. Make the tough calls based on their own best judgment.

Can a future board amend a policy? Yes. If a board adopts a policy, a later board can amend it. But it hovers like a dark cloud over their heads, and gives the appearance that they are opportunists breaking with established policy. And that’s if they even remember the policy exists. In the heat of the moment, leadership and staff often fail to comb through past policies to determine what they have to amend before they can move forward. Now you have a board acting in violation of policy, and that could be a transgression of the duty of obedience to follow governing documents. When boards are contemplating adopting policies, they must stop and think. Is it essential to tie the hands of future boards on this point? Can we trust future boards to know what is best for the membership of the future? It is hard to say yes to that last question, but the answer should almost always be affirmative.

So, there you have it: the good, the bad and the ugly. Every new policy that is adopted should be looked at for its essentiality and whether it will truly further or detract from the mission and the reputation of the organization.

This article originally appeared in the August 2007 issue of FORUM magazine. Reprinted with permission. Go to www.associationforum.org to learn more.