TRANSPARENCY IN NONPROFIT ORGANIZATIONS:

PUBLIC ACCESS TO MINUTES OF BOARD MEETINGS

Barry D. Friedman, Ph.D., and Amanda M. Wolcott, M.S.

October 2, 2015

ABSTRACT

Corporate laws of the United States and state governments and judicial precedents establish that the members of nonprofit organizations’ boards of directors have a “duty of loyalty, diligence, and confidentiality.”  Almost without exception, the “duty” is directed not toward the protection of the interests of the members, beneficiaries, or communities, but rather toward that of whatever preferences a majority of the board members embrace.  Such preferences, of course, may be directed toward the majority members’ own personal interests.  Confidentiality, therefore, is more likely to protect their personal interests rather than any societal interests.  This paper explains that existing laws and rules protect board majorities from accountability to organizations’ legitimate stakeholders.  It also promotes the position that founders of such organizations should establish a culture of transparency, so that a climate of openness will guide leaders, employees, and volunteers to serve the organizations’ legitimate missions instead of falling prey to the contaminating influence of self-interest-oriented goal displacement.

A. Winners and Losers

            Organizations of any noteworthy size generate benefits and costs for people both inside and outside of the entities.

1. PEOPLE WHO BENEFIT FROM NONPROFIT ORGANIZATIONS

            a. Founders.  Some of those who establish nonprofit organizations may be motivated by the desire to transform a vision into a reality.  In 1937, President Franklin D. Roosevelt, whose ability to walk was claimed by polio when he was 39 years old, established by proclamation the National Foundation for Infantile Paralysis.  In response, popular radio entertainer Eddie Cantor organized on-air appeals for what he termed a “March of Dimes” fund-raising campaign and characterized as a tribute to Roosevelt.  Others have founded nonprofit organizations in order to create gainful employment for themselves.  After recruiting associates to be members of the new organization’s board of directors, the founder may arrange for the directors to coronate her as the president or executive director‑‑i.e., the top paid professional employee.  For example, in 2004 Catherine Rohr founded the Prison Entrepreneurship Program in Houston, Texas, and took the title of chief executive officer at a modest salary.  Inspired by Watergate conspirator Chuck Colson’s Prison Fellowship ministry, she helped Texas prison inmates to prepare for self-employment once they would be released.  She gave up the job in 2009 when she admitted to staff members that she had had improper relationships with four of the clients.  The organization continues to operate with new leadership, and Rohr has established a similar organization in New York City (Frieswick, 2012).

            b. Community, religious, and government leaders.  Some nonprofit organizations are established and operated at the behest of community, religious, and government leaders so that these organizations will coordinate relief for victims of poverty, disability, disease, disaster, and other challenges.  As the Republican nominee for president in 1988, Vice President George Bush promised to encourage community action by private, nonprofit organizations through a program that he called the “thousand points of light.”  In his inaugural address on January 20, 1989, he explained:

I have spoken of a Thousand Points of Light, of all the community organizations that are spread like stars throughout the Nation, doing good.  We will work hand in hand, encouraging, sometimes leading, sometimes being led, rewarding.  We will work on this in the White House, in the Cabinet agencies.  I will go to the people and the programs that are the brighter points of light, and I'll ask every member of my government to become involved.  The old ideas are new again because they're not old, they are timeless:  duty, sacrifice, commitment, and a patriotism that finds its expression in taking part and pitching in.

Likewise, Bush’s son, George W. Bush, promised in his 2000 presidential campaign to encourage religious institutions to engage in community activism through a public-private partnership that he called the “faith-based initiative.”  After his inauguration, Bush devoted his first executive order to establishing the White House Office of Faith-Based and Community Initiatives.

            c. Employees and volunteers.  In the U. S. economy, 10 percent of employees are based in the nonprofit sector.  For those who are employed in stable, financially successful organizations, the benefits of employment may include competitive pay, vacation and sick pay, health insurance, and pension plans, as in many for-profit corporations.  The nonprofit sector, including religious organizations, also provides volunteer opportunities.  While those positions do not offer monetary compensation, they may allow the volunteers to obtain experience that can later qualify an individual for employment there or elsewhere, to apply her leadership skill, or to fulfill an avocational interest in serving people in need.

            d. Donors.  Many Americans have a charitable impulse.  For them, charitable organizations satisfy a need.  Donors may obtain the satisfaction of feeling effective when they help nonprofits to carry out their missions.  The nonprofits, in turn, offer various forms of recognition to the donors, including membership cards, acknowledgments in publications, and tributes involving naming facilities in donors’ honor.

            e. Members of MBOs.  There are certain nonprofit organizations that are known as mutual-benefit organizations and are established to serve the interests of members.  They may or may not be exempt from payment of taxes; also, donations to them are not tax-deductible.  They include labor unions, business associations, and homeowners’ associations.

            f. Disadvantaged individuals.  Probably the most conspicuous purpose of charities is to redistribute resources from well-off people to disadvantaged individuals.  Arguably, the most numerous stakeholders of the nonprofit sector are those who‑‑because of unemployment, disability, illness, caretaking responsibilities, natural disaster, and similar factors‑‑cannot afford on their own to acquire the necessities of life.  When a redistributive charity operates, the charity’s directors, managers, employees, and volunteers are obligated to use the donations to alleviate the suffering of the intended beneficiaries.

            Does the organization belong to others?  Yes, in several ways.  First, the board of directors of a 501(c)(3) does not represent stockholders as a for-profit corporate board does.  The board represents stakeholders, people who are involved with the organization‑‑the people it serves, the community in general, funders, staff, and volunteers.  All are joined by a common interest and stake in the organization’s outcomes.

            Second, the organization uses resources that have been purchased by the funds of others.  While it’s true that the organization earns these funds from others, it is also accountable to them to deliver the outcomes promised in the mission (Brinckerhoff, 2004, p. 26).

It is impermissible for the organization’s leadership and staff to benefit from the organization’s operations by absorbing a disproportionately large amount of the resources and, therefore, impeding the redistribution of the resources to those in need, the intended recipients.

2. COSTS IMPOSED BY NONPROFIT ORGANIZATIONS

            a. Elite advantage.  While one would expect that the principal beneficiaries of the charitable sector would be people in need, it appears to be inevitable that the sector’s institutions will be controlled by relatively affluent individuals who conduct the organizations’ business in other than a democratic, egalitarian fashion.  In his 1911 book Political Parties, Roberto Michels made the memorably chilling statement, “Who says organization says oligarchy” (Michels, 1962, p. 365).  Thus, he is credited with the “iron law of oligarchy.”  That institutions of any significance are controlled by elites who tend to operate the institutions in ways that bring them gratification is no surprise to sociologists, who have studied the phenomenon for many decades.  Guo, Metelsky, and Bradshaw wrote:

            Class hegemony theory is a sociological theory which is generally Marxist in origin. . . .  It was predominantly used to examine nonprofit governance when such scholarship was in its infancy. . . .  Class hegemony theory contends that the upper class dominates key societal institutions through the participation of business elites in the governance of institutions. . . .  This theory argues that power is shared by a cohesive upper class of corporate elites who hold a similar worldview . . ., and who have shared interests and common purposes . . . (Guo, Metelsky, and Bradshaw, 2014, p. 52).

            The elites govern the organizations and appoint each other to their boards, creating a system of “interlocking directorates.”  Accordingly, the culture of nonprofit organizations is relatively consistent across the sector.  This culture has little to do with democracy and participation in decision making, as Freiwirth explains.

            Traditional governance approaches, based largely on corporate board models and top-down “command and control” paradigms, still dominate in the nonprofit sector. . . .  Even though some research suggests that the application of corporate governance models is ineffective for nonprofits . . . they still prevail in the sector.  These governance models feature strong, inherent demarcations to separate the board, constituents, stakeholders, and staff, with the executive director often the only link to the various parts of the organization.  This type of separation commonly disconnects the board and, ultimately, the organization from the very communities they serve.  It also often inhibits effective governance and accountability (Freiwirth, 2014, p. 184).

            b. Absorption of resources from other sectors.  The third sector is a sprawling economic system that collects and spends a very significant proportion of society’s resources and accounts for about 5 percent of the United States gross domestic product.  Given the finite level of society’s resources, investments in one enterprise come at a cost to other enterprises.  If the nonprofit sector is generating results contrary to society’s expectations‑‑for example, if it is bringing about a redistribution of wealth from people of modest means to people of affluent means‑‑then the sector is illegitimately absorbing resources from other sectors, depriving other institutions of resources that they might be able to use to serve the purpose of social equity, and causing the prosperity of society in general to be suppressed.

            c. Mistreatment of employees, donors, and clients.  The leadership- and management-oriented cultures and behaviors of countless nonprofits often spawn the callous treatment of people in the system whose resources are modest.  This includes employees who are deprived of the opportunity to participate in organizational policy making.  Donors of modest donations are similarly excluded from the decision-making process and, instead of receiving informative reports about the organization’s policies, are inundated with slick fund-raising messages written by shrewd professionals.  This is a practice that causes donors to believe that their money is being used for a stated mission while managers and fund-raising professionals are becoming increasingly wealthy.  Clients routinely experience impersonality and disdain as they try to receive assistance from nonprofit organizations that have supposedly been established to alleviate their misery.

            d. Unfulfilled expectations.  Communities of needy people who are assured that there is a spectrum of nonprofits dedicated to helping them have often become restless when the assistance did not materialize.  This has sometimes instigated demonstrations of anger in poor urban neighborhoods, as the residents waited and waited for assistance that never came.

B. Legal Requirements and Societal Pressures

1. IRS RULES AND TAX FORMS

            Nonprofit organizations would be all but above the law were it not for the Internal Revenue Code and the Internal Revenue Service’s enforcement of the code.  Hopkins and Gross explain:

            At this time, . . . there is little federal law applicable to the governance of tax-exempt organizations.  Although a few provisions of the Sarbanes‑Oxley Act passed in 2002 apply to nonprofit organizations, Congress has not yet enacted laws that affect the governance, oversight, and management of nonprofit organizations to any significant degree (Hopkins and Gross, 2010, p. 60).

            Each large nonprofit is required to file a Form 990 return, which involves information about revenues and expenditures, top executives’ pay, and a variety of compliance issues.  Upon Congress’s enactment of the Pension Protection Act of 2006 and the completion of the IRS’s strategy to implement the law, every nonprofit organization became obligated to file some form of a 990 return.  Even the smallest nonprofit organization fails to file a 990‑N electronic (“postcard”) return at its own peril.  After three consecutive years of noncompliance with the filing requirement, a nonprofit will lose its tax-exempt status.  The information that appears on the various 990 forms becomes a matter of public record.

            Most state governments have few laws pertaining to nonprofit organizations and little enforcement activity.  Hopkins and Gross report:

            Certain states have enacted laws regarding the accountability of nonprofit organizations; the state of California has the most extensive set of rules concerning governance and accountability of nonprofit organizations, mainly due to the state’s enactment of the Nonprofit Integrity Act in 2004.  Most state provisions, to the extent they exist, require audited financial statements for nonprofit organizations with revenues in excess of a certain threshold (Hopkins and Gross, 2010, p. 60).

2. OTHER LAWS AND LEGAL PRECEDENTS

            An assortment of federal and state corporate laws and court opinions imposes on nonprofit organizations’ officers and board members the duties of loyalty, diligence, and confidentiality.  Hopkins and Gross explain:

Embodied in state law are fiduciary duties for members of the governing body of a nonprofit organization.  Fiduciary duties arose out of the charitable law of trusts, and impose on directors and trustees standards of conduct and management.  One of the principal responsibilities of board members is to maintain financial accountability and effective oversight of the organization they serve.  Board members are guardians of the organization’s assets, and are expected to exercise due diligence to see that the organization is well managed and has a financial position that is as strong as is reasonable under the circumstances.  Fiduciary duty requires board members of nonprofit organizations to be objective, unselfish, responsible, honest, trustworthy, and efficient.  Board members, as stewards of the organization, should always act for the organization’s good and betterment, rather than for their personal benefit.  They should exercise reasonable care in their decision making, and not place the organization under unnecessary risk (Hopkins and Gross, 2010, p. 58).

The laws and regulations made pursuant to those laws require organizations to maintain financial reports and records and submit required reports to government agencies.  The laws and regulations also require organizations to preserve minutes of meetings during which policies are made.

            Besides the required filings to government agencies, such as the various versions of IRS Form 990, nonprofit organizations must also maintain records in case regulatory or law-enforcement agencies subpoena their delivery.

            Renz emphasizes that the principal obligation of board members is to “reflect[] well on the work and reputation of the organization.”  But doing so is operationally defined as protecting the board.  He states that a board member must “honor and actively support all board decisions, once they have been made, and treat the content of board deliberations with confidence and discretion” (Renz, 2010, p. 136).  Thus, if the board has done something improper, a dissenting member can do nothing more than resign.  Even his resignation will not release him from the legal duty to keep the impropriety confidential.

            The laws and other rules that establish board members’ duties of loyalty, diligence, and confidentiality tend to be explained in such a way as to establish that board members may be held accountable should they use their positions for personal gain contrary to the organizations’ best interests.  This approach assumes that most board members are acting properly, and that a devious board member might act improperly unbeknownst to the rest of the members.  Thus, laws and rules demand that board members disclose to the entire board possible conflicts of interest and other threats to the organization’s well-being.  A more complicated situation involves an entire board running afoul of its legitimate responsibilities.

            The board collectively is responsible and may be liable for what transpires within and what happens to the organization.  As the ultimate authority, the board should ensure that the organization is operating in compliance with the law and its governing instruments.  If legal action ensues, it is often traceable to an inattentive, passive, and/or captive board (Hopkins and Gross, 2010, p. 58).

            Short of the intervention of government authorities, a board‑‑“as the ultimate authority”‑‑is responsible to nobody other than itself.  As a practical matter, the board is not responsible to other members of the organization.  It is not responsible to donors.  It is not responsible to volunteers.  It is not responsible to the local community.  If a board member believes that the board is deficient in its service or demonstration of responsibility to such groups, her duties of loyalty, diligence, and confidentiality to the board‑‑the ultimate authority‑‑preclude her disclosure to anyone other than the IRS and the state’s attorney general.  Should the board member disclose to actual stakeholders, she may find herself the target of a lawsuit, and the organization’s cost of legal representation will be handled by the organization’s treasury.  This vicious circle in which the board is responsible only to itself silences board members and deprives the public of information.  It is little wonder why the public does not know to this day why Jerry Lewis was unceremoniously removed in 2012 as the master of ceremonies of the Muscular Dystrophy Association’s Labor Day telethon.  Lewis has had nothing to say, and likely is legally constrained by the duty of loyalty, diligence, and confidentiality from explaining to donors and patients why he was dismissed after 45 years as host of the annual event.  The public, which donated $2½ billion to MDA during Lewis’s run as host and national chairman, would like to know the reason for the falling out in so far as it would help donors make informed decisions about their support, but the law is oriented toward protection of the interests of the organization’s remaining leadership.

3. DEMANDS OF DONORS AND WATCHDOG ORGANIZATIONS

            In so far as laws and court precedents do not recognize donors as having standing in terms of extracting information from an organization, beyond what laws and regulations require, donors must take specific steps to obtain information that they may want.  In other words, a donor or some separate watchdog organization that attempts to represent the interests of donors (such as the Better Business Bureau’s Wise Giving Alliance, Charity Navigator, and GuideStar) may ask for the information‑‑and criticize the charity for being unwilling to offer it‑‑or insist on a contract that specifies what kind of information one or more donors want and will receive.

            Generally, the watchdog organizations obtain and process information that appears on charities’ already available 990 returns.  However, the watchdog organizations may also survey the organizations about various aspects of their governing and management practices.

Other types of information may be difficult to come by.  Irish, Kushen, and Simon state:

            Donors to a formal civic organization are entitled to contract for disclosure of information adequate for the donor to assess the suitability of the civic organization for receipt of donations and the use(s) to which donations, or that particular donor’s donations, are put.

            . . . The reporting requirements imposed by donors will be contractual obligations enforceable in court.  Generally speaking, it is up to each donor to require whatever information it wants from a civic organization.  As a matter of best practice, however, donors should impose conditions that will require civic organizations to be accountable to their beneficiaries, to maintain adequate financial records and statements, to avoid conflicts of interest, and to comply with other good management practices.  By imposing appropriate contractual conditions, donors can play a significant role in assuring the health and proper operation of the civic sector.  It would be desirable for donors, public and private, to meet and agree among themselves what the minimum reporting requirements and performance for grantees should be and to standardize them to the extent possible (Irish, Kushen, and Simon, 2004, pp. 72‑73).

            That “it would be desirable for donors . . . to meet and agree among themselves” suggests that no such thing will happen in reality.  There is no substitute for inside information that arises in “real time.”  It is difficult to ask questions about a subject that is concealed behind closed doors.

C. Transparency

1. RATIONALE

            Transactions between a profit-making business enterprise and a customer tend to be intrinsically satisfactory to both parties.  If a consumer purchases an apple, she is presumably gratified at least as much by the apple as she could be by the amount of money that she sacrifices for it.  One would be hard-pressed to make an argument that the transaction has made the consumer worse off than she otherwise would have been.

            One who makes a donation to a nonprofit organization does not typically receive a tangible reward.  Fund-raising literature explains such intangible, intrinsic rewards as a good feeling or recognition.  However, if the donation causes a result that the donor did not anticipate, such as enriching a fund-raising professional rather than a person in need, then the donor arguably has a claim of which he is unaware.

            Irish et al. (2004) state, “The public has a legitimate interest in knowing about the activities and sources of funds of many civic organizations.  Transparency to the public helps the civic sector to retain public trust” (p. 273).  Jeavons explains the argument this way:

            . . . [N]onprofit organizations‑‑at least public charities (the 501(c)(3)s)‑‑are especially dependent on the public’s trust and goodwill to gain the support they need for the work they do.  These organizations are sometimes described as “values-expressive,” as being instrumental and critical to building “social capital” (a concept that centers on trust), and as being instruments of collective action for serving the public good. . . .  If they are not organizations of integrity, organizations that are trustworthy, then they generally will not be able to function effectively.  Why would people want to give their money or time to an organization if they have reason to doubt that [the] organization is representing itself and the work it does honestly and is using the contributions it receives well for the purpose of fulfilling its stated mission? . . . (Jeavons, 2010, p. 179).

            Brinckerhoff extends our argument about the difference between profit-making firms and nonprofits.  Nonprofits “belong” to people outside the organization.

            . . . [D]oes the organization belong to others?  Yes, in several ways.  First, the board of directors of a 501(c)(3) organization does not represent stockholders as a for-profit corporate board does.  The board represents stakeholders, people who are involved with the organization‑‑the people it serves, the community in general, funders, staff, and volunteers.  All are joined by a common interest and stake in the organization’s outcomes.

            Second, the organization uses resources that have been purchased by the funds of others.  While it’s true that the organization earns these funds from others, it is also accountable to them to deliver the outcomes promised in the mission (Brinckerhoff, 2004, p. 26).

            Therefore, Brinckerhoff continues, the best rule about transparency is “the more, the better.”

            The more people know about your organization, the better.  The more information they can see about plans, about services, and yes, about finances, the better.  The more open you are the better.  Period.  Which is not to say that it is easy, or always personally comfortable, to be transparent.  But it’s the best thing by far for the mission, because open organizations are better at engaging their employees and volunteers than closed ones.  If people can see problems, if they are allowed to review plans, better ideas usually result (not always, but usually) . . . (Brinckerhoff, 2004, p. 70).

2. RESISTANCE

            Many nonprofit organizations’ officials react to the concept of transparency as if it is a threat.  This is not unlike the frequent reaction of such officials to the concept of democratic and participatory decision-making, which they similarly perceive as a threat.  Undoubtedly, the two reactions come from the same place and are directed, essentially, at the same idea‑‑that others have a legitimate stake in what the organization does and, therefore, should be able to influence it.  Freiwirth has explained the behavior and the lamentable result.

            . . . [T]he pervasive trend toward “professionalism,” with boards made up of “experts” who may not be engaged with the organization’s mission, has tended to deepen the class and power divide between boards and their communities.  Ultimately, these models often prevent nonprofits from being effective‑‑that is, from being responsive, adaptable, and accountable to the communities they ostensibly serve.

            Beth Kanter and Allison Fine . . . describe the normative state of many nonprofits as “fortressed organizations” that “sit behind high walls and drawn shades, holding the outside world at bay to keep secrets in and invaders out.”  Unfortunately, this description applies to the many nonprofit boards that follow traditional, insular governance models.

            . . . [I]t can be argued that the nonprofit sector should foster and advance democracy and self-determination.  If a nonprofit organization is to be truly accountable to the community and constituencies, democracy must be at the organization’s core.  Yet the nonprofit sector has typically replicated structures and processes that actually hinder democracy within organizations.  Traditional governance structures not only run counter to democratic values and ideals, but can also impede an organization’s efforts to achieve its goals and fulfill its mission.  If an organization’s constituencies are not included in key decision-making processes, they may be less likely to back the organization with their advocacy, volunteer time, and financial support.  Additionally, a nonprofit without such involvement risks arriving at conclusions or decisions that are incongruent with its constituents’ needs, even its own mission . . . (Freiwirth, 2014, pp. 184‑185).

            One result of this resistance is that many officials of nonprofit organizations will deem it unthinkable to make the minutes of board and committee meetings available to members, donors, and other members of the public.  Irish et al. (2004) observe that civic organizations “should . . . be required to maintain records of meetings of their governing bodies” (p. 68), but the authors don’t seem to want anyone else to see them:  “. . . [A disclosure] requirement should not extend to the regular meetings of the governing board or other decision-making bodies, which should be allowed to conduct deliberations in private” (pp. 73‑74).  If such instruments of the nonprofit need to keep their discussions and decisions secret, who are the adversaries who must be kept uninformed about what the decisions are?  Are these adversaries the same people whom the organization begs to donate money and unpaid labor?

            Secret leadership is deficient leadership.  “Self-awareness, openness, transparency, and consistency are at the core of authentic leadership,” say Brown and Treviño (2006, p. 599).

D. Survey of Nonprofits to Determine Availability of Minutes

            Some aspects of our own experience with nonprofit organizations suggested to us that leaders of such organizations have a predilection for secrecy.  As an initial approach to inquiry, we decided to contact visible charitable organizations in Lumpkin County, Ga., the county seat of which is Dahlonega.  We obtained a list of nonprofit organizations in the community from the Dahlonega-Lumpkin County Chamber of Commerce.  Excluding organizations on the list that appeared to be chapters of state or national organizations or to be religious organizations, we called the officers of what appeared to be Section 501(c)(3), non-religious organizations.  We were able to make contact with officers of 17 of the organizations.  These 17 organizations include most of the county’s most prominent charities.  They are:

Bear On the Square Mountain Festival

Community Helping Place

ConnectAbility, Inc.

Enotah CASA

Friends of Lumpkin County Library

Friends of Lumpkin County Shelter Animals

Georgia ForestWatch

Lumpkin County Family Connection, Inc.

Lumpkin County Historical Society

Lumpkin County Literacy Coalition

Lumpkin County Retired Education Association

9/11 Day of Honor Picnic & Fundraiser

No One Alone

Rainbow Children’s Home, Inc.

Save Georgia’s Hemlocks

Thankful Hearts

Yahoola Trails Conservancy

            The officers whom we surveyed all responded to our questions as follows:

•  Their organizations are 501(c)(3), non-religious organizations.

•  The minutes of their board meetings are kept and word-processed.

•  The minutes of board meetings are made available‑‑either as a routine or upon request‑‑to donors, non-board volunteers, reporters, etc.

In terms of the aspect of transparency of availability of minutes of board meetings, all of these 17 organizations satisfied this test of openness.  Of course, this state of affairs does not lend itself to bivariate analysis, in so far as the dependent variable is a constant for this sample.

            Lumpkin County is a hilly, mostly rural area at the foothills of the Blue Ridge Mountains.  The City of Dahlonega is a small, isolated city.  It appears that leaders of charitable organizations established to serve such a community do not have a motivation to shroud their proceedings in secrecy.

            Future, follow-up inquiry would involve widening the scope of the research to these kinds of nonprofits:  organizations in large cities and suburbs, state and regional organizations, and national organizations.  Undoubtedly, patterns will begin to emerge as instances of board minutes suppressed from public view become more prevalent.  We plan to conduct this more extensive inquiry.

E. Culture, Climate, and Agents of Change

            Considering the surfeit of pitfalls associated with the lack of transparency in nonprofit organizations, and the apparent number of boards of national organizations that choose to maintain secrecy regarding their board meetings, one may wonder whether there is any hope for a charitable organization to truly gain the trust of its stakeholders.  The answer is yes, although the road is paved with caveats.  Nonprofit organizations face challenges regarding operations that are unique to them.  In a for-profit organization, if a founding proprietor wishes to be transparent about his organization, he does so, and those who seek to stymie the flow of information are terminated and replaced with others who will espouse the value of transparency.  However, in a nonprofit organization, a founder or president is impeded by a board of trustees from carrying out her vision in the manner that she sees fit.  This is where culture becomes essential to the transparency of an organization.

            Citing the work of Benjamin Schneider and Edgar H. Schein, Ostroff, Kinicki, and Tamkins introduce the concepts of organizational culture and climate.

Organizational culture and climate focus on how organizational participants experience and make sense of organizations . . . and are fundamental building blocks for describing and analyzing organizational phenomena. . . .  Although culture and climate have been approached from different scholarly traditions and have their roots in different disciplines, they are both about understanding psychological phenomena in organizations.  Both concepts rest upon the assumption of shared meaning‑‑a shared understanding of some aspect of organizational context (Ostroff, Kinicki, and Tamkins, 2003, p. 565).

            Organizational culture is the deep structure of an organization, rooted in the beliefs, values, and assumptions of the members, but established by the leadership/founder (Denison, 1996).  Although culture covers all group functioning and integrates all aspects of an organization, it is so deep that it can be viewed only through manifestations (Schein, 2004).  Schneider explains:

            . . . [P]eople in work settings form climate perceptions because apprehending order in the world is a basic human chore and . . . these climate perceptions function as frames of reference against which the appropriateness of behavior may be judged for the balance or homeostasis it will achieve with the setting (Schneider, 1975, p. 460).

Ostroff et al. elaborate:

            Individuals can sense the climate upon entering an organization through things such as the physical appearance of the place, the emotionality and attitudes exhibited by employees, and the experience and treatment of visitors and new employee members (Ostroff et al., 2003, p. 566).

This is where organizational climate becomes important, as culture leads to climate, which is the policies, practices, and procedures of an organization (Schneider, 1975).

Climate develops from the deeper core of culture. . . .  [O]rganizational culture is expected to effect structure, practices, policies, and routines in the organization that in turn provide the context for climate perceptions.  These organizational practices are the means through which employee perceptions, and subsequent attitudes, responses, and behaviors, are shaped (Ostroff et al., 2003, pp. 566‑567).

Climate is used to determine the appropriateness of behaviors in an organization, and can be specifically targeted toward any aspect of the organization (Glick, 1985), such as a climate for openness, which describes the authenticity and openness of interactions between leaders and their employees (Raza, 2010).

While climates for transparency have been sparsely researched in the extant literature, when there is a strong culture and climate of transparency set by the leaders of the organization, there are several important implications for organizational functioning.  The first manner in which a climate for transparency will impact an organization is via trust and ethics.  When transparency exists in an organization, there must be a strong adherence to ethics by all members of the leadership, and this can be monitored both internally from within the organization and externally by the constituents.  This is beneficial to the leadership, as there are more opportunities for any oversights to be found and remedied before they cause problems and, if there is an oversight, it provides the organization a chance to prove its trustworthiness to the constituents through the measures it takes to resolve the issue.  Prior research has shown that problems can often breed loyalty to an organization, as customers tend to remember the way an issue was handled much more clearly than the issue itself.  This system also builds trust, as leaders who are open and honest in communications and relationships have been shown to build trust over time (Hess and Bacigalupo, 2011).  This trust will be fostered both within the organization and externally.  This transparent climate additionally influences effective communication once trust and ethics are solidified because communication is not, and should never be, a one-way street, especially not in the circumstance that the communication is coming in the form of constituents and stakeholders clamoring for answers and information from an ever silent organization.  In order to be effective, communication must be a two-way channel that involves information flowing from the organization and feedback being returned from those who receive this information.  Stakeholders cannot deliver feedback and input without being properly informed, and this puts the organization in a precarious position in which it faces the potential to miss out on invaluable learning opportunities for continuous improvement and growth and it loses touch with its constituents, making it difficult to adapt to changing conditions.

Let us return to the issue of the special circumstances of a nonprofit organization and the impediment that the board can present to a founder’s vision.  It is imperative that the founder establish the culture and climate that he desires for his organization purposively and immediately.  “Culture has been viewed as a key driver of organizational effectiveness and performance . . . and a source of sustained competitive advantage” (Ostroff et al., 2003, p. 571).  Schneider (1987) adds:  “. . . [B]y what they reward, support, and expect, organizations can indicate that customer service or safety or product quality is an organizational imperative” (p. 448).  If a founder wishes to have a culture and climate for transparency, he can develop a mission statement, a statement of core values, and a code of ethics that includes transparency and that is featured prominently with any materials regarding the organization.  Brown and Treviño wrote:

            In a corporate environment [in which] ethics messages can get lost amidst messages about the bottom line and the immediate tasks at hand, ethical leaders also focus attention on ethics by frequently communicating about ethics and making the ethics message salient.  They set clear and high ethical standards themselves.  They also use rewards and punishment to influence followers’ ethical behavior.  Research shows that reinforcement plays an important role in modeling effectiveness because observers pay close attention to those who control important resources and to rewards and punishments (Brown and Treviño, 2006, pp. 597‑598).

In addition, the founder must actively embody the values he espouses by being transparent himself.  This will ensure that those who become active members of the administration of the organization, including the board and executive director, will share the values upon which the organization is founded in accordance with the attraction-selection-attrition cycle (ASA) (Schneider, 1987).  This cycle occurs when a founder establishes a culture and a climate conducive to her values.  People with similar values are attracted to the organization, and are thus selected.  “. . . [A]lignment [among] culture, practices, and climate is necessary for employees to respond and behave in ways that will lead to organizational effectiveness” (Ostroff et al., 2003, p. 576).  Those employees who are selected but whose values are incompatible with the organization leave, and thus the organization becomes a function of the values of the members.  As Benjamin Schneider stated:

            Different kinds of organizations attract, select, and retain different kinds of people, and it is the outcome of the ASA cycle that determines why organizations look and feel different from each other.

The ASA framework provides a new vantage point from which one can understand the genesis of both climate and culture.  As noted earlier, the processes and structures that emerge in organizations are functions of the kinds of people in them behaving in ways that facilitate the accomplishments of the goals of the founder (1987, pp. 440, 448).

            Jeavons makes this argument:

. . . I argue . . . that we are most likely to see consistently ethical behavior among nonprofit managers and organizations only where an emphasis on ethical values and behavior is deeply embedded in the cultures of these organizations.  So, building and reinforcing that kind of organizational culture becomes a primary responsibility for those desiring that ethical practice be a hallmark of all the functions, including the management, of their organization.

. . . [T]he claim argued here is that truly ethical behavior will be assured only by creating an organizational culture in which key ethical ideals and expectations are incorporated in the ‘core values’ . . . of an organization and thus permeate its operations (Jeavons, 2010, pp. 180‑181).

            In sum, there is hope for the future of transparency in nonprofit organizations, but, in order for that vision to be realized, founders must truly comprehend the importance of transparency and be mindful in the actions that they take in order to ensure that their organization does not fall prey to a shroud of secrecy once a board is legally in control.

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