Perspectives
May 2005

Key elements to creating an ethical organization are well-defined programs and policies that evolve in response to changing conditions and needs. In this issue of Perspectives, William White, president, chairman and CEO of the Charles Stewart Mott Foundation, uses the experiences of the Mott Foundation to show the commitment it takes to create an ethical, transparent organization.

Good Governance: The Devil's in the Details
By William White

Although the Mott Foundation’s Board of Trustees approved our first formal Code of Ethics in 2003, we like to think our travels on the road of good governance began decades ago. And if there is one thing that we’ve learned from this journey, it is that good governance requires care and cultivation.

Good governance starts with a philosophical commitment to embrace ethical practices at the highest levels of an organization (i.e., the Board of Trustees and the CEO) and to build a culture supporting those practices. But good governance goes beyond policy and paperwork

The devil, if you will, is in the details.

In retrospect, I have been talking and writing about the need for good management, appropriate governance, transparency and accountability for a long time. However, the baseline for what constitutes acceptable, let alone exemplary, practices has evolved through the years as have the complexity and sophistication of the field as a whole.

Mott passed its first formal conflict of interest policy for trustees and staff in 1969; since then, that document has been amended and updated. Each year, our staff and trustees revisit this policy, which outlines the many potential conflicts of interests that we may face in our day-to-day work and decisionmaking processes. It looks at outside employment or consulting work, board memberships, or other affiliations that could create a conflict.

During the same period, we developed—and have since modified on a regular basis—handbooks for both trustees and employees. These documents lay out standards of conduct, but also circle back to conflicts of interest—where a trustee or staff member has, or appears to have, a financial interest in a foundation decision—and conflicts of loyalty—where a trustee or staff has an affiliation with, but no financial interest in, a grant applicant or other third party that may suggest influence.

While these guidelines are considered most often in the grantmaking process, they also apply to all investment decisions and related matters. Enforcement of the guidelines is also buttressed by our strict adherence to both the spirit and letter of the laws that govern private foundations, including the rules on self-dealing and regulations of general application.

Two years ago, our Board of Trustees approved a formal code of ethics, which we publish in our annual report and post on our web site (mott.org). Its central tenants are:

• We are committed to act honestly, truthfully and with integrity in all our transactions and dealings.
• We are committed to avoid conflicts of interest and the appropriate handling of actual or apparent conflicts of interest in our relationships.
• We are committed to treat our grantees fairly and to treat every individual with dignity and respect.
• We are committed to treat our employees with respect, fairness and good faith and to provide conditions of employment that safeguard their rights and welfare.
• We are committed to be a good corporate citizen and to comply with both the spirit and the letter of the law.
• We are committed to act responsibly toward the communities in which we work and for the benefit of the communities we serve.
• We are committed to be responsible, transparent and accountable for all of our actions.
• We are committed to improve the accountability, transparency, ethical conduct and effectiveness of the nonprofit field.

But our efforts toward good governance didn’t stop with the code of ethics.

In mid-2004, we developed a formal whistleblower policy. This policy clearly lays out the responsibilities of trustees, officers and employees to comply with the foundation’s code of ethics and conflict of interest policies. It also details the procedures and contact information for reporting violations.

Later that year, we took a close look at recommendations from nonprofit governance groups related to the applicability of Sarbanes-Oxley to the nonprofit community. We came to the conclusion that, for the most part, we already have put into place many of the recommendations that make sense for us as a foundation.

At the same time, the foundation’s Audit Committee charter was revised to formalize procedures that it had been following but that were not included in the original charter. In addition to overseeing the foundation’s annual audit and ensuring appropriate financial controls are in place, the Audit Committee also administers those documents that set the governance tone for the foundation, such as the code of ethics, and the conflict-of-interest and whistle-blower policies.

While we have put a lot of thought and attention into these efforts, we recognize that the pursuit of excellence in governance must continue. Our supporters—and critics—expect and deserve no less.

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