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Agencies promote ethical practices in churches, businesses

5/20/2002 News media contact: Tim Tanton · (615) 742-5470 · Nashville, Tenn.

NOTE: This report is a sidebar to UMNS story #228. Photographs of Sandra Kelley Lackore, Vidette Bullock Mixon and David Zellner are available at http://umns.umc.org/photos/headshots.html. *Balay is a free-lance writer in Dallas and a frequent contributor to church-related publications.

A UMNS Report By Diane Huie Balay*



United Methodist leaders at every level can be advocates for ethical behavior in church and corporate life, say denomination executives.

The spectacle of Enron Corp. and Arthur Andersen LLP struggling for their lives has highlighted for many people the fact that even the most reputable organizations can fall into scandal when their ethical foundation crumbles. For some United Methodist agencies, ethics are a focus not only in their work with local churches but also with corporations.

"The church has been way ahead of the curve" on the issue of corporate responsibility and ethical practices, says Sandra Kelley Lackore, top staff executive of the churchwide General Council on Finance and Administration.

The top executives of the church's boards and agencies requested training in the subject, she says, so former GCFA counsel Mary Logan wrote a book on legal and ethical responsibility for United Methodist organizations.

Parameters were set for all organizations that receive general church funds, Lackore says. "None can determine their own auditors. A GCFA committee of some board members, plus independent people selected for their expertise in accounting, reviews all audits.

"GCFA has an Internal Audit Department that performs all of the audits on every board and agency," she says. "In addition, we provide a local church audit guide that is available online at http://www.gcfa.org/.

"It all comes down to the duty of disclosure," Lackore says. "In a fiduciary environment, one of holding something in trust, where you are the custodian of assets, you have the duty of care to treat these assets as if they were your own."

Quoting from Logan's book, The Buck Stops Here: Legal and Ethical Responsibilities for United Methodist Organizations, Lackore says church officials have a duty of loyalty. "Be aware of and avoid conflict of interest and any appearance of conflict of interest. If there are conflicts, disclose them. Trustees must maintain confidentiality."

They also have a duty of care, she said. "Trustees are obliged to act in the best interest of the organization at all times. They must be reasonably informed before making a decision. If they don't know, they must ask. They must act as a reasonably prudent person would act. They must make independent decisions based on what they think is right and wrong."

At the denominational level, the church can influence ethical corporate behavior in several ways.

As an institutional investor with more than $11 billion in assets, the United Methodist Board of Pension and Health Benefits "has the responsibility to exercise appropriate corporate governance of the companies in which we invest - to make sure other Enrons don't happen," says David Zellner, managing director of finance and administration for the agency. Corporate management "should pay attention to us, and they do," he says.

"Companies are responsible for declaring relevant information to shareholders," Zellner continues. "I've talked to very sophisticated investors who couldn't understand Enron reports. Enron deliberately presented vague and misleading information in their financial statements."

The Board of Pension was one of the many institutional investors that felt the impact of Enron's downfall. "Our participants were hurt," Zellner says, "but losses because of Enron investments amount to less than one-quarter of 1 percent of the entire value of General Board investments." The board sold out of its Enron stock, as did other church entities, such as the Board of Global Ministries and the United Methodist Church Foundation. (See UMNS story #043.)

The pension board is looking into the role of independent corporate auditors, Zellner says. Proposals under consideration include encouraging companies to hire independent auditors and discouraging corporate directors from serving on audit committees.

Part of Enron's problems, according to some critics, stem from the company's use of Arthur Andersen LLP as both auditor and consultant, generating huge profits for the accounting firm. Concern also has been expressed about conflicts of interest posed by board members serving on the audit committee.

The church's pension board has several tools at its disposal: letters of concern to corporate management, formal shareholder resolutions and dialogue with corporate management. If all else fails, the agency has the power of the proxy - the ability to file shareholder resolutions that are voted upon through the use of proxy statements at annual stockholder meetings. In addition, the board can place its support behind initiatives drafted by other groups.

Effecting change in corporate management is a slow process, says Vidette Bullock Mixon, the board's director of corporate relations and social concerns. "Sometimes it will take several years.

"We are long-term investors," she says. "We want the companies in which we invest to do well and meet high expectations, so we are willing to sit down and talk with their management about our concerns. That has served us well."

The pension board looks carefully at a corporation's willingness to be transparent - that is, to disclose all essential information, she says. She and other staff members look at a corporation's overarching mission and goals and how the company measures up to them.

They also look at the salaries of the chief executive officers. "There are advantages to tying a CEO's salary to stock value as long as the company is doing well," Bullock Mixon says, "because it is an incentive. But we've seen cases where CEOs are paid excessive amounts while the company was not doing well by its shareholders. The pension board takes exception to that. It is not appropriate for a CEO to benefit when shareholders do not.

"In the case of Enron, people within the top circle knew things were not as they appeared," she says. "They were selling off - jumping ship before it sank. This is immoral and unethical."

The pension board's efforts to encourage ethical corporate management are related to its "Strategies of Socially Responsible Investing." Many of these efforts center around encouraging inclusiveness at all levels of the corporation, fair labor practices, environmental sustainability, and sensitivity to the community in which the company finds itself, Bullock Mixon says.

"We expect management goals to be tied to something in addition to financial goals."

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