Research On National Kidney Foundation (NFK) Scandal
Introduction
Corporate Social Responsibility (CSR) in recent years has grown into a fundamental strategic business priority, from being just a dispensable marketing strategy (MacPherson, 2017). Many companies have impacted the Business, Governmental and Societal environment with CSR initiatives, with 65% of CEOs agreeing that CSR is a business core (pwc, 2016). However, many companies have neglected common ethical standards, under the appearance of partaking in CSR and are instead concentrating on financial pursuits. An example would be Uber failing to report serious crimes and making false promises about driver earning potentials (Quigley, 2017). In this report, I will explore the major issues of the National Kidney Foundation (NFK) scandal, the impact of the actions/inactions of NKF’s board members, my thoughts on the find-raising strategies, Durai’s compensation package and salary, and the changes I would make to ensure the problems will not arise again.
Major Issues
The first major issue would be the lack of governance structure in NKF and them being a “Rubber-Stamp Board”. The poor government structure led to major oversights by the Executive Committee (EC). An example would be failing to instrument a suitable structure or system for NKF’s balances and cheques. They even rejected internal auditors’ recommendations to improve the system. The loss of all data of the meeting minutes by the chairman of the Financial Committee (FC) not only emphasizes the ineptness of the governance, but also raises uncertainty and questions regarding the lack of accountability and transparency on how NKF uses the donors’ funds. The ineffectiveness of NKF’s management controls was further highlighted due to the lack of meetings by the Audit Committee (AC). This led inadequate communications and weak internal audit controls. This could have been intentional so that any misuse of the funds or suspicious transactions would go unreported. The second issue would be too much power conferred to the CEO of NKF, T,T. Durai, by the remuneration sub-committee (RSC). Even though he was the main reason at that time for NKF’s success, NKF placed too much trust and was too dependent on him. Along with this, Durai led a profligate lifestyle, which seemed ironic against NKF’s goal of helping patients in need. With this prominent ethical issue, it brought attention to the possible misuse of funds. Other issues include the misguided recurring attempts to increase Durai’s high pay, as well as the organizations aggressive marketing tactics and strategies.
Ineffectiveness of Board of Members
Even with their laid-back governance, NKF was seen as an honest, successful and dependable charity, based on the amount of donations they could raise, but not based on the number of people they helped. In 2005, Khaw Boon Wan (Minister of Health) acknowledged the government’s failings to ensure that NKF was operated as an appropriate charity organization that was supposed to be a role-model (Presse, 2005). A false image of a reliable structure in NKF was projected to the public as the board members not only failed to perform their duties and serve the needy, but also misled the public. The corporation’s numbers of $2. 1 million of donor funds and 300,000 volunteers was used to help the façade. In addition, there was mismanagement. The board of members was responsible for the misappropriation of money by insisting that Durai constantly receives bonuses and a high salary, despite Durai’s repeated attempts to reject them. Despite being passionate volunteers themselves, the board members were not aware of their own responsibilities. They did not protect the shareholders’ interests nor did they maintain the balances and cheques. This probably led them to be heavily dependent on Durai, who has volunteered for 21 years and has exceptional experience. The EC had all the power, who in turn could confer it to Durai, is another example of bad management practice. This meant that Durai had a concentration of authority and that his decisions cannot be rebutted by anyone. The AC was also found to be incompetent when lapses in the financial procedures were discovered. NKF was also found guilty of manipulating the figures of dialysis treatment costs, subsidies and the number of patients so that the public would be more inclined to donate more. This brought up NKF’s lack of transparency towards the public in terms of funds spenditure. Overall, NKF had an absence of a goof corporate government.
Fund-Raising Strategies
Durai’s fund raising strategies were an astounding success and achieved many of their set objectives. However, whether these tactics were ethical was questioned. Since their strategies were expensive, having hired so many celebrities and giving away exorbitantly expensive prizes, extravagant and seen as over-aggressive, was majority of the money spent on helping the patients in need or the fund-raising strategies. A report by KPMG stated that NKF did not see patient care as important as they saw fund-raising. Statistics showed that only 10 cents out of $1 donated was channelled to subsidizing patient’s dialysis and kidney treatment (Reuters, 2005). In June 2005, NKF announced that $62. 4million was needed per year to support the needy patients. They claimed their reserves of $262million would only be enough for 3 years of support. This is a case of misrepresentation as during the trial, Durai admitted that in actial fact, only $31. 6 million was spent in a year on patients. This means that the large reserves could last NKF for more than 8 years, not 3 (Foo, 2005). What was deemed unethical was ow NKF used their funds, not how big their reserves were as all organizations, even non-profits, need reserves, especially in case of crisis. As a doner, they would feel cheated of when they find out their donated money has been used on advertisements to gain empathy, instead of actually helping the kidney patients in need. This is unethical. Another thing to take note of is if majority of Singapore donates solely to NKF because of their aggressive marketing strategies, then other organizations in Singapore may have less funds available to them.
The Straits Times reported that NKF had sold donors’ personal information to Aviva, an insurance company, for $5 million. This permitted Aviva to send marketing collaterals to the donor database (Foo, 2005). This, along with the misrepresented inflated numbers to push people to donate often, shows that NKF would have gone to extreme measures to increase funds, even if it compromises their morals and values as a charitable non-profit organization. However, NKF can defend themselves by stating that their efforts in fundraising are so aggressive about raising funds because with more funds, they will in turn be able to help a larger pool of people, saving more lives. NKF does not force anyone to donate. Thus, despite being perceived as doing it for their own selfish reasons, their goal is still to help the patients in need. From the corporation’s aspect, they would rather adopt an ends justify the means ethical approach. The good intention of saving lives overcomes the scepticism their actions may bring. In conclusion, NKF chose a “ends justify the means” instead of the “means justify the ends” approach towards their fundraising tactics. Their big-ticket prizes were meant to entice public was controversial due to the nature of their organization. Charities would usually market themselves by encouraging the truly compassionate to help the needy and donate or volunteer. As people usually look up to celebrities, the use of celebrities in NKF’s fundraising strategies may have just been a tool to appeal to the public’s emotions to gain more money, manipulating viewers. Therefore, the way they earned their money compromised the normal charity values in our society, even though the goal was to help the needy. Even though the results were favourable, the methods were not.
Compensation Package
Durai had an exorbitant salary and a luxurious lifestyle. Since NKF is funded by donations, this was unusual. Through his lifestyle, it seemed that Durai acted as if he was the CEO of a profit-driven enterprise rather than a non-profit organization. This brought upon intense scrutiny. He breached his duty of his role and prioritized his personal interest as compared to NKF’s goal, coupled with his equally ignorant EC. An example from the case would be the board of members approving his first-class tickets overseas when he was only entitled to business-class at most. Along with this, he had multiple luxury cars and a gold tap. His pay was an annual $600,000, inclusive of 2 salary increments. This was questionable for an employee of a public charity (Presse, 2005). It is evident that his luxurious personal spending is funded by the charity’s public donations, that NKF had mismanaged their funds and that Durai was extremely overpaid. In general, an employee of such a mission would join with the intention of helping the needy and the organization achieve their goal, motivating themselves with compassion, not for the salary. If I were a donor, I would feel lied to and misled. My money, which I thought was helping the needy, was instead going into the pocket of an over-privileged man who was ignorant of his ways of spending. I would then stop supporting NKF and probably be hesitant to donate to other charities as well as my trust was broken by the leading charity. Thus, Durin’s lifestyle was ironic.
The main reason, especially for the CEO, to be motivated and join a charity is to help the needy, not the greed for cash. However, I agree that Durin has played a vital role in NKF’s success during its beginning years and should be rewarded appropriately for his efforts and results. Making NKF internationally recognized, raising $16. 4 million in 2004 compared to $4. 5 million in 1994 and garnering a stable stream of donors monthly is no easy feat. He is also qualified, competent with a substantial amount of experience in this field.
Recommended Changes
The first change I would make is to have a solid and good governance structure that is maintained and professionally implemented. This is extremely vital firstly, it is the root of the entire organization, and secondly even the most successful corporations will fall without good governance. Thus, this will prevent the recurrence of the same issues. In order for this to happen, an independent and strong chairman must be appointed to monitor and manage the internal operations. Secondly, capable members must be appointed to be the board of members. They must be well-aware of their duties and responsibilities and must be effective. The EC and AC members should be stricter with their formal meeting standards. Instead of conferring all power to the CEO, everyone should be involved in majority of the decision-making process, with the meeting minutes being taken down and properly documented. To avoid misplacement of these minutes, I will implement a standard set of regulations for minutes taking and where or how to store and document them.
As for the RSC, there should be proper guidelines implemented for them to resolve any remuneration decisions, instead of having the CEO take on this responsibility. This ensures the proper and fair payment to every NKF employee, based on the right incentives. These aforementioned steps will lead to a better governance structure. The second change I would make is to implement a system of adequate controls. This is to prevent duties to be breached and the conflicts of interests due to operational lapses again. To prevent recommendations and ideas from being ignored, the AC will have more authority, allowing them to act independently and effectively. The last change I would make is to implement the Charities Act and to tighten the frameworks. This is to counter the absence of accountability and transparency (Singapore Statutes, n. d. ). On top of that, to avoid the recurrence of financial lapses, I will better asses the organization’s management of funds by tightening the MOH and NCS guidelines. But, these guidelines will not be tightened to the extent where they stifle the spirit and activities of the corporation. Care will be undertaken to ensure the right balance so that it will not be too inflexible. With these frameworks and a good governance system, the mismanagement issues, including of funds, will not reoccur, which will put stakeholders at ease. Slowly, the public will place their trust in NKF once their confidence rebuilds up, and the public will start donating for a proper, honest, and ethical charity once more.
