Ethics Scenario #16: Harristown Housing Project

16. Harley is the CEO of a nonprofit housing organization. He is also the owner of a for-profit business that sells condominiums. Prior to 2008, he made hundreds of thousands of dollars flipping condominiums. But in 2008, he overextended, and was poised to lose millions, and defaulting on some of his personal debt. He explained the situation to his board, and requested that the board approve a loan of $900 thousand to help keep his personal business afloat. Harley offers to pay a market rate of interest in return for the loan. The board treasurer, noting that it had the money in its accounts and was receiving only 3% interest, agreed that the organization would benefit by doing this loan. Harley suspected that the loan may or may not be enough to forestall personal economic disaster, but grasping at straws, he was willing to do whatever was necessary to save his personal business. He hinted that he would be forced to leave the organization if it failed to approve this loan, as he would have to generate more income to meet his needs than would be available from his nonprofit job. The board approved the loan.

a. Was the board acting ethically in approving the loan?

b. Was the board acting legally in approving the loan?