Ethics Scenario #31: Jewish Advocacy Center

31. Baruch is the CEO/President of the Jewish Advocacy Center. His organization has built up an endowment of more than $1 million, partly as a result of his aggressive investment strategy, with a diversified, yet socially responsible portfolio, and his board has rewarded him appropriately. At a recent board meeting, the newly elected Treasurer, Manny, made an impassioned pitch for the center to move all of its investments out of accounts managed by several well-known traditional brokers into accounts managed by a single financial manager, Bernie Madoff. Manny suggested that through both good times and bad, Madoff’s brilliant management has paid off handsomely, with investment returns far exceeding the average. Baruch is intrigued by the almost “too good to be true” track record of Madoff, but argues strenuously that it is foolish for the Center to put all of its eggs in one basket, regardless of the rate of return. But the board sides with Manny, and passes a resolution for all of the current accounts, other than enough to pay bills for a year, be transferred to the management of Mr. Madoff. After giving this some thought, Baruch decides to simply ignore the board resolution and move only 10% of the Center’s endowment out of the current accounts.

a. Is Baruch acting ethically?

b. Is Baruch acting legally?

c. What alternative strategies, if any, might Baruch pursue if he strongly believes that moving the accounts is not a wise decision?