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This case study was funded by the Institute for Local Government and Public Service in Budapest, Hungary. This case
was prepared by Tiina Randma, Director of the Department of Public Administration and Social Work at Tartu University
in Estonia, as a part of Ms. Randmas participation in the 1994/1995 Course of the Case Project for Central and Eastern
Europe, a project of the Electronic Hallway.

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AN ETHICAL DILEMMA AT THE CUMBRIAN CULTURAL
ENDOWMENT FOUNDATION (A)


The Rise of Cumbria's Third Sector

Cumbria is a small country in Eastern Europe. Since the collapse of the communist regime in the
late 1980's, Cumbrian leaders have been relatively successful in their efforts to introduce
principles of democratic leadership and market-based economic reforms. As in many other
former communist countries, foreign aid plays an important role in supporting such
modernization efforts across Cumbrian society.

Foremost among those organizations receiving foreign aid is the Cumbria Cultural Endowment
Foundation (CEF) established in 1985 by prominent British philanthropist John Pound. It is the
first non-governmental organization (NGO) to exert considerable influence on the development
of Cumbria's non-governmental or "third" sector. With the help of Western consultants, CEF
has been instrumental in the passage of national legislation concerning NGOs, which gives them
the official status common to non-governmental organizations in most democratic countries.
CEF has an annual budget of 2 million pounds, funds which are dedicated to the promotion of
cultural, educational and social initiatives across Cumbria (see Attachment 1). Although most of
its financial resources still originate with John Pound, the CEF is nonetheless an independent
organization which actively seeks other donors from Cumbria and abroad.

CEF Leadership and Governance

Maria Miskevitch has served as executive director of the CEF since its inception. Known for
her energetic, open style, she has done an excellent job of developing the organization and
securing its financial stability. Ten years after joining the Foundation, Miskevitch takes great
satisfaction in the knowledge that CEF enjoys a highly favorable reputation among foreign
donors and Cumbrians alike. The Foundation is known for the priority it places on fairness in
An Ethical Dilemma at the Cumbrian Cultural Endowment Foundation (A)
2
awarding funds and for its welcoming attitude toward anyone who visits the CEF office. It is
widely recognized that CEF's success is due largely to Miskevitch. Her strong communication
skills have served her well in lobbying members of Parliament, high-level civil servants, and
representatives of the mass media to support policies which strengthen CEF and other non-
governmental organizations in Cumbria.

Miskevitchs close friends know that her ambitions reach beyond her current post at CEF. She
views this position as a starting point for a future diplomatic career. Several years ago she
graduated from the Cumbrian School of Diplomats -- the first step in achieving her long-term
goals. In addition, she has received tacit encouragement about her future plans from the
President of Cumbria himself.

CEF is governed by a seven-member board of directors, which is chaired by Cumbrian
businessman Alex Popenko. All board members are well-known Cumbrian citizens who hold
high-level posts in government, education, the arts and law. Miskevitch characterizes the board
members as intelligent and sophisticated individuals who nevertheless represent different and
often conflicting interests. Being on the CEF board is a very prestigious job which, albeit
unpaid, not only provides members with the power to make decisions for CEF but also permits
them to indirectly affect a number of policy areas across Cumbrian society. Although the
Foundation's bylaws technically state that the maximum board-term is two years, several board
members have served at CEF since its establishment. So far, the question of changing board
membership has been successfully avoided at board meetings. All of the board members,
Miskevitch, and her staff of eight people have developed strong working relationships based on
mutual trust and concern for doing good work.

CEF Proposal Evaluation Methods

After many years of experience, the following program evaluation protocols have been
developed by CEF board members and staff:

1) CEF staff project-coordinators communicate with applicants and provide them with
guidelines for writing proposals.
2) At least two independent experts evaluate every proposed project several weeks before the
board meeting at which the project is to be reviewed.
3) Before each board meeting, all board members visit the CEF office to review project
proposals and related expert evaluations, and to discuss them with staff members.
4) Final decisions about awards are made at the CEF board meeting. CEF staff members are
often invited to participate in order to provide more information about specific projects or
about the goals of the individuals and groups submitting applications.

The board typically meets four times a year. Meetings tend to be long (6-7 hours) due to the
large number of applications. At a regular board meeting, general questions are discussed first,
followed by the review of specific proposals. There are two types of applications: group
An Ethical Dilemma at the Cumbrian Cultural Endowment Foundation (A)
3
proposals and individual proposals. At every meeting, a percentage of the annual budget is
allocated for both types of projects. The Foundation has an annual budget of two million
pounds, of which 10% is designated to cover administrative costs. The remaining 90% is
divided by four in order to give the Board a rough estimate of the total funds to be awarded at
each of its quarterly meetings. Sometimes the Board awards more, sometimes less, although the
budget and the total award figures must be reconciled by the end of each year. Since they
involve considerably larger sums, board members usually pay much more attention to group
projects. Individual grants are of secondary priority. Moreover, during the past year, the
Board has often discussed whether CEF should accept individual applications at all.

Board meetings are usually led by Executive Director Miskevitch. Although she reports to the
Board, she always takes the initiative at board meetings, where her opinions carry substantial
weight. Miskevitch has a vote at the board meetings. In accordance with the CEF bylaws, the
board uses an open voting system, with decisions being made by simple majority. In the case of
a tie vote, the Chairman of the Board is entitled to one additional vote.

A Critical Week in CEF History

In February of 1995, CEF invited people from all over the world to celebrate its 10th
anniversary, which was proudly dubbed a week of philanthropy. More than 400 guests
would attend. CEF benefactor John Pound had also promised to come, which made the event
even more significant. Many activities were planned for the week, including a regular board
meeting; a banquet for Cumbrian authorities and their guests; a meeting between Pound and the
President of Cumbria; and an international conference on philanthropy. The local press took a
great interest in all of CEF's anniversary plans. Cumbrian's principal TV channel had signed an
agreement with Miskevitch to broadcast every event but the board meeting. Live interviews
were planned from the conference center, the Presidents Office, and the banquet hall.

The regular board meeting that week began as usual, although everyone appeared to be eager
to finish early in order to prepare for the banquet that evening. The first part of the meeting,
which was devoted to general business, passed quickly. Miskevitch led the next discussion,
summarizing the applications to be considered and the total funds requested. There were 153
group proposals for a total of 420,000 Cumbrian Crowns (cc), and 87 individual proposals
totaling 30,000cc. The presentation of the group proposals had been well-prepared by staff.
Looking forward to the evening's events, board members were not inclined to argue about any
of the group applications. So when board members left the room on-time for their final coffee
break, only the discussion of individual proposals was left on the agenda.

A Presidential Request

In the middle of the break, the CEF secretary called Miskevitch to the phone. Miskevitch did
not usually take calls during board meetings, not even at coffee breaks. This time, however, her
secretary insisted that it was urgent; a Presidential aide was calling. Miskevitch picked up the
An Ethical Dilemma at the Cumbrian Cultural Endowment Foundation (A)
4
phone immediately, certain that the call was to confirm that she, John Pound, and Alex Popenko
were to meet with the President at 10:00 a.m. the next day. At the other end of the line, a
nervous aide began asking questions about the board meeting. She finally got to the point: it
was the President's wish that the CEF Board give an individual grant of 2,000cc (the maximum
permissible for individual grants) to Robert Redko, the son of the President's good friend. The
aide added that this was a special presidential request. If the Board did not grant it, the
appointment with John Pound would be canceled. The Presidential aide stressed that she
needed a response from CEF by the end of the evening.

Miskevitch was extremely disappointed. It was not the first time in the history of CEF that
someone outside of the Foundation had tried to sway a Board decision. Applicants have been
known to try to influence individual Board members before proposals are discussed at the
quarterly meetings. However, these attempts had up to now been in vain, particularly when they
required a breach of CEF policy as the Redko case would have. These situations had been
kept secret from Pound out of fear that he would curtail his contributions as he had already
done in other Eastern European countries where bribery had occurred.

The ethical dilemma was problemmatic enough, but Miskevitch was even more surprised by the
attitude of the President's office. She had met him several times and had always received his
support for legislation concerning NGO's. The President had been consistently appreciative of
CEF and grateful to its founder, John Pound. Cumbria's Chief Executive was not hesitant to
assert his power, but he also had a reputation for ethical behavior. However, he often changed
his mind suddenly, so Miskevitch did not doubt that he might easily snub Pound the next
morning.

Although it was one out of eighty-seven individual proposals, Miskevitch remembered Robert
Redko's application. Redko was a 17-year old wunderkind who had been admitted to the
undergraduate program at Oxford University in England. His parents had visited the CEF office
several times to discuss their son's outstanding abilities. Miskevitch recalled one Friday
afternoon in particular, when Roberts mother dropped in after office hours, waving her son's
application papers and loudly singing his praises to anyone within earshot. After she had left,
the CEF staff discussed the situation regretfully. Despite Redko's obvious talent, CEF could not
help him. Due to limited resources, CEF policy prohibited support of undergraduate students.
No exception had ever been made in this regard.

Time Runs Out

Maria Miskevitch glanced nervously at her watch. There were only five minutes left until the
end of the break. She closed her eyes for a split second and saw everything she'd worked so
hard for beginning to fall apart: CEF's (and her) impeccable reputation; her future career plans;
and a draft law on tax exemption for NGO's now sitting in Parliament and awaiting Presidential
approval. In only two hours, Miskevitch and Mr. Pound were scheduled to give the opening
speech at the anniversary banquet. She had to act quickly.
An Ethical Dilemma at the Cumbrian Cultural Endowment Foundation (A)
5
Attachment 1
Selected Group Projects Supported by CEF (September-December 1994)


Seminar on Infant Survival
Environment and Our Future"--a program for high school students
Supporting 12 theater administrators to study at the British Royal Theater
Publication of the Encyclopedia of Sociology
Curriculum development for public administration programs at Cumbria's National
University
Seminar on international security
Computerization of two libraries
Funding of 10
th
annual Pipe Festival
Development of study materials for a new course on civic education
Establishment of a Student Advising Center
Visit of three professors from England's Manchester University
Internships in Great Britain for thirty Cumbrian English teachers
Teaching innovations at Art University
Production of the educational video Children in Danger
Establishment of the Audiovisual Media School
Providing legal aid services within the Institute of Human Rights
Textbook competition to support curricula in social work
Publication of the booklet Anti-AIDS / HIV-Control
Support participation of the Cumbrian Youth Symphony Orchestra at the Edinburgh Arts
Festival
Renovation of the Art Hall building
Support for special conference on Family as the Guardian of Tradition
Development of a technical infrastructure for medical information systems
Advanced retraining program for young unemployed professionals