The Principles of Morality and Transparency in the Third Sector By Rui Teixeira Santos, PhD Universitat Abat Oliba Cátedra da Economia Solidaria

1. The Principles of Morality and
Transparency in the Third Sector
UNIVERSITAT ABAT OLIVA
CATEDRA DE ECONOMIA SOLIDARIA
BARCELONA
2011
PROF. DOUTOR RUI TEIXEIRA SANTOS
Lisbon School of Administration
ULHT

2. • We are in an especially dangerous period of
the economic and social history of the most
developed countries, where economic and
social adjustments are being made at the
same time as we define geostrategic
rebalancing at a global level, which forces us
to a special reflection on the mechanisms of
good government.

3. • The solidarity sector implies trust.
• And it is not worth considering the moral
superiority of the Third Sector by its
conscience and volunteering, because
previous absolute social responses proved to
be false and caused severe humanitarian
disasters.

4. • This was the case of the socialist response
unmasked by Ludwig von Mises long time ago.
The inevitable failure of the centralized
government of the economy
• The crisis of 1929/1932 that the market has
flaws and the Keynesians believed that public
initiative, albeit occasional, could be the
answer.

5. • Stagflation killed the interventionist dreams of
Keynesianism in the 70s in the same way that this crisis
proves that there is a limit to public investment
through borrowing. Keynes did not consider the fact
that the creditors do not want to lend more money to a
state already indebted, as we see actually in Portugal.
• We now see again as the public intervention during this
crisis only increased the public deficits and exacerbated
the problem of the sustainability of the euro and the
dollar, making the financial and banking crisis in a
sovereign debt crisis and economic recession,
increasing inequality and poverty.

6. • The moral problem of monetarism is that
everything that is not efficient must die and
thus we create an underemployment
equilibrium, which requires social and political
responses.
• The State is not the answer to
underemployment and there are political
limits to structural reforms and further
consolidation.

7. • To intend to adopt the model of Chinese business
in Europe to prevent the relocation of a company,
as it is already starting to happen in Italy or in
Galicia, in the fashion sector, puts at risk the legal
framework of labor and the tax models that
support the post-welfare state - that many still
advocate in Europe – but it opens the way for
what I have called the Guarantee Social State or
the Americans call Agency State, in which the
economic model is more liberal and less
regulated, while the State, which is no longer
producer and dealer, is committed to its essential
economic function of fighting poverty,
guaranteeing everyone access to basic social
rights.

8. • The moral advantage of capitalism is that all
economic players are on an equal position on
the market, so there is the possibility of
competition in the price formation.
• But when the State tries to intervene,
unbalancing the market or correcting its
failures, what always happens is that it
improves the condition of the wealthier
(minority interests), increasing poverty and it
becomes indebted, it increases taxes and
causes unequal competition in fundraising.

9. • The lack of market economy and so many
times of minimum conditions of competition,
safety or stability, because of the lack of
certain production factors (including capital or
legal reinforcement of work contract) - but
happens too in most poor’s countries in Africa
because there is no market at all - creates not
only opportunities, but demands to solidarity
economy as the better possible response.

10. • If the Solidarity Economy gains a new dimension
in this crisis, as a economic solution for the new
privatizations on Health, Education and Social
Security - while the sector is also in crisis
because of the reduction of its financial
resources, for instances in Portugal and Spain – it
is important to pay greater attention to the
mechanisms of formation of the economic
solidarity decision and its governance.
• New forms of organization of knowledge in
societies based on Social Innovation in Nonprofit
Organizations and Social Entrepreneurship also
requires a moral and legal clarity.

11. Why?
• - Due to a question of trust, without which the
sector does not have the resources.
• And here it is important to strengthen the
behavioral mechanisms so that the social and
solidarity ethics is not just a vague principle
without content.

12. • The Solidarity Economy does not have the
natural controls of capitalism - where no
single company controls the price - or the
regulatory mechanisms to correct market
failures.
• And so, today more than ever, it is important
to take on ethical imperatives in the social
administration.

13. We year zero of Solidarity Ethics!
• Ethics in business (1980s)
• The philosophical question is not new: when
Antigone defies King Creon, her uncle, to go
and bury her brother, she knew that she was
challenging the law, but that would honor the
son of her mother and her family name. It was
the Natural Law prior to the Positive Law itself.

14. • Thus we have a moral imperative of transparency and
probity resulting from the Law and Public Order and,
on the other hand, a requirement of the very nature of
things and that in the current economic and financial
framework is an assumption of the Third Sector.
• The content of the principle implies that the social
agent and the institution of the Third Sector as a
human being or a legal person respectively, endowed
with the legal capacity to act, must necessarily
distinguish Good from Evil, the honest from the
dishonest.
• And when they acting, they cannot disregard the
ethical element in their behavior.

15. • So not only they will have to decide between legal and
illegal, just and unjust, profitable and not profitable,
sustainable and unsustainable, efficient and inefficient,
convenient and inconvenient, opportune and inopportune,
but also between honest and dishonest.
• Due to considerations of law and morality, the actions of
the 3th sector will not only have to obey the law but also
the ethics of the institution itself, because not everything
that is legal is honest, as the Romans said - non omne quod
licet honestum est.
• The common morality is imposed on man for his outward
conduct; the moral solidarity is imposed on the agent of
the Third Sector and its institutions for its internal conduct,
as required by each institution and the purpose of its
action: the common good.

16. Law
• First, we must establish the autonomy itself of
the sector: the Third Sector is the one that is
not public and it not private, in the
conventional sense of those expressions; but
keeps a relationship with both; in that it
derives its own identity from the combination
between the latter’s method and the former’s
purpose.

17. Law
• Secondly, there are general principles of law applicable
to all the families of Public Law and Private and
commercial Law.
• Any State Principles of Economic Public Law is
applicable to all Economic Sectors that coexist in a legal
system, namely the Principle of Legality and Social
Equality.
• The Principles of Legality and Social Equality include
the Principle of Morality.
• And in this way the Principle of Morality cannot be
absent from the regulatory right of the social economy,
a fortiori, by the Economic Public Law.

18. • As a principle of the Economic Public Law, the Principle
of Morality is present in the regulatory law as a general
principle of Law and in particular in the Regulatory Law
of the Social and Solidarity Sector, as expressly
happens with the recent Spanish legislation of the
sector as the one that is being prepared in Portugal.
• On the other hand, the very idea of the Third Sector
often implies in the face of the creativity of private
solutions, the absence of the regulator and the market
with its limits, implying therefore a greater demand for
public accountability, common sense in resource
management and above all a clear moral distinction
between good and evil as necessary limit.

19. Law
• Third. The Social Law cannot be restrictive in
the sense that the only thing that is permitted
is what is authorized by the law, but is based
on the creativity and innovation in the social
sector. In its origin there is the Constitutional
Principle of the Free Initiative for Private
Sector and for the Solidarity Sector.

20. Law
• Four: the taxation of the entities of the third
sector. These civil society organizations are not
companies and they cannot be treated as such,
especially in less developed countries, since
international donors do not recognize tax
obligations and are unwilling to afford them.
• But the exceptions of the third Sector involve a
clear accountability and public scrutiny of the
destiny of resources and above all - the criteria
off efficiency of the sector.

21. • The Principle of Social Morality, expressed or
not expressed in the architecture of
Constitutional Law of any State, shapes the
entire solidarity economic activity, including
the Principle of Fairness - that is the principle
of ensuring transparency of actions and
activities of the social economy institutions

22. Law
• Five: controls of the legality and efficiency of public
resources given to the Third Sector, and the the
criminalization of immoral and illegal acts such as
economic participation in business, crimes against
property (such as theft, robbery, extortion, damage,
etc.) crimes against the Public Administration or
against the Public Finances, etc..
• Unfortunately most legal frameworks don’t have the
criminalization of the corruption in the Third Sector
organizations, as are de non profit organizations.

23. Proposals
• The criminalization of active and passive corruption
and embezzlement in a Third Sector entity or by agent
or officer of the Third Sector;
• Obligation to publish on the official website of the
entity the budgets of the revenues and expenditure of
the Social Sector entities duly approved before the
start of the fiscal year; The budgets should include the
economic classification of the revenues and the
functional economic and organizational classification of
the expenses and must be approved by the assembly of
cooperative members or by the General Council of the
solidarity organization or its trustees in the case of a
Foundation.

24. • Obligation to publish the profit and loss account, the balance sheet and
social balance on the official online site of the entity until the third month
of the year following the fiscal year, including the following elements:
• a)Total number of people supported or cases of intervention (with
characterization)
• b)Total number of paid workers (number of people or full-time equivalent)
• c) Total number of volunteer workers (number of workers and its full-time
equivalent)
• d) Total value of remunerations distributed
• e) Total values of other operating expenses
• f) Total economic value of volunteer work
• g) Total value of gross operating surplus
• h) Total gross value added
• i) Structure of income
– Sales of goods and services
– Contributions of members
– Donations and patronage
– Public financing

25. • Strengthening of the supervision of revenue and
expenditure in the Social Sector, including the
requirement of certification of accounts by
Chartered Accountants or Chartered Auditors. In
the case of very small organizations or those that
are civil or even informal companies the
supervision actions should be self-regulating and
aim at the good practices and improvement of
management instead of punishment.
• All organizations should justify in an online report
all the expenses made and to be made in the
previous year before approving the new budget
for the following year.

26. • All the Social Sector entities should be identified
in a national record published online and all the
fund-raising operations should be registered,
whenever possible with the issuance of invoice.
• To identify in the same public record all public
donations and all the donations registered with
tax purposes (patronage and other tax benefits)
by companies or individuals.

27. • To identify in the same public record all public donations
and all the donations registered with tax purposes for all
public-social partnerships, in particular in the areas of
health, education, sports, child support and social
solidarity.
• Identification in a central online record of the employees of
one or more organizations of the Third Sector and that are
thereby paid by one or more solidarity entity.
• Code of conduct or law of incompatibilities that expressly
prohibits that those who collaborate in the solidarity sector
cannot be at the same time an officer or director in private
companies or Public Direct, Indirect or Independent
Administration bodies that compete or relate directly or
indirectly in the economic and social sector in which the
solidarity entity acts.

28. • The creation of the obligation of all board
members and directors of solidarity entities to
publish in the solidarity entity’s official
website their assets and their tax return every
year. (Some people advocate the
accountability at the end of the mandates, but
that is close to the legal concept of Intrusion
that existed in the Philippine Ordinations - XVI
sec.- and that was terminated by modern law )

29. • The monitoring and study of new forms of social
intervention whenever there is public funding in
the Solidarity Sector and in public-social
partnerships, namely the new corporate forms of
public foundations with private social revenue
(and with the corresponding administrative and
financial autonomy), the private foundations with
the appointment of public managers, public and
municipal cooperatives etc. (These institutions
came to greatly extend the dependence of the
Social Sector on political clienteles and they are
creating a true promiscuity between the political
agents and the traditional social agents).

30. • The obligation of public tenders - with early
publication of the contract and following the
requirements of public procurement - to
contract in the social sector above a certain
amount, the direct adjudication must be
justified, with publication of the adjudication
and the justification in the official website of
the social entity, under penalty of nullity.

31. • Create a self-regulatory entity of the Third Sector to
monitor the application of good practices and good
governance and monitor the efficiency of the various
entities of the Third Sector through, for example, a
barometer of the management efficiency of the Third
Sector and a rating of the effectiveness of the Social
Economy entities that allow donors to have a quick and
certified assessment / information of the entities to
which they will make funds available. (And right
information in real time is essential to the trust that
the sector needs to maintain its ability to finance with
private funds).
• Establishment of a Code of Social Practice with the
good practices of the sector and that includes the
requirement for a complaints book.

32. Without this legislative initiatives the
Solidarity Sector will fall into
discredit.
Thank You
• Barcelona, September 16th, 2011