Friday, September 17, 2010

What China Reveals about Nonprofit Law and the Infrastructure of Philanthropy

The Washington Post has published an interesting story on the response of China’s aristocrats to the coming visit of Bill Gates and Warren Buffet, now widely known for their challenge to wealthy Americans to give their fortunes to charity.  According to the Post, although Chinese magnates were initially excited by the prospect of meeting Gates and Buffet, they began discretely to try to discover if they, too, would be pressured to pledge their fortunes to philanthropy.  A few even reportedly declared that they could not attend the event that will feature the donating duo because of schedule conflicts.  China reportedly now boasts many billionaires, second in number only to the United States.   But most have not yet embraced the role of philanthropy.  While part of the reason may stem from personal preferences by some (but certainly not all) to hold on to wealth, the Post identifies another reason:

While the Chinese government has been eager to compete with the United States and the rest of the world in other fields, philanthropy is one sector in which it remains hesitant.  China's leaders have not fully embraced the idea of handing over to individuals or groups the power to help the nation's people - a role traditionally reserved for the Communist Party.  "One thing holding back philanthropy may be the reluctance among the rich. But the other is the worry of the government," said Li Huafang, a researcher for the Shanghai Institute of Finance and Law. "They don't want other entities competing with them for the people's hearts.”

Enter the need for changes in governmental regulation that dramatically alter the nature of nonprofit law in China.  Says the Post:

Even if philanthropy becomes popular among China's rich, most experts believe a change in government regulation is necessary.  China has no inheritance tax.  Individuals can donate only cash, not stocks or securities.  And private foundations are required to partner and register with a government ministry, which has hindered their creation.

This article should impress upon its readers the important role that nonprofit law serves in philanthropy.  Or, perhaps better phrased, the article should remind us that a major purpose of nonprofit law is precisely to serve philanthropy – to facilitate, and even encourage, the efforts of those with privately-owned resources to meet the vast needs of others – even in the face of a government that may be somewhat jealous of its resources and successes.


September 17, 2010 | Permalink | Comments (0) | TrackBack (0)

N.Y. Board of Regents Approve Expiration of Restrictions on Art Sales by Museums

As reported in the New York Times, this week the New York State Board of Regents voted to let stand the looming October 8 expiration of emergency regulations that enjoin museums from selling art to fund operating costs.   State Education Commissioner David Steiner said that no consensus among the state’s museums had emerged concerning the advisability of extending the emergency regulations governing such “deaccessioning.”  The story states that the Board’s decision follows the stalling in the state legislature of a bill that would have prohibited cultural institutions from selling portions of their collections to meet operating expenses.  For more coverage of the bill and why it lost momentum, see this story in the New York Times.  For Fordham Law Professor Linda Sugin’s article on deaccessioning by university museums, see Lifting the Museum's Burden from the Backs of the University: Should the Art Collection Be Treated as Part of the Endowment?


September 17, 2010 | Permalink | Comments (0) | TrackBack (0)

Thursday, September 16, 2010

St. John’s Administrator Charged with Embezzlement

According to a story in the New York Times, Cecilia Chang, formerly the dean of the Institute of Asian Studies at St. John’s University, was arrested Wednesday on charges of embezzling about $1 million from the school.  A routine audit of expenses that she had submitted for reimbursement eventually led to her suspension in January and her termination in June, says the story.  She reportedly entered a plea of not guilty at her arraignment in State Supreme Court in Queens on Wednesday, where she was ordered to be held on $1 million bail.  The Times reports that if she is convicted, Ms. Chang could be sentenced to as many as 25 years in prison.


September 16, 2010 | Permalink | Comments (0) | TrackBack (0)

Nonprofit Hospitals Seek Attorney General Conditions for Approving Caritas Conversion

As reported in the Boston Globe, a group of community hospitals that compete with Caritas Christi Health Care in Massachusetts has asked the state attorney general to insist on numerous conditions before consenting to the proposed sale of several Caritas hospitals to its for-profit buyer, Cerberus Capital Management.   The group, consisting of Lawrence General Hospital, Signature Healthcare Brockton Hospital, and Southcoast Hospitals Group in New Bedford, maintains that the conditions are necessary to sustain their viability and to ensure that low-income patients have affordable access to health care services.    The Globe reports that the following conditions were proposed in a letter from the group’s legal counsel to the attorney general:

* Prohibit the Cerberus holding company, Steward, from raising the prices it charges patients and insurance payers for three years.

* Bar Steward from entering exclusive health plan contracts that exclude competing hospitals.

* Restrict the new owner from entering into joint ventures with health insurance carriers.

* Require Steward to disclose all insurance contracts to the attorney general’s office.

* Forbid Steward from “improperly inducing physicians away from the coalition hospitals’’ and require Caritas to file quarterly reports listing doctors who have admitting privileges.

* Extend Steward’s commitment to hold Caritas to seven years.

* Appoint a monitor to oversee Caritas hospitals and require notice of any future sale.


September 16, 2010 | Permalink | Comments (0) | TrackBack (0)

Siegel Urges Repeal of Expanded Form 1099 Reporting in Health Care Law

Jack Siegel, nonprofit law attorney, familiar face in the nonprofit law speaking circuit, and author of A Guide for Non-Profit Directors, Officers and Advisors: Avoiding Trouble While Doing Good, has an interesting post on his Charity Governance web blog.  Siegel observes that Section 9006 of the Patient Protection and Affordable Care Act (the “Act”) extends Form 1099 reporting requirements to payments representing the purchase price of goods bought from any vendor whose sales to the payor exceed $600 for the year.  Many business entities are fretting the new law.  However, Siegel cautions that the new law should also concern tax-exempt entities.  Although he recognizes that the expanded reporting provision does not apply to payments to vendors that are exempt from federal income tax under Internal Revenue Code section 501(a) (e.g., tax-exempt charities and other entities described in Code section 501(c)), Siegel believes the provision applies (or at least is being interpreted to apply) to tax-exempt nonprofit payors.   Siegel opines that the costs of collecting the required information will be very high and impose a great burden on nonprofit payors.  He therefore favors repeal of the provision.

For similar concerns reported on this blog, see here.

Background note:  Whether the new provision should concern nonprofits depends upon the proper interpretation of Section 9006(a) of the Act, the relevant portion of which adds a new subsection (h) to Code section 6041, and which reads as follows:

h) APPLICATION TO CORPORATIONS.—Notwithstanding any regulation prescribed by the Secretary before the date of the enactment of this subsection, for purposes of this section the term ‘person’ includes any corporation that is not an organization exempt from tax under section 501(a).

Code section 6041(a), prior to the effective date of the amendments made by the Act to reach payments for property, reads as follows:

All persons engaged in a trade or business and making payment in the course of such trade or business to another person, of rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income (other than payments to which section 6042 (a)(1), 6044 (a)(1), 6047 (e), 6049 (a), or 6050N (a) applies, and other than payments with respect to which a statement is required under the authority of section 6042 (a)(2), 6044 (a)(2), or 6045), of $600 or more in any taxable year, or, in the case of such payments made by the United States, the officers or employees of the United States having information as to such payments and required to make returns in regard thereto by the regulations hereinafter provided for, shall render a true and accurate return to the Secretary, under such regulations and in such form and manner and to such extent as may be prescribed by the Secretary, setting forth the amount of such gains, profits, and income, and the name and address of the recipient of such payment.


September 16, 2010 | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 15, 2010

White Collar Thief of Funds Owned By Harvard Hillel Sentenced

The Boston Globe reports that William O’Brien of Framingham, Massachusetts was sentenced to state prison for stealing over $780,000 from Harvard Hillel, a religious nonprofit organization.  O’Brien had been responsible for maintaining the nonprofit’s financial records and assisting in paying its bills while employed by a financial management firm, according to the state attorney general’s office.  O’Brien pled guilty to three counts of larceny over $250 and one count each of forgery and making false entries in corporate books.  He was sentenced to two to three years in state prison, followed by ten years of probation, and was ordered to pay $783,489 in restitution.


September 15, 2010 | Permalink | Comments (0) | TrackBack (0)

IRS Denies Exemption and Supporting Organization Status to DP-Controlled Entity

Tax Notes Today reports that the Internal Revenue Service has determined that an entity making numerous loans to disqualified persons and entities connected with disqualified persons failed to qualify as a tax-exempt charitable supporting organization.  The organization, ostensibly formed to support a public charity, was governed by a board, the initial members of which consisted of five trustees.  Two of the five trustees were identified as founders of the entity (and, presumably, were substantial contributors).  Two other trustees were unrelated to the founders and appointed by the supported organization.  A fifth trustee, who was a business partner of one of the founders, was appointed by joint action of the other four trustees.   The entity made numerous under-collateralized loans to corporations, the financial interests in which were held by one or more of one of the founder-trustees, his business partner-trustee and other business partners of these persons.  Additionally, the entity extended one unsecured loan to a founder-trustee.

The IRS first determined that the entity was formed to operate for the benefit of disqualified persons and related entities on account of the numerous loan transactions not engaged in at arm’s length.  Accordingly, the entity’s “primary purpose results in private benefit and inurement,” and it therefore served “a private rather than public purpose.”

The IRS also determined that the entity failed to qualify as a supporting organization on several grounds.  Most interestingly, the letter concludes that the entity was indirectly controlled by disqualified persons, thereby disqualifying it from supporting organization status.  The letter reasons as follows:

While you were not directly controlled by [the founders] at the time you were formed, you were indirectly controlled by [them] since [one of the founders] had substantial influence over [the fifth trustee] through their business relationship. Accordingly, [the founders] indirectly controlled you.

In addition, the loans evidenced control by disqualified persons, especially co-founder “M”:

From your creation … to the present you have been effectively "controlled" by M by virtue of the loans you have made to his business interests or to his wife, N, also a disqualified person. We deem the loans to his business interests as direct evidence of M's control of you within the meaning of section 1.509(a)-4(j) of the regulations. Any exempt charity operating at arm's length is not going to make 22 loans to businesses or investments in which the creator and donor has a substantial interest or to such persons' wife, unless they are controlled by the donor/creator. Due to the large number of loans, the lack of meaningful collateral, the period for which the loans were outstanding, and the disruption or interruption such loans caused to the carrying out of your charitable purpose all constitute convincing evidence of M's control of you.

For the full determination letter, see 2010 TNT 176-29.


September 15, 2010 | Permalink | Comments (0) | TrackBack (0)

Georgetown University Receives $87-million Gift ... And Dayton Foundation Does Pretty Well, Too

Georgetown University has announced its receipt of an $87 million gift under a charitable trust created under the will of Harry J. Toulmin.  His widow, Virginia B. Toulmin, a Dayton, Ohio, businesswoman and philanthropist, astutely managed the trust assets after her husband’s death.  According to the Georgetown University website, the late Mr. Toulmin “was an international patent attorney and owner and director of Central Pharmaceuticals.”  After his death, Mrs. Toulmin “ignored the advice of the company’s attorney to sell Central Pharmaceuticals for $1 million and instead ran it for 30 years.”  She later sold the company for $178 million.  Georgetown received the gift upon the death of Mrs. Toulmin, who passed away on June 13.  The gift will fund an endowment to support medical research at the university’s medical center.  

The Chronicle of Philanthropy reports that the Toulmin fortune also has enriched another nonprofit, the Dayton Foundation, which has received $26-million from Mrs. Toulmin’s estate.  According to the Dayton Foundation’s website, the gift creates an unrestricted fund, “to be utilized by the Foundation where community need or opportunity is greatest in the Greater Dayton Region today and in perpetuity.”


September 15, 2010 | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 14, 2010

IRS Releases Draft Form for Calculating Health Care Tax Credit by Small Businesses and Tax-Exempt Entities

As announced on its website, the Internal Revenue Service has recently released a draft version of the form that small businesses and tax-exempt organizations will use to calculate the small business health care tax credit next year. Tax-exempt organizations will claim the credit on a revised Form 990-T, the form used to pay tax on unrelated business taxable income. The credit may be claimed even if no unrelated business income tax is due.  For answers to frequently asked questions concerning the credit, click here.


September 14, 2010 | Permalink | Comments (0) | TrackBack (0)

Exemption of Private School Denied for Failure to Comply in Good Faith with Racially Nondiscriminatory Policy

The Internal Revenue Service has denied an application for federal income tax exemption filed by a private school because the school failed to establish that it maintained a racially nondiscriminatory policy as to students.  The letter, reported in Tax Notes Today, is available at 2010 TNT 176-28.  The gist of the rationale for denying exemption is set forth in the following excerpt:

While you have adopted a racially nondiscriminatory policy and even created an outreach committee, your school operation, however, failed to show enrollment of black students … [Further, your school] stated that the failure to "entice" them to become students at your school [w]as not yours. Instead, you suggested putting the blame on the black students themselves and their parents -- black students do not want your offered good education; they prefer schools where they are not held accountable for making good grades, and that it provided free lunches, transportation and where they do not have to pay. You even suggested that it is a traditional choice in the area that black students go to one school and the white students go to another school. We believe, however, that the lack of black students, and also that of teachers and administrative staff, in your school is because of your failure to make intensive, comprehensive and good faith efforts to reach the black community for their enrollment and employment. You have not provided us sufficient evidence supporting any such efforts in your submitted materials. … Therefore, although you have adopted a policy of nondiscrimination and … created an outreach committee, it appears that your adoption of a nondiscriminatory policy and creation of an outreach committee are merely done for compliance in form … and not in good faith.  Also, any efforts toward outreach to the black community are minimal. … [W]e conclude that you failed to demonstrate that you have taken sufficient steps to overcome [an] inference of racial discrimination [as set] … forth in the court cases cited herein. As a school without a nondiscriminatory policy to students, as such term is defined in Rev. Rul. 71-447, you are not considered operated exclusively for exempt purposes under section 501(c)(3) of the Code.

This determination letter reminds me of the counsel I received from my parents from the time I was a child: Actions speak louder than words.   Private schools seeking to obtain or maintain federal income tax exemption would do well to heed this determination letter and act like they mean what they say in their official policies of racial nondiscrimination.


September 14, 2010 | Permalink | Comments (0) | TrackBack (0)

Monday, September 13, 2010

Group Seeks Audit of U.S Chamber of Commerce and Affiliate

A group called U.S. Chamber Watch (“Chamber Watch”) has asked the Internal Revenue Service to audit the Starr Foundation, the National Chamber Foundation (“NCF”) and the Chamber of Commerce of the USA, also known as the U.S. Chamber of Commerce (the “Chamber”).  The Chamber is an organization exempt from federal income tax and described in Section 501(c)(6) of the Internal Revenue Code, and  NCF is a tax-exempt affiliate of the Chamber described in Code section 501(c)(3).   In its letter to the IRS, Chamber Watch asserts that the Starr Foundation, a private foundation established by AIG founder Cornelius Vander Starr, appears to have acted contrary to the requirements of Code section 501(c)(3) by making $19 million in grants to NCF, which then used the money to “finance NCF’s transfer of at least $18 million” to the US Chamber of Commerce.   The letter further states that “it appears that charitable funds” were eventually used to support the Chamber’s “lobbying and electoral agenda.”   As reported in the New York Times, the Chamber’s chief financial officer, Stan Harrell, maintains that the Chamber's legal and accounting advisors have reviewed the Starr Foundation funding and found that it complied with all relevant tax law.  He is further reported as saying, “Chamber Watch, which was created by a federation of five unions called Change to Win, was simply trying to create trouble for the chamber because of its opposing political views.”


September 13, 2010 | Permalink | Comments (0) | TrackBack (0)

List of Organizations With Revoked Charity Tax Exemptions

In Announcement 2010-55, 2010-37 I.R.B. 346 (Sept. 13, 2010), the Internal Revenue Service announced that it has revoked its determination that the organizations listed below qualify as organizations described in Code sections 501(c)(3) and 170(c)(2):

The Buyer’s Fund, Inc.
Salt Lake City, UT

Unicorn Development Corporation
Saint Joseph, MI

Ameri-Home Foundation, Inc.
Lenexa, KS

Credit Counseling Bureau of San Diego County
San Diego, CA

Exegetical Institute, Inc.
Kingsland, GA

Family Home Foundation, Inc.
Orem, UT

Home Downpayment Gift Foundation, Inc.
Washington, DC

Xelan Foundation, Inc.
Tampa, FL


September 13, 2010 | Permalink | Comments (0) | TrackBack (0)

Louisiana Board of Ethics Issues Opinion on Public Servants Who Sit on Charity Boards

The Times-Picayune reports that the Louisiana Board of Ethics has revisited its position on the circumstances in which a state public commissioner may participate in decisions concerning companies regulated by the commission when those companies donate to charities with a governing board of which a commissioner is a member.  Initially, the Board of Ethics appeared to take the position that a commissioner could not vote on commission matters involving a company that made a donation to a nonprofit organization with which the commissioner was involved.  The position, articulated in an advisory opinion requested by Commissioner Eric Skrmetta, was later clarified.  Under the clarification, a commissioner is not prohibited "from serving on the board of a nonprofit organization that receives donations from a company regulated by the Louisiana Public Service Commission."  Secondly, a commissioner is prohibited from participating in matters before the commission in which the nonprofit organization has a substantial economic interest.

September 13, 2010 | Permalink | Comments (0) | TrackBack (0)

Friday, September 10, 2010

Seattle Foundation Connects Nonprofits and Donors with Information

The Seattle Times reports (a related piece is in The New York Times) on The Seattle Foundation's new program, launched on Wednesday, that provides financial data and other information on approximately 700 local nonprofits groups to potential donors.  Previously, the information was only available to clients who maintained accounts, or donor-advised funds, with the Foundation.  The Foundation seeks to more fully engage both present and potential donors with information that will aid them in making their charitable giving decisions.  As discussed in the New York Times article, such programs can offer more alternatives to donors who would otherwise default to a larger, national charity, instead of a lesser known local charity.  Although other databases exist that provide information on charities in an effort to connect them with donors, what makes the Seattle Foundation's program unique is that it offers "snapshot evaluations" based on the Foundation's own research.  As the Seattle Times article concludes, the Foundation's efforts reflect "the importance of connecting donors and recipients, and allowing philanthropy to be more personalized, transparent and direct."


September 10, 2010 in In the News, Web/Tech | Permalink | Comments (0) | TrackBack (0)

Thursday, September 9, 2010

Should Medical-Related Charities Increase Disclosure of Their Donors?

The Chronicle of Philanthropy raises this issue in a recent article revealing that the National Alliance on Mental Illness (NAMI) discloses quarterly on its website the names of all corporations and foundations that donated more than $5,000 to NAMI, the amount given, and how NAMI spent the contribution.  According to the Chronicle, NAMI began disclosing this information last year after Senator Charles Grassley, the ranking minority member of the Senate Finance Committee, initiated an investigation into NAMI's financial relationships with pharmaceutical companies.  NAMI's actions have given Grassley further impetus to force 33 other nonprofit medical associations to follow NAMI's lead.  In a related article, the Chronicle reports that Grassley's inquiry into these other groups represents a "broader effort by the senator and others to expose and curtail corporate influence on the medical field."  Grassley commented that "[t]hese organizations have a lot of influence over public policy, and people rely on their leadership.  There's a strong case for disclosure and the accountability that results." 

Grassley's efforts challenge the longstanding practice of charities to respect donors' rights to confidentiality.  But supporters of Grassley's viewpoint argue that he is rightfully concerned about the influence of corporate donors on the medical advice ultimately rendered by doctors, academic researchers, and organizations that receive such monies.  In December 2009, Grassley sent a letter to 33 such nonprofit associations requesting information on the amount of funds received from pharmaceutical, medical-device and insurance companies from 2006 to 2009, the identity of the donors and how their money was spent by the medical group, and additional information on the outside income earned by the groups' top executives and board members.  In his letter, Grassley referenced the decision of H. Richard Lamb, a professor emeritus of psychiatry at USC and contributing founder of NAMI, to resign from NAMI's board due to the organization's "financial dependency" on pharmaceutical support.  Dr. Lamb commented that organizations that receive money from pharmaceutical companies should "take no position on psychopharmaceutical matters."  Grassley is expected to disclose his findings from the groups' responses by early Fall.

The Chronicle acquired more than half of the solicited groups' responses to Grassley's letter, finding that such groups receive aggregately more than $100 million annually from medical-related companies via "donations, advertising revenues, exhibit fees, corporate memberships, and support for continuing medical education."  For some groups, this can represent as much as 78% of their revenue, while for others it only represents a small percentage of their total receipts.  This effort is further evidence of Grassley's commitment to increased transparency of tax-exempt nonprofits.


September 9, 2010 in Federal – Legislative, In the News, Science | Permalink | Comments (0) | TrackBack (0)

Al Sharpton's Civil Rights Group in Financial Jeopardy

The New York Post reports that Revered Al Sharpton's civil-rights group, National Action Network (NAN), a nonprofit organization exempt from federal income tax under Section 501(c)(4), is in financial peril that threatens its future.  According to an audit performed by accounting firm KBL on the organization's 2008 financial records, NAN suffers from "recurring decreases in net assets - and has been dependent upon advances from related parties and the nonpayment of payroll tax obligations - to maintain continuity."  KBL further warned NAN's board that because of "inadequacies" in the organization's accounting records, it could not offer an opinon as to the accuracy of such records, ultimately concluding that "[t]hese circumstances create substantial doubt about the organization's ability to continue." 

In addition to federal tax problems encountered by Sharpton and NAN that were were avoided by a settlement with federal prosecutors, NAN has approximately $1.348 million in overdue state and local, and federal, taxes and penalties according to KBL's audit.  NAN has responded by assuring that the problems are being addressed, including NAN's solvency, which is being temporarily resolved by "seven-figure" contributions from Sharpton and other NAN board members.


September 9, 2010 in In the News, State – Executive | Permalink | Comments (0) | TrackBack (0)

Tax-Exempt Trade Groups to Increase Political Spending in 2010

USA Today reports that certain large publicly-traded corporations do not plan to directly support the political advertising of their affiliated trade groups via contributions.  Notwithstanding, these same companies will not restrict the political spending of such nonprofit trade associations, which are permitted to spend their funds on advertising targeting candidates for public office.  One of the largest trade associations, the U.S. Chamber of Commerce, has publicly announced its intention to spend $75 million in the 2010 elections.  The Chamber, which represents over 3 million businesses, reportedly spent nearly $1 million in one day's worth of television advertising focusing on the U.S. Senate seat in New Hampshire.  In the article, the president of the non-partisan Center for Political Accountability opined that, "[m]ore and more trade associations are the vehicles for company political spending and activity." 

Of the 40 Fortune 500 companies that responded to the Center's survey, not one responded that it would use its own corporate funds to run political advertising supporting or opposing a candidate for public office, although companies are allowed to do just that on an unlimited basis following the Supreme Court's January decision in Citizen's United v. FEC, as previously blogged.  Most companies, opined one political expert in the USA Today article, do not want to be directly associated with a certain candidate.  The use of nonprofit trade groups ostensibly allows companies to affect a particular election without any public retribution.


September 9, 2010 in Current Affairs, Federal – Judicial, Federal – Legislative | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 7, 2010

Milton Hershey School Trust - Excessive Trustee Compensation?

WITF, the Harrisburg NPR affiliate, reports that Protect the Hersheys' Children (PHC), a Pennsylvania not-for-profit corporation, submitted a nine-page letter to the Internal Revenue Service, the Pennsylvania Department of Banking, and the two senior members of the Sentate Finance Committee alleging excessive compensation practices at the Milton Hershey School Trust (MHS Trust) and its sole beneficiary, the Milton Hershey School (MHS).  The trustee of the MHS Trust is the Hershey Trust Company, a for-profit Pennsylania corporation the entire stock of which is owned by the MHS Trust. MHS is a cost-free, private, coeducational home and school for children from families of low income, limited resources, and social need.  PHC is a self-proclaimed "watchdog group that monitors MHS and apprises oversight officials of conduct that we believe warrants action."

In the letter, PHC alleges that the MHS Trust's trustee (the Hershey Trust Company and, therefore, its board of directors) is excessively compensated and exerts poor governance, thereby dissipating the funds available to achieve the MHS Trust's mission of supporting children in need.  With supporting newspaper articles, PHC asserts the Hershey Trust Company pays its board in excess of $1.1 million annually.  MHS has responded to the allegations by stating that the board members are subject to a high standard of fudiciary responsibility as to investment and management decisions affecting the MHS Trust.  PHC also alleges that the Pennsylvania Attorney General has failed to effectively exercise its oversight responsibility with respect to the trust.  The attorney general responded to the allegations as "borderline political attacks," affirming that his office ensures that charitable trusts are properly administered, but does not "micromanage" the trusts.


September 7, 2010 in In the News, State – Executive | Permalink | Comments (0) | TrackBack (0)

Beth Israel - A Case Study in Board Governance and AG Oversight

The Boston Globe reports that Massachusetts Attorney General Martha Coakley released results of a four-month investigation by her office of the actions of the board of Beth Israel Deaconess Medical Center in response to an anonymous complaint alleging Chief Executive Paul Levy's inappropriate relationship with a former female employee.   In an eleven-page letter, the attorney general's office ultimately concluded that the hospital did not misappropriate charitable funds in compensating the former employee and further found that the board "responded and acted consistent with its fiduciary obligations" in conducting its investigation.  The employee in question, concluded the office, was not excessively compensated for the positions that she held with the hospital.  Notwithstanding, the letter does criticize board members and senior management who knew of the relationship for years for not having disclosed it to the entire board when they discovered it. 

The whole incident began when certain board members received a complaint alleging improper conduct by Levy with the former employee.  The board immediately began an internal review of the allegations in the complaint, creating an ad-hoc committee and retaining outside counsel (with questionable independence).  The ad-hoc committee ultimately recommended Levy's retention as CEO, coupled with a public statement disapproving of his conduct.  The full board accepted this recommendation and further decided to impose a $50,000 sanction on Levy.  The Board Chair further concluded that an "independent review of the Board's actions might better provide assurance to the public that the Board had carried out its responsibilites," ultimately contacting the attorney general's office to conduct such a review.

Coakley stated in the article that she did not think the hospital board's work was yet complete with respect to the incident.  The Board should continue to monitor Levy's leadership:  "There should be heightened scrutiny on his judgment going forward."  She concluded by stating that the incident was an "eminently teachable moment" on the importance of board independence and rigorous management oversight.


September 7, 2010 in In the News, State – Executive | Permalink | Comments (0) | TrackBack (0)

Congressional Charities - True Philanthropy or Political Vehicles?

The New York Times reports that at least two dozen charitable organizations created or operated by Congressional members and their families regularly receive millions of dollars in contributions from local businesses and major corporations.  Currently, special interests laws do not limit corporate donations to charitable organizations affiliated with members of Congress.  Although the article suggests that the pattern of donations correlates, in some instances, to legislation affecting the donor, both the Congressional members and their corporate donors deny that the fundraising events and donations are anything more than support for worthy causes that benefit their communities.  However, the corporate donations usually exceed the amount that would be allowed if given to the Congressional member's campaign.  At least one former Congressman acknowledges that a corporation's donation to a member's charity or cause "can create expectations that the lawmakers will return the favor." 

Congressional ethics rules require corporations employing lobbyists to report donations to charitable organizations created by a member of Congress.  Based on its review of public records, however, the New York Times found at least a dozen violations of such reporting requirements.  In addition to Congressional ethics rules concerns, the arguable quid pro quo nature of the donation may raise deductibility concerns.


September 7, 2010 in Current Affairs, Federal – Legislative | Permalink | Comments (0) | TrackBack (0)