Charity Governance

THE NEWS KEEPS COMING FROM SAN DIEGO AND IT HOLDS LESSONS FOR ALL NONPROFITS

DATELINE: July 28, 2008, Chicago

Two in one month, pretty amazing. Last Thursday, Carolyn Y. Smith, the president of the Southeastern Economic Development Corp (SEDC) was terminated by a board of directors that was under pressure from Mayor Jerry Sanders to bring down the axe. Will Carless, SEDC President Ousted, Voice of San Diego, July 24, 2008; and Helen Gao and Jeff McDonald, SEDC Board Fires Embattled President, San Diego Union Tribune, July 24, 2008.  The pressure began building several weeks ago when it was revealed that SEDC employees, including Smith, had received $1 million in compensation during the last five years. The agency had budgeted $462,000, but the it actually paid

A MEDIA SURGE WHEN THE WHIP COMES DOWN: MORE LESSONS IN SETTING COMPENSATION

DATELINE: July 22, 2008

Yeah, baby, when the whip comes down
When the whip comes down
(I'll be running this town, I'll tell you)

Rolling Stones, When the Whip Comes Down from Some Girls

Talk about a surge.  It seems like the entire staff of the San Diego Union-Tribune has been covering what is a clear crisis for the Southeastern Economic Development Corp (SEDC).  For the last six days, the newspaper has posted at least one article each day, with graphs, charts, and supporting documentation also posted on the newspaper’s Web site.  Reporters Helen Gao, Matthew T. Hall, Jeff McDonald, and Jeanette Steele have all contributed to the overall story.

So here are the facts:  SEDC is charged with handling redevelopment of a 7.2 square mile area east of downtown San Diego.  Government officials have raised a series of questions about...

GOVERNANCE POLICIES

DATELINE:  June 22, 2008, Chicago

Our very own Jack Siegel spoke at the annual CAPLAW conference in Denver, Colorado last week.  His topic:  Governance Policies.  Jack's presentation focused on conflicts-of-interest, whistleblower, and document retention policies.  He provided his audience with a thorough set of materials and what one audience member described as an...

WHAT'S THE MICHIGAN ATTORNEY GENERAL DOING TODAY?

DATELINE: May 29, 2008, Chicago

Ah sugar, ah honey honey
you are my candy girl
and you got me wanting you
Oh honey honey, sugar sugar
You are my candy girl
            The Archies, Sugar Sugar

The Michigan Attorney General must be busy today after reading Mary Williams Walsh's front page piece in today's New York Times, In Stock Plan Employees See Stacked Deck. The focus of this in-depth article is on U.S. Sugar and its employee stock ownership plan. In a nutshell, the employee participants who retire are cashed out of the ESOP based on an appraised value for their stock. But in a lawsuit, they contend that U.S. Sugar received two offers from third parties to acquire the company at significantly higher amounts. Walsh points out that offers were at $293 a share, but that at the same time, the ESOP was cashing employees out for as little as $194 a share.

In an apparent effort to demonstrate why it was not selling out for the $293 offer price, U.S. Sugar hired an appraiser that said the company was worth...

MONTANA SUPREME COURT DELIVERS LANDMARK OPINION: 13 STATE ATTORNEYS GENERAL INTERVENE

DATELINE: April 30, 2008, Chicago

We read the e-mail alert (courtesy of Google) at 5AM this morning. Stephanie Strom and Jim Robbins of the New York Times reported in Montana Museum Board Breached Duty, Court Says that the Montana Supreme Court had delivered a decisive defeat to the board of advisors to The Charles M. Bair Family Trust, removing the entire board and instructing that it be replaced. The dispute centered on the board's decision to close the Charles M. Bair Family Museum in 2003.

The Bair Family Trust was created by Alberta M. Bair, the daughter of Charles M. Bair. There were two provisions in the trust agreement that lead to the dispute in this case. The first...

WHY D & O INSURANCE IS IMPORTANT: RAISING A CONFLICT OF INTEREST TRIGGERS LAWSUIT

DATELINE: April 18, 2008, Chicago

Nonprofit officers and directors should take a look at a recent case coming out of the United States Court of Appeals for the 11^th Circuit. In M.S. Koly v. Elizabeth Enney, 2008 U.S. App. LEXIS 5171 (2008), the court was faced with an appeal from a lower court decision involving allegations...

ALL STYLE, NO SUBSTANCE: THE SMITHSONIAN’S BOARD OFFERS LESSON IN WHAT NOT TO DO

DATELINE: April 15, 2008, Chicago

Much will be made of the today's article by Washington Post reporters James V. Grimaldi and Jacqueline Trescott regarding the February 2008 resignation of Pilar O'Leary, the head of the Smithsonian's Latino Center. Smithsonian Official Resigns After Ethics Violations. The story is tailor-made for critics of big-spending nonprofit executives. According to Grimaldi and Trescott, O'Leary was taking down about $200,000 in salary from the Smithsonian in 2005 and 2006.

Apparently wondering why O'Leary stepped down, the Post filed a FOIA request for the Smithsonian Inspector General's report covering his investigation of O'Leary. The Inspector General concluded that O'Leary "had...

FIDUCIARIES SHOULDN’T BE AFRAID OF THEIR OWN SHADOWS: THE McCUNE FOUNDATION NEEDS TO BE RESTRUCTURED

DATELINE: April 8, 2008, Chicago.

James Edwards and National City Bank face some serious questions regarding their stewardship of assets held by the McCune Foundation. Bill Zlatos of the Pittsburgh Tribune-Review reported on March 30, 2008 that the foundation had taken a $130 million hit when stock that it held in National City dropped by nearly two-thirds as a consequence of the subprime mortgage debacle. Subprime Mortgage Crisis Wallops Regional Charity. This loss will be felt by the local community, as the foundation curtails its grants in view of the capital losses. The reduction in spending was initially set at about $4 million, but will now be about $1.5 million. What is unclear is whether that reflects the absolute reduction in available income or a change in spending rate. In any event, the $130 million decline in value is a fact of life no matter what impact it has on the current payout.

The problem stems from a lingering power struggle...

FAMILY FOUNDATIONS MAY BE THE BENEFICIARIES AS WELL AS THE VICTIMS OF INSIDER TRADING

DATELINE: March 4, 2008, Chicago

The securities laws prevent insiders from profiting from non-public information. These laws take two forms. The first is the rule against short-swing profits, with its focus on sales by insiders at a profit within six months of acquiring the stock. The second is the anti-fraud rule found in Section 10b-5 of the Securities and Exchange Act of 1934. These laws prevent insiders from profiting through sales and purchases of stock when they are deemed to or actually possess inside information, but a professor at New York University's Stern School of Business has just published a study suggesting that some chairmen and CEO's of publicly-traded companies may be maximizing the value of their contributions...

COMPENSATION CONSULTANT CONFLICTS OF INTEREST

DATELINE: December 9, 2007, Chicago

Is it more convenient to retain one compensation consulting firm to develop a compensation package for the executive director and handle all the nonprofit's benefit plans?  Absolutely, but a new study prepared for Representative Henry A. Waxman, in his capacity as the Chairman of the Committee on Oversight and Government Reform, rather conclusively demonstrates that the nonprofit is likely to end up paying its executive director...