© 2012 Office of Massachusetts Attorney General Martha Coa - PowerPoint Presentation

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© 2012 Office of Massachusetts Attorney General Martha Coakley

Not-for-Profit Boards of Directors:How to Promote Excellence and Avoid DisasterBerkshire Taconic Community FoundationBerkshire Chamber of CommerceOctober 11, 2012

Mary A. Beckman

Chief, Non-Profit Organizations and Public Charities Division

Office of Attorney General Martha CoakleySlide2

Preliminary Matters

Disclaimer: Views and tips are my own and not necessarily those of the AGO, do not constitute official guidance from the AGO and are not intended to serve as a statement of the law or as an official AGO opinion, but rather advice based on my experience and offered to help board members and potential board members. Many official guidance documents available on AG Website: www.mass.gov/ago/charitiesThis presentation may be reproduced and used by individuals and boards for personal use and by anyone for educational purposes, provided that such use is at no charge except the cost of reproduction. Otherwise, no part of this presentation may be reproduced in any form by any means, or incorporated into any information retrieval system, electronic or mechanical, without the written permission of the Office of the Attorney General of the Commonwealth of Massachusetts.

© 2012 Office of Massachusetts Attorney General Martha CoakleySlide3

Outline

AGO Jurisdiction: Public CharitiesDirector DutiesViolations, Problems, Enforcement and SolutionsBest Practices, Tips and ResourcesQuestions to Consider© 2012 Office of Massachusetts Attorney General Martha CoakleySlide4

AGO Jurisdiction: Public Charities

© 2012 Office of Massachusetts Attorney General Martha Coakley“Public Charity” status: 3-prong test Not for profit Charitable purpose

Indefinite class of beneficiaries

Cautionary note:

Tax status and organizational structure are not determinative

Excluded non-profits

Non-charitable entities (country club, unions, trade groups)

“Private” charities (e.g., benefitting a specific person)

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AGO Jurisdiction:Role in Public Charities

Enforce the Due Application of Charitable Funds; Prevent Breaches of Trust in the Administration thereofAG is Sole Representative of Charity BeneficiariesBoards are the only other control and guardianAG role is multi-faceted:Law enforcement, but alsoSupport, education and guidance for charitable sector, including boards

© 2012 Office of Massachusetts Attorney General Martha CoakleySlide6

Director Duties

Directors are Fiduciaries:Duty of Care: be careful, diligent and thoughtfulDuty of Loyalty: the organization’s interests come first© 2012 Office of Massachusetts Attorney General Martha CoakleySlide7

Duty of Care

Perform duties as a director (or officer) in good faith in a manner you reasonably believe is in the best interests of the corporation and with such care as an ordinarily prudent person in a like position with respect to a similar corporation would under similar circumstances

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(MGL ch. 180, sec. 6C)

© 2012 Office of Massachusetts Attorney General Martha CoakleySlide8

Duty of Care: Examples

Fiscal SoundnessReliance on experts; but know/learn your way around the audited financial statementsLegal, Regulatory ComplianceKnow/learn the main requirements; complianceReview Form 990, other filings as reasonablePolicies and Procedures

Periodic review, revision, approval

Document board process itself (agendas, minutes, etc.)

© 2012 Office of Massachusetts Attorney General Martha CoakleySlide9

Duty of Care: Examples

Oversight of ManagementAssess management, ask questions, but don’t micromanageBoard Self-AssessmentPerformance, engagement, composition Safeguarding Assets (including Reputation)Fundraising and Friend-raising

Conflicts and Relationships

© 2012 Office of Massachusetts Attorney General Martha CoakleySlide10

Duty of Loyalty

Act in good faith in a manner you reasonably believe to be in the organization’s best interests.(MGL ch. 180, sec. 8C)© 2012 Office of Massachusetts Attorney General Martha CoakleySlide11

Violations/Problems

Conflicts of InterestPersonal financial gain from corporate decisions Steering business to your firm, a friend, familyFailing to disclose information about your interest in a corporate actionLoans, compensation, self-dealing

© 2012 Office of Massachusetts Attorney General Martha CoakleySlide12

Enforcement/Solution

Remedy: Disclose, Discuss and ManageCOI PolicyPeriodic disclosure of outside interests and relationships, and review of the written disclosure statementsDocumentation of discussion, recusal, and decision by disinterested directors© 2012 Office of Massachusetts Attorney General Martha CoakleySlide13

Violations/Problems

Founder’s Syndrome:Charismatic, visionary, committed founder (or leader)Source of all knowledge“We do it this way”“It’s my organization anyway”Distracted, disinterested, weak, controlled comfortable board© 2012 Office of Massachusetts Attorney General Martha CoakleySlide14

Enforcement/Solution:Board Approaches

Independent BoardPolicies/Procedures Good Governance PracticesSolid Disclosure, Evaluation, Discussion, Documentation Decisions by Independent Directors© 2012 Office of Massachusetts Attorney General Martha CoakleySlide15

Enforcement/Solution: AGO Approaches

LawsuitGovernance AgreementReportsLettersGoal: Deter bad practices, support good practices, provide guidance© 2012 Office of Massachusetts Attorney General Martha CoakleySlide16

Tips, Resources

Attorney General’s Websitewww.mass.gov/ago/charitiesLegal Findings, Forms and PublicationsExecutive CompensationDirector CompensationGovernance AgreementsInformation for Existing Charities

AG’s Guide for Board Members of Charitable Organizations

© 2012 Office of Massachusetts Attorney General Martha CoakleySlide17

Tips, Resources

IRS Exempt Organizations Website www.irs.gov/charitiesIRS Form 990: Governance QuestionsModel policies and procedures, governance practices

© 2012 Office of Massachusetts Attorney General Martha CoakleySlide18

Tips, Resources

Berkshire Taconic Community FoundationVarious private not-for-profit advisory groups – examples only:BoardsourceMass Nonprofit NetworkESC New England© 2012 Office of Massachusetts Attorney General Martha CoakleySlide19

Questions for Consideration

Hard times, decreasing resourcesHow are we going to make our budget?How can we be most effective in supporting our mission?Collaboration, cooperation – key strategic considerations© 2012 Office of Massachusetts Attorney General Martha Coakley