Showing posts with label NonprofitIssue. Show all posts
Showing posts with label NonprofitIssue. Show all posts

Monday, April 27, 2015

Risk Management: Directors of Nonprofits

Court of Appeals to Directors of Nonprofits: “Nonprofit” Does Not Mean “No Risk for You”

WRITTEN BY BRUCE A. ERICSON, JERALD A. JACOBS, AND MARLEY DEGNER
CREATED ON WEDNESDAY, 22 APRIL 2015 12:29




The U.S. Court of Appeals for the Third Circuit recently upheld a $2.25 million jury verdict against the directors of a nonprofit nursing home, holding them personally liable for breach of their duty of care. Their sin? Failing to remove the nursing home’s administrator and CFO “once the results of their mismanagement became apparent.” While the court overturned a punitive damages verdict against five directors (the jury had found nine other directors liable for compensatory damages but not punitive damages), it upheld punitive damage awards of $1 million against the CFO and $750,000 against the Administrator. The decision, while unusual, illustrates that serving on a nonprofit board is not risk-free even if as in this case, the directors do not breach their duty of loyalty or engage in any self-dealing. [In re Lemington Home for the Aged, 777 F.3d 620 (3d Cir. 2015).]


The Lemington Home Case

Founded in 1883, the Lemington Home for the Aged was the oldest nonprofit unaffiliated nursing home in the United States dedicated to the care of African Americans. For decades, the Home had been “beset with financial troubles” and by the early 2000s it was being cited by the Pennsylvania Department of Health for deficiencies at a rate almost three times greater than the average.

In 2004, the Home’s Administrator [Mel Lee] Causey started working part-time while continuing to draw a full salary. That same year, two patients died under suspicious circumstances; an investigation by the Department of Health found that Causey lacked the qualifications, knowledge and ability to perform her job. An earlier independent review also recommended that Causey be replaced. Although the Board obtained a grant of over $175,000 to hire a new Administrator, the funds were used for other purposes and Causey stayed on.

The Home’s patient recordkeeping and billing were in a state of disarray. The Home was cited repeatedly for failing to keep proper clinical records. CFO Shealey stopped keeping a general ledger, instead simply recording cash transactions on an Excel spreadsheet. When a consultant conducting an assessment of the Home for a major creditor requested records, Shealey responded by locking himself in his office, forcing the consultant to “camp outside.” Shealey also failed to collect at least $500,000 from Medicare because he stopped sending invoices.

In January 2005, the Board voted to close the Home, but concealed that fact for three months before filing for bankruptcy. In those three months, the Home stopped accepting new patients, making it less attractive to potential buyers. While in bankruptcy, the Board failed to disclose in its monthly operating reports that the Home had received a $1.4 million payment, which could also have increased its chances of finding a buyer. The court held that these facts supported the jury’s verdict that the defendants had “deepened” the corporation’s insolvency, which the court said was actionable under Pennsylvania law. [777 F.3d at 630.]

The court of appeals upheld the jury’s compensatory damages verdict against the directors despite the Home’s bylaw provision protecting the directors from claims for simple negligence and requiring proof of selfdealing, willful misconduct or recklessness. [Lemington, No. 10-800, 2013 WL 2158543, at *6 (W.D. Penn. May 17, 2013).] Both the court of appeals and the district court held that the evidence supported a finding that the directors breached their duty of care by recklessly (1) continuing to employ the Administrator despite actual knowledge of mismanagement and despite knowing that she was working only part-time in violation of state law; and (2) continuing to employ the CFO despite actual knowledge of mismanagement, including his failure to maintain financial records. [777 F.3d at 628-30; 2013 WL 2158543, at *7; In re Lemington Home for the Aged, 659 F. 3d 282, 286-87 (3d Cir. 2011).] Despite these holdings, the court of appeals reversed the award of punitive damages against the five directors, holding that there was insufficient evidence that they possessed the requisite state of mind and no evidence of self-dealing. [777 F.3d at 634-35.]

The Result in Lemington Home: Unusual But Not Unique


Lemington Home is not the only case in which a court has held that directors of a nonprofit breached their fiduciary duties. Other cases—some new and some old—show how directors of nonprofits sometimes find themselves in the crosshairs, especially after an institution fails.

Perhaps the best-known case is Stern v. Lucy Webb Hayes Nat’l Training School for Deaconesses & Missionaries, 381 F. Supp. 1003 (D.D.C. 1974), where the district court held that the directors breached their fiduciary duties of care and loyalty by failing to supervise the nonprofit’s finances and by approving transactions that involved self-dealing. The court found that the board’s finance and investment committees had not met for over a decade, and the directors had left management of the nonprofit to two officers who worked largely without supervision. Nevertheless, the court declined to award money damages against the directors, opting instead to impose certain reforms on the board.

Starting in 2007, seven years of litigation (and millions of dollars in legal fees) ensued between two nonprofits interested in the creation of a memorial to Armenians who died during the First World War and two of their directors; the nonprofits lost their claims against the directors and ended up having to indemnify them. The district court denied summary judgment on the issue of whether the directors had breached their fiduciary duties but then concluded after a bench trial that the directors’ decisions and the process by which they made them were reasonable and, even if the directors had breached their duty, the corporation could not show that it suffered injury as a result. Armenian Genocide Museum and Memorial, Inc. v. The Cafesjian Family Foundation, Inc., 691 F. Supp. 2d 132 (D.D.C. 2010); Armenian Assembly of America, Inc., et al., v. Cafesjian, 772 F. Supp. 2d 20 (D.D.C. 2011), aff’d, 758 F.3d 265, 275 (D.C. Cir. 2014).

In 2010, the National Credit Union Administration sued the unpaid volunteer directors of Western Corporate Federal Credit Union seeking $6.8 billion in damages on account of the directors’ alleged failure to supervise the credit union’s investment decisions. The credit union had invested heavily in diversified portfolios of securitized mortgage-backed securities; when the credit crisis hit, the NCUA took over the credit union (much the way the FDIC takes over failed banks) and sued the former directors and officers. The district court granted the directors’ motion to dismiss, holding that the directors were protected by the business judgment rule. Nat’l Credit Union Admin, v. Siravo, et al., No. 10-1597, 2011 WL 8332969, *3 (C.D. Cal. July 7, 2011). (Two of the authors of this feature represented all directors and one officer in this litigation.) The officers did not fare as well; the court held that the business judgment rule did not protect them, and at least some officers ended up paying some money to the NCUA and suffering other sanctions.

These cases are unusual, which goes a long ways toward explaining the unusual rulings. Generally, absent fraud, bad faith, a conflict of interest, a wholesale abdication of responsibility, or decisions that are clearly unreasonable based on facts known at the time, the business judgment rule will protect directors of nonprofits from personal liability for a breach of the duty of care. But vindication can take years of litigation and lots of money.


What Are the Lessons of Lemington Home?

You can be sued. To be sure, directors of for-profit corporations are sued far more often than directors of nonprofits, but directors of nonprofits can be sued, nonetheless. 

If you are sued, the litigation can go on for years and be very expensive—even if ultimately you are vindicated. 

Because litigation—even unmeritorious litigation—can be expensive, directors should not serve without the protection of adequate directors’ and officers’ insurance (D&O insurance).

Directors of nonprofits, despite usually being volunteers, can face personal liability for breach of their fiduciary duties and will be held to much the same standard of care as directors of for-profit corporations.

Some states have enacted statutes dealing specifically with nonprofit directors’ duty of care. Pennsylvania has such a statute: 15 Pa. Cons. Stat. Ann. § 5712 (2011). [See Lemington, 659 F.3d at 290. Likewise, California has such a statute: Cal. Corp. Code § 7231.] But it is far from clear that these statutes offer directors of nonprofits any more protection than they offer directors of for-profit corporations; the differences are subtle, at best.

The business judgment rule offers directors some protection, but it is not an all-purpose shield against claims based on dereliction of duty, let alone disloyalty or self-dealing. To gain the protection of the business judgment rule, a director must be assiduous and informed before making decisions. Specifically: 

The board must supervise: it must ensure that the organization’s management are qualified to perform their duties and are actually performing those duties. The failure of the directors in Lemington Home to do this led to their being jointly and severally liable for $2.25 million in damages [777 F.3d at 626, 628.] 

The board must seek and follow independent expert advice where appropriate: the directors in Lemington Home failed to follow the recommendations of independent advisors to replace the Administrator, even after being awarded funds to do so. They also ignored the advice of their bankruptcy counsel. [Lemington, 2013 WL 2158543, at *7.]

Special care must be taken if the nonprofit veers toward insolvency:

Before filing for bankruptcy, consider conducting a viability study. In vacating the award of summary judgment for defendants, the Third Circuit in Lemington Home noted that the Board declined to pursue a viability study before filing for bankruptcy and suggested that this called into question the adequacy of their pre-bankruptcy investigation. Lemington, 659 F.3d at 286, 292. Beware the “deepening insolvency” theory. Although not recognized in every jurisdiction, the theory holds directors and officers accountable to creditors if their post-insolvency management increases the losses that creditors suffer.

This article was originally published as a “Client Alert” on PillsburyLaw.com on March 27, 2015. It is reproduced with permission.

Friday, June 14, 2013

Call to Action: Oppose Paid Board Members


Dear Nonprofit Members & Devoted Board Members,
We're calling on our members to 
TAKE ACTION
 today!

ISSUE: The Attorney General's Nonprofit Reform Bills (S-5198A/A-7337) are being finalized over today and over the weekend for introduction and likely passage next week.  They are to go into effect on July 1, 2014.

NYCON's POSITION
  • The AG continues to support the harmful practice of having paid, voting board members on nonprofit boards. Paid board members are the single greatest source of conflicts of interests for charities and one that seriously threatens the integrity of and public confidence in our sector.    
  • Excellent board leadership includes board members"giving and getting" resources for mission, not"making and taking" them for private gain.
  • The AG's endorsement of paying board members means that these types of conflicts of interests will continue to occur and plague us.  
  • The inevitable result will be the emergence of more harmful public scandals that tarnish the good work of the over 99% of charities that believe in and practice volunteer board leadership. NYCON believes that the opportunity is right now to stop it at its source!

ACTION REQUESTED- CALL TODAY!
We urge staff, board leaders, donors, volunteers and all who care about protecting the ethical integrity of our state's charities to call today and Monday at the latest,  the offices of
Michael H. Ranzenhofer and  
James Brennan  the Bill Sponsors, to voice your support for amending the proposed Bill to prohibit compensated board members. Tell them that true reform means taking solving the problem not adding new, complex regulations trying to manage it.

*A revised bill will be submitted early next week, so please, call and make your case.

Both offices are well aware of NYCON's position, so even calling and stating your support for NYCON's case against this bill is a step in the right direction!
PLEASE CALL TODAY! 


Michael Ranzenhofer
Albany Office Phone:(518) 455-3161
Regional Office: (716) 631-8695 
                         (585) 454-0322

James Brennan
Albany Office: (518) 455-5377
Regional Office: (718)-940-0641
                         (718) 788-7221
                        

There are other options out there, if we're going to do this, then let's do it right! NYCON fully supports  Senator Marcellino and Assemblywoman Amy Paulin who have both introduced Bills that would end compensated board members! Check out this bill here.  



           Sincerely,
Doug's Signature

           Doug Sauer, CEO
           New York Council of Nonprofits, Inc. (NYCON)

Learn More on NYCON's Position  

Changing the Nonprofit Corp Law in NY: Let's Try to Get it Right the First Time... 


Understand
 the Legislation
  


  

Contact Us !
Its up to the nonprofits of New York to educate policy makers, and this is your chance to do so today!
Tell these offices you support NYCON's case against compensated board members!






Proud Member of
 the National Council of Nonprofits
national council of nonprofits

Thursday, June 13, 2013

Watertown Daily Times: Local Nonprofits Compete for Leaders

Local nonprofits compete for leaders

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Seven Jefferson County nonprofits are competing for the region’s top leaders to run their agencies.
Executive director searches are underway for: Jefferson County Historical Society, Resolution Center of Jefferson and Lewis Counties, North Country Children’s Clinic, Mental Health Association in Jefferson County, Jefferson Community College Foundation, North Country Prenatal/Perinatal Council and Children’s Miracle Network of Northern New York at Samaritan Medical Center. All hope to have someone in place this summer.
Although some searches could stretch statewide or beyond, there is a mechanism in place for local residents who wish to become leaders. The Greater Watertown-North Country Chamber of Commerce’s Jefferson Leadership Institute has, since its establishment in 1991, provided participants with a vast knowledge of community issues.
“One thing I’ve learned this year with it is it’s not so much the name of a leadership skill, it’s the day-to-day practice,” said Lynn M. Pietroski, the chamber’s CEO and president. “You’re learning how to tackle issues through collaboration, reaching out, and how to facilitate an event that makes money. Those are all things you can’t necessarily learn in the classroom setting.”
Each JLI class has 11 sessions with agencies and businesses throughout Jefferson County, ranging from health to history to nonprofits and tourism.
Mrs. Pietroski said as each JLI class works through its course, the institute also keeps in contact with some of the more than 400 alumni of the program. About 70 percent of those graduates are in a leadership or decision-making capacity locally, she said.
She said she was in awe of how many nonprofit executive director positions are open simultaneously.
While the Prenatal/Perinatal Council and Mental Health Association are just beginning their searches, other agencies, such as the Historical Society and the JCC Foundation, have gone back to the drawing board. Prenatal/Perinatal Council Executive Director Penny A. Ingham recently announced her retirement as she prepares to lead Lewis County Public Health, and former Mental Health Association Director Theodore R. Stiles Jr. just left May 31.
The Historical Society had some promising candidates for its executive director post, but only recently readvertised the position. A call seeking comment to board President Jeffrey M. Garvey was not immediately returned Monday. JCC President Carole A. McCoy said the community college also recently extended its advertisement a couple of weeks.
“We had hoped to have the position filled by mid-July, but we decided to extend our advertising period because we wanted a larger pool of candidates than we had so we’re now anticipating mid-August,” she said. “The foundation is working on the gala and many other things, so the sooner we have the person the better, but we definitely want him or her here before we start classes in the fall.”
Eventually, the Northern Regional Center for Independent Living will need a new director, but its board of directors found a way to fit the position for both the agency and Executive Director Brenda S. Campany. She originally wanted to retire last fall, but after the agency’s executive director search wasn’t successful, she agreed to work part-time.
“No doubt in time there will be a search for Brenda’s replacement, but we don’t have a timeline for that,” said Ronald Griffin, board president. “Everything is working out better than expected. Staff is stepping up and helping out when needed. Down the road when she decides she wants to permanently retire, we will be opening up a search.”
Meanwhile, the United Way of Northern New York recently announced Watertown Daily Times managing editor Robert D. Gorman as its next executive director. Chief Professional Officer Jayn M. Graves will retire at month’s end.
The Food Bank of Central New York, a Syracuse nonprofit that covers 11 counties, including Jefferson, Lewis and St. Lawrence, also is in search of an executive director. Thomas F. Slater will retire from that post next month.

Wednesday, May 22, 2013

Improve Your Nonprofit's Website this Summer



From Audit to Redesign:
The Complete Nonprofit Website Toolkit!
Brought to you through our partnership with Idealware, this webinar series takes place each Tuesday from June 4 through July 2 and are held from 1:00pm  - 2:30pm (EST).
Pricing for Five 90-minute sessions: Only $140 for the entire series for NYCON Members with code NYCON2013;  $200 for Non-Members [Membership will be verified]

Can you remember when your organization's website was designed? Can your supporters and constituents navigate and find the information they need? Can your staff members easily create or update content on your website? If you answered "no" to any of those questions, it might be time to bring that website into the 21st Century.

Join Idealware for From Audit to Redesign: The Complete Nonprofit Website Toolkit, an amazing five-session webinar series presented in partnership with Idealware, and they'll walk you through Website 101, review best practices for accessibility, mobile-optimized sites, and reinforcing your organization's online brand, and review content management systems.

From Audit to Redesign: The Complete Nonprofit WebsiteToolkit
will look at all aspects of your website, including:  
·         Defining goals for how your website will serve your audience.   
·         Learning best practices for designing an accessible, usable, and polished website.   
·         Comparing your content management system (CMS) options.   
·         How to make sure your website shows up well on search engines
·         Creating your organization's website action plan with next steps and action
items for an improvement process.   
In addition to the five webinars, participants in the Toolkit will have access to Office Hours. These are one hour time blocks during which you have access to an Idealware expert one-on-one.   

Webinars take place each Tuesday fromJune 4 through July 2 and are held from1:00pm  - 2:30pm (EST) 

Pricing for Five 90-minute sessions: Only $140 for the entire series for NYCON Members with code NYCON2013;  $200 for Non-Members [Membership will be verified]


What Nonprofits are Saying About Idealware Webinars
"This entire seminar was just fantastic. I learned so much. I especially liked all the practical applications and examples given. I will definitely recommend this course to other people. Great job!!"

"Really liked the format-especially having the slides in advance. Allowed me to listen more and parallel process the information that applied to my organization."

"Excellent seminar. Very informative. Great examples to illustrate points. Friendly, personable presenters."

"We loved the seminar and found it very useful for our nonprofit organization. The ability to ask questions during the presentation, and the work book, are very valuable tools."

Wednesday, May 1, 2013

News from The Non-Profit Times


Audits Show Widespread Underreporting of UBI

By The NonProfit Times - April 29, 2013
Unreported unrelated business income in higher education was found in almost every case examined by the Internal Revenue Service (IRS).
“The audits identified some significant compliance issues at the colleges and universities examined,” said Lois Lerner, director, Exempt Organizations division of the IRS. “Because these issues may well be present elsewhere across the tax-exempt sector, all exempt organizations need to be aware of the importance of accurately reporting unrelated business income and providing appropriate executive compensation.”
This is part of the multi-year project on tax-exempt colleges and universities. The Colleges and Universities Compliance Project was launched in 2008 with the distribution of detailed questionnaires to 400 randomly-selected colleges and universities. The IRS selected 34 of the 400 for examination because their questionnaire responses and Form 990 reporting indicated potential noncompliance in the areas of unrelated business income and executive compensation.
Unrelated business income (UBI) is the income from a trade or business regularly conducted by an exempt organization and not substantially related to its exempt purpose. Unrelated business taxable income is the UBI that is taxable after deducting expenses directly connected to the trade or business. Because UBTI is calculated by totaling the UBI from all activities and subtracting the total allowable deductions, losses from one activity can offset profits from another. Examinations have resulted in:
  • Increases to UBTI for 90 percent of colleges and universities examined totaling about $90 million;
  • More than 180 changes to the amounts of UBTI reported by colleges and universities on Form 990-T; and
  • Disallowance of more than $170 million in losses and Net Operating Losses (NOLs, i.e., losses reported in one year that are used to offset profits in other years), which could amount to more than $60 million in assessed taxes.
The primary reasons for increases to UBTI in the completed exams were:
  • Disallowing expenses that were not connected to unrelated business activities.
The IRS found that examined colleges and universities were reporting certain losses as connected to unrelated business activities when they were not. The misreporting occurred in two ways:
1. Lack of profit motive: The IRS found that organizations were claiming losses from activities that did not qualify as a trade or business. Nearly 70 percent of examined colleges and universities reported losses from activities for which expenses had consistently exceeded UBI for many years. UBI must be generated by a trade or business.
An activity qualifies as a trade or business only if, among other things, the taxpayer engaged in the activity with the intent to make a profit. A pattern of recurring losses indicates a lack of profit motive. The IRS disallowed reporting of activities for which the taxpayer failed to show a profit motive. Those losses no longer offset profits from other activities in the current year or in future years, with more than $150 million of NOLs disallowed.
2.  Improper expense allocation: The IRS also found that on nearly 60 percent of the Form 990-Ts examined, colleges and universities had misallocated expenses to offset UBI for specific activities. Organizations may allocate expenses that are used to carry on both exempt and unrelated business activities, but they must do so on a reasonable basis and the expenses offsetting UBI must be directly connected to the UBI activities. In many cases, the IRS found that claimed expenses, which generated losses, were not connected to the unrelated business activity.
The IRS checked the calculations for all NOLs reported on returns under exam and found that NOLs were either improperly calculated or unsubstantiated on more than a third of returns. As a result, the IRS disallowed nearly $19 million in NOLs.
The IRS also determined that nearly 40 percent of colleges and universities examined had misclassified certain activities as exempt or otherwise not reportable on Form 990-T. Fewer than 20 percent of these activities generated a loss. The examinations resulted in the reclassification of nearly $4 million in income as unrelated, subjecting those activities to tax.
Examinations resulted in more than 180 changes to UBTI reported for specific activities by colleges and universities. More than 30 different activities were connected to the changes. The majority of these adjustments came from the following activities: Fitness, recreation centers and sports camps; advertising; facility rentals; arenas; and, golf.
To see the online aricle click here.

Comptroller Thomas P. DiNapoli's Weekly News

DiNapoli Audit Finds $7.7 Million in Questionable Charges by Special Education Providers

The Lake Grove School and the Mountain Lake Children’s Residence, two special education providers run by the same company, overcharged taxpayers by as much as $7.7 million over a four–year period, according to an audit released Friday by New York State Comptroller Thomas P. DiNapoli.

DiNapoli: State’s Brownfield Cleanup Program Needs To Reach More Sites; Be More Cost–Effective

The New York State Legislature should examine options to restructure the state’s primary program to revitalize contaminated properties – the Brownfield Cleanup Program – in order to fully achieve the important economic, public health and environmental goals set when the program was created, according to a report released Monday by State Comptroller Thomas P. DiNapoli.

DiNapoli Supports Lobbying Disclosure and Independent Director Proposals at Peabody Energy

New York State Comptroller Thomas P. DiNapoli Tuesday announced support for two shareholder proposals at Peabody Energy Corporation’s annual meeting on April 29 calling for Peabody to disclose corporate lobbying expenses and to require the chairman of the board to be an independent director.

DiNapoli Refers Investigation of Substance Abuse Provider to U.S. Attorney

Phoenix Houses of New York, Inc. provided inappropriate perks to its executives exceeding $223,000 while under contract with the Office of Alcoholism and Substance Abuse Services, according to a report released Wednesday by State Comptroller Thomas P. DiNapoli. DiNapoli referred the findings to U.S. Attorney Preet Bharara’s office for review.

Comptroller DiNapoli Releases Municipal Audits

New York State Comptroller Thomas P. DiNapoli Wednesday announced his office completed the following audits: the Bloomingburg Joint Fire District; the Village of Depew; the Essex County Probation Department; theEssex County Sheriff’s Department; the Town of Johnsburg; the Town of North Castle; the Town of Owego Fire District; the Rescue Fire Company, Inc.; and, the Village of Village of the Branch.

Comptroller DiNapoli Releases Audits

New York State Comptroller Thomas P. DiNapoli Wednesday announced his office completed audits of the the Beacon City School District; the Chenango Valley Central School District; the Fairport Central School District; the Monroe–Woodbury Central School District; and, the Oppenheim–Ephratah Central School District.

Wednesday, April 3, 2013

On Pay, Some Nonprofit Health Insurers Are Tone Deaf and Wrong

Brought to you by the NonProfit Quarterly: 

On Pay, Some Nonprofit Health Insurers Are Tone Deaf and Wrong

WRITTEN BY RICK COHEN

The mantra of the nonprofit sector right now is “one big tent”—no winners or losers, everyone pledged to everyone else. But it is hard to maintain that mentality when some nonprofits pay so much better than others. Those that seem to be drawing the most attention in an era of national health insurance reform are nonprofit health insurers, some of which are paying very big salaries and earning healthy profits while much of the nation, pre-Affordable Care Act, is underinsured or uninsured (and those who are covered face often escalating policy costs and co-pays).
For example, at the nonprofit Excellus BlueCross BlueShield, serving two million ratepayers in the Rochester, Syracuse, and Utica areas of New York State, the chief financial officer, Zeke Duda, got a $10.9 million payout when he retired at the end of 2011. The salary of the CEO, David Klein, somehow dropped from $5.2 million in 2011 to a not too shabby $3.8 million in 2012 when he retired. The new CEO, Christopher Booth, was the $1.6 million a year president and chief operating officer prior to Klein’s retirement. Excellus is no small operator, with revenues of $6 billion in 2012 and net income of $106 million (compared to $223 million in 2011).
Moving across the state line to Massachusetts, we note that, two years ago, Massachusetts Attorney General Martha Coakley tried to stop Blue Cross Blue Shield (BCBS) of Massachusetts from paying its board members. At the time, BCBS voluntarily suspended the payments, but now it has announced plans to reinstate the practice. The new plan is to pay board members who chair committees as much as $54,500 annually (down from the maximum of $78,600 proposed two years ago) while other directors can receive up to $47,000 (down from a max of $58,600 proposed two years ago). The plan is also to try to reduce the number of directors from 17 to 14.
Mark Rogers, who runs a “startup online professional community for board members,” ripped Blue Cross for the decision in a Globe op-ed. He contrasts the image of the Blue Cross board meetings with the “overwhelming majority of the nearly 1.6 million nonprofit organizations in America today…governed by boards composed of compassionate, intelligent, and selfless individuals who are dedicated to stewarding their organizations to [a] level of excellence that befits their mission without monetary compensation for their efforts.” His explanation of Blue Cross’s thinking? “It looks like arrogance.”
During the two years of the BCBS suspension of board payments, did Blue Cross find itself just about unable to function? Were board members, such as an executive vice president for Liberty Mutual Insurance and a senior advisor of Bain & Company, finding themselves too financially strapped to provide appropriate board service for Blue Cross? Deidre Cummings, the legislative director of the Massachusetts Public Interest Research Group, raised a similar query: “One would question why they were able to run their business for the last few years without paying people and why they have decided they have to start doing it again now.”
Perhaps BCBS survived due to the $1,500 payment for attending each board meeting and strategic planning meeting and the $1,200 payment for attending committee meetings. The latter is being reduced to $1,000 in the new structure. All of this is happening, of course, because Coakley’s vision of legislation to control board compensation didn’t come to pass.
Tone deaf? Multi-million dollar salaries to top executives? Five-figure compensation deals for otherwise voluntary board members? When poor people are facing higher costs for health care? Tone deaf and wrong. 

Friday, March 22, 2013

A Story From the Non Profit Quarterly


On Pay, Some Nonprofit Health Insurers Are Tone Deaf and Wrong


WRITTEN BY RICK COHEN

The mantra of the nonprofit sector right now is “one big tent”—no winners or losers, everyone pledged to everyone else. But it is hard to maintain that mentality when some nonprofits pay so much better than others. Those that seem to be drawing the most attention in an era of national health insurance reform are nonprofit health insurers, some of which are paying very big salaries and earning healthy profits while much of the nation, pre-Affordable Care Act, is underinsured or uninsured (and those who are covered face often escalating policy costs and co-pays).
For example, at the nonprofit Excellus BlueCross BlueShield, serving two million ratepayers in the Rochester, Syracuse, and Utica areas of New York State, the chief financial officer, Zeke Duda, got a $10.9 million payout when he retired at the end of 2011. The salary of the CEO, David Klein, somehow dropped from $5.2 million in 2011 to a not too shabby $3.8 million in 2012 when he retired. The new CEO, Christopher Booth, was the $1.6 million a year president and chief operating officer prior to Klein’s retirement. Excellus is no small operator, with revenues of $6 billion in 2012 and net income of $106 million (compared to $223 million in 2011).
Moving across the state line to Massachusetts, we note that, two years ago, Massachusetts Attorney General Martha Coakley tried to stop Blue Cross Blue Shield (BCBS) of Massachusetts from paying its board members. At the time, BCBS voluntarily suspended the payments, but now it has announced plans to reinstate the practice. The new plan is to pay board members who chair committees as much as $54,500 annually (down from the maximum of $78,600 proposed two years ago) while other directors can receive up to $47,000 (down from a max of $58,600 proposed two years ago). The plan is also to try to reduce the number of directors from 17 to 14.
Mark Rogers, who runs a “startup online professional community for board members,” ripped Blue Cross for the decision in a Globe op-ed. He contrasts the image of the Blue Cross board meetings with the “overwhelming majority of the nearly 1.6 million nonprofit organizations in America today…governed by boards composed of compassionate, intelligent, and selfless individuals who are dedicated to stewarding their organizations to [a] level of excellence that befits their mission without monetary compensation for their efforts.” His explanation of Blue Cross’s thinking? “It looks like arrogance.”
During the two years of the BCBS suspension of board payments, did Blue Cross find itself just about unable to function? Were board members, such as an executive vice president for Liberty Mutual Insurance and a senior advisor of Bain & Company, finding themselves too financially strapped to provide appropriate board service for Blue Cross? Deidre Cummings, the legislative director of the Massachusetts Public Interest Research Group, raised a similar query: “One would question why they were able to run their business for the last few years without paying people and why they have decided they have to start doing it again now.”
Perhaps BCBS survived due to the $1,500 payment for attending each board meeting and strategic planning meeting and the $1,200 payment for attending committee meetings. The latter is being reduced to $1,000 in the new structure. All of this is happening, of course, because Coakley’s vision of legislation to control board compensation didn’t come to pass.
Tone deaf? Multi-million dollar salaries to top executives? Five-figure compensation deals for otherwise voluntary board members? When poor people are facing higher costs for health care? Tone deaf and wrong.