When if ever should nonprofit board members be paid for tasks having to do with the organization and it's work? In a smartly (as always) crafted opinion piece in the Nonprofit Quarterly, Rick Cohen does not directly spell-out the answer but it does not take a rocket scientist to figure out what the correct answer should be: uh, never?
The case Rick uses to make his point focuses on the International nonprofit that clears land mines from war zones. Angelina Jolie has decided to leave the board over the organization's decision to use and compensate two other board members who conducted a review of the organization's "governance, compensation, and structure". First let me make it clear that these are very important tasks that should be conducted at least once every 3-5 years at least to ensure the organization is healthy. And, there are a large number of consultants, like myself, who do this work as independent experts.
I underline the word independent because I believe that the line Ms. Jolie has identifed might have been equally directed over the idea that trustees were a sound objective and independent reviewer of these areas as much as her issue that they as board members were paid to do the job. Independence and objectivity matter for these tasks and such objectivity could not as easily be achieved if one is part of the picture.
But beyond objectivity, Rick focuses on pay for board member work and while I actually believe this is a question more left to the largest of nonprofits (review 990s and it's quite impressive the number of trustees who are paid for their time to attend meetings) the issue is right to be raised. What is your opinon?
Angelina Jolie Leaves Halo Trust over Board Members Paid for “Work”
By RICK COHEN | 32 mins ago
September 2, 2015; Third Sector
Congratulations to Angelina Jolie for demonstrating an awareness of trustee propriety that unfortunately seems to escape too many others. Jolie quit the board of the Halo Trust, a charity that clears land mines from war zones, in protest of two other trustees being paid as much as £500 a day for a total of £122,750, to conduct a review of the charity’s governance, compensation, and structure. They also received payment for other costs on top of their £500/day remuneration. She also protested the practice of the charity to pay for the school fees of the children of selected staff.
The Halo Trust responded to the criticism reflected in Jolie’s resignation that the board had voted to authorize the organizational review, paid the trustees for “carrying out this work and running the organization,” and got approval for the arrangement from the UK’s Charity Commission. In other words, the deal seems to have escaped falling into illegality. It doesn’t appear that other trustees of the charity, such as Cindy McCain, wife of Senator John McCain, were as nonplussed with the trustee payments as Jolie.
Good for Angelina Jolie!
The notion of board members being paid for work to benefit the charity they are charged with governing is troubling. Was the board likely to tell the two trustees—one of whom, Amanda Pullinger, a former hedge fund manager, was the chair—that this plan might have been inappropriate? Assume that Pullinger and the other paid trustee, Simon Conway, recused themselves from the vote to authorize their remuneration. Does anyone think that the board wouldn’t have nonetheless been influenced by knowing that payments to two of their peers would be nixed if they were to vote against the deal? If board members are being paid, what kind of due diligence and oversight of their work is likely to be conducted about the quality of their product? It would seem that the Pullinger-led review of the Halo Trust’s human resources, financial planning, organizational structure, and compensation practices apparently didn’t take a critical eye to compensation of trustees.
Don’t take this story lightly. It takes a special kind of integrity, even for a major Hollywood star like Jolie, to walk away from a nonprofit board because of practices that inappropriately benefit one’s peer trustees or other insiders, even if they are legal—particularly because the practice of self-dealing in charity may be more common than one might suspect. Although the study is a bit dated, Francie Ostrower’s 2007 study of nonprofit governance was truly shocking with its revelations of financial transactions in nonprofits involving board members, and we suspect that practices haven’t radically changed in the interim. Consider this striking finding from Ostrower’s report:
According to respondents’ self-reports, financial transactions between organizations and board members are extensive, particularly among large nonprofits. Overall, 21 percent of nonprofits reported buying or renting goods, services, or property from a board member or affiliated company during the previous two years. Among nonprofits with more than $10 million in annual expenses, however, the figure climbs to more than 41 percent. Note, however, that among those nonprofits that say they did not engage in transactions with board members or affiliated companies, fully 75 percent also say they do not require board members to disclose their financial interests in entities doing business with the organization, and thus, respondents may have been unaware of transactions that do exist. According to respondent reports, among nonprofits engaged in financial transactions, most obtained goods at market value (74 percent), but a majority (51 percent) did report that they obtained goods below market cost. Under 2 percent reported paying above market cost.
We would guess that among those U.S. charities, there were board members who might have been uncomfortable with paying their board colleagues for functions that might have been more fairly purchased from outside vendors and sometimes at less cost. One wonders whether the £500 a day paid to Pullinger and Conway was far enough below market value to justify the arrangement; we doubt it. Jolie appears to have thought that if the charity wanted to call for a review of its operations, the trustees could have paid it from their own pockets. Even then, however, having just two trustees conduct their own review could mean that the board might have some difficulty in giving the report an unbiased review. Jolie’s action is a reminder to Pullinger, Conway, and all other charity board members that their first and foremost function in a charity is to oversee and govern its operations, not to confuse themselves for staff or vendors.
The Halo Trust was a favored charity of the late Princess Diana and an occasional venue of charitable activity for her son, Prince Harry. For us, it is now a favorite for a different reason, a case study of a board which paid selected trustees handsomely for certain tasks, but where one trustee found the practice unseemly enough to warrant her dropping off the board. Our admiration for Angelina Jolie, already an activist in the humanitarian sphere, has just risen several notches more.—Rick Cohen