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| On the Board |
Sarbanes-Oxymoron
Matthew Schuerman
07/01/2004
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Regulators can point to a long series of scandals to justify greater oversight. The most commonly cited example is the American Red Cross, which
wanted to divert contributions to help victims of the 2001 terrorist attacks to
other projects. But there are many other examples of the governance problems
nonprofits face. Two years ago, the foundation supporting Florida Atlantic
University gave its departing president a $42,000 sports car. This February,
when the Saratoga Performing Arts Center tried to cancel its summer ballet
program owing to a lack of funds, a local newspaper revealed that the center was
paying $100,000 a year for an insurance policy from a company that its chairman
operated, along with other sloppy management tactics.
TOP VIEW
Bills before 12 state legislatures will create Sarbanes-Oxley-style audit and
certification laws for nonprofits. These will apply more stringent corporate
governance standards to charities, to keep them from abusing their stakeholders
and the public trust. |
Unlike the for-profit
world, where the coziness between corporations and their auditors led to many of
the abuses which prompted the federal Sarbanes-Oxley law, recent failures in the
nonprofit sector stem from trustees who are too close to their executive
directors, or with one another. “Trustees are not acting like board members,”
says Diane Aviv, president and CEO of Independent Sector, an association of
nonprofits and foundations. “There’s no structure where they have to evaluate
the executive director.” Sometimes executive directors sit as voting members of
governing boards, and often they are the ones who find new trustees.
The
nonprofit world complains that the state Sarbanes-Oxleys would drain precious
resources from philanthropic pursuits in the name of more paperwork. A Minnesota
bill would require organizations to rationalize any salary hike of more than 5
percent for the top five paid directors or employees. A Connecticut proposal
would force nonprofits to file quarterly records of every outgoing
check.
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