1. © 2012 Office of Massachusetts Attorney General Martha Coakley Not-for-Profit Boards of Directors: How to Promote Excellence and Avoid Disaster Berkshire Taconic Community Foundation Berkshire Chamber of Commerce October 11, 2012 Mary A. Beckman Chief, Non-Profit Organizations and Public Charities Division Office of Attorney General Martha Coakley

2. 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/charitieswww.mass.gov/ago/charities This 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 Coakley

3. Outline AGO Jurisdiction: Public Charities Director Duties Violations, Problems, Enforcement and Solutions Best Practices, Tips and Resources Questions to Consider © 2012 Office of Massachusetts Attorney General Martha Coakley

4. 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)

5. AGO Jurisdiction: Role in Public Charities Enforce the Due Application of Charitable Funds; Prevent Breaches of Trust in the Administration thereof AG is Sole Representative of Charity Beneficiaries  Boards are the only other control and guardian AG role is multi-faceted:  Law enforcement, but also  Support, education and guidance for charitable sector, including boards © 2012 Office of Massachusetts Attorney General Martha Coakley

6. Director Duties Directors are Fiduciaries: Duty of Care: be careful, diligent and thoughtful Duty of Loyalty: the organization’s interests come first © 2012 Office of Massachusetts Attorney General Martha Coakley

7. 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. (MGL ch. 180, sec. 6C) © 2012 Office of Massachusetts Attorney General Martha Coakley

8. Duty of Care: Examples Fiscal Soundness Reliance on experts; but know/learn your way around the audited financial statements Legal, Regulatory Compliance Know/learn the main requirements; compliance Review Form 990, other filings as reasonable Policies and Procedures Periodic review, revision, approval Document board process itself (agendas, minutes, etc.) © 2012 Office of Massachusetts Attorney General Martha Coakley

9. Duty of Care: Examples Oversight of Management Assess management, ask questions, but don’t micromanage Board Self-Assessment Performance, engagement, composition Safeguarding Assets (including Reputation) Fundraising and Friend-raising Conflicts and Relationships © 2012 Office of Massachusetts Attorney General Martha Coakley

10. 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 Coakley

11. Violations/Problems Conflicts of Interest Personal financial gain from corporate decisions Steering business to your firm, a friend, family Failing to disclose information about your interest in a corporate action Loans, compensation, self-dealing © 2012 Office of Massachusetts Attorney General Martha Coakley

12. Enforcement/Solution Remedy: Disclose, Discuss and Manage COI Policy Periodic disclosure of outside interests and relationships, and review of the written disclosure statements Documentation of discussion, recusal, and decision by disinterested directors © 2012 Office of Massachusetts Attorney General Martha Coakley

13. 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 Coakley

14. Enforcement/Solution: Board Approaches Independent Board Policies/Procedures Good Governance Practices Solid Disclosure, Evaluation, Discussion, Documentation Decisions by Independent Directors © 2012 Office of Massachusetts Attorney General Martha Coakley

15. Enforcement/Solution: AGO Approaches Lawsuit Governance Agreement Reports Letters Goal: Deter bad practices, support good practices, provide guidance © 2012 Office of Massachusetts Attorney General Martha Coakley

16. Tips, Resources Attorney General’s Website www.mass.gov/ago/charities Legal Findings, Forms and Publications  Executive Compensation  Director Compensation  Governance Agreements Information for Existing Charities  AG’s Guide for Board Members of Charitable Organizations © 2012 Office of Massachusetts Attorney General Martha Coakley

17. Tips, Resources IRS Exempt Organizations Website www.irs.gov/charities IRS Form 990: Governance Questions Model policies and procedures, governance practices © 2012 Office of Massachusetts Attorney General Martha Coakley

18. Tips, Resources Berkshire Taconic Community Foundation Various private not-for-profit advisory groups – examples only: Boardsource Mass Nonprofit Network ESC New England © 2012 Office of Massachusetts Attorney General Martha Coakley

19. Questions for Consideration Hard times, decreasing resources How 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