In response to a public outcry of overcompensation of nonprofit board members in the health industry in Massachusetts, the Massachusetts attorney general’s office began to investigate industry practices. In response, the Massachusetts Senate passed legislation to limit the compensation of charitable board members.
Massachusetts has over 22,000 nonprofits. According to Attorney General Martha Coakley, almost all of these organizations do not pay members of their boards.
“Compensation of board members creates, at a minimum, an appearance of conflict of interest and diverts resources otherwise focused on achieving the mission of the charity,” AG Coakley said in a statement. “These organizations enjoy significant tax and other benefits due to their charitable status, and this amendment would simply require charities to have a sound justification for why their board members should be paid in contrast to the vast majority of board members that volunteer their services.”
The attorney general’s office began to investigate board compensation in November 2009. Due in part to the rising cost of health care the investigations were centered primarily around a small number of Massachusetts health care providers, who were compensating their board members.
Since the investigation, Blue Cross Blue Shield and Fallon suspended payments to their board members. Harvard Pilgrim and Tufts boards did not suspend payments. Those board members have stated that they will continue to pay themselves. “We believe Blue Cross and Fallon did the right thing by suspending compensation of their directors, and commend their actions,” AG Coakley said. “We do not believe that Harvard Pilgrim nor Tufts have an adequate basis to continue to pay their board members. Their refusal to voluntarily suspend this practice is further reason why we believe there must be a legislative solution to this issue.”
To explain why they were the exception, these organizations stated that they required more complex and more highly skilled directors, that this is the industry norm and they must do this to attract directors, and that their members “committed significant time and effort to their board duties.”
According to a press release the attorney general’s office found these reasons to be unsubstantiated. In fact, the report noted, “Nearly all of your directors live and work in Massachusetts, which suggests at minimum that none of your organizations compete nationally for talent.”
Massachusetts State Sen. Mark Montigny, chairman of the Health Care Committee, said in a press conference, “I think the hybrid is dangerous when the business or the entity is operating a private business model, yet receiving all of the benefits of the nonprofit. I think it’s particularly troubling.”
"Charities are granted special privileges because of their missions and contributions to the community," he said, "For half a decade I've maintained that excessive compensation for executives and pay for board members is unacceptable and a breach of the public trust.”