Massachusetts Attorney General Martha Coakley and her allies in the Massachusetts Senate are pushing a bill that would prevent Massachusetts nonprofit organizations from paying their board members, unless they obtain a waiver from the Attorney General’s office. Apparently, Coakley proposed the bill when she learned that certain Massachusetts nonprofit health insurance companies paid their directors five-figure salaries. According to Coakley, “[g]etting paid creates an appearance of a conflict of interest.” Some commentators have criticized the bill, arguing that many nonprofit organizations have good reasons to compensate their directors.
While Coakley’s push to monitor nonprofits more closely is commendable, her focus on board compensation is puzzling. Of course, most nonprofits do not compensate their board members. On the contrary, many nonprofits expect or require their board members to make a financial contribution. But it is not clear why Coakley believes that paying directors creates a conflict of interest, especially in the case of the organizations in question, which provide highly-skilled directors a relatively modest compensation in order to do a substantial amount of work (“3-4 hours per week”)
. On the contrary, one might expect compensated directors to pay special attention to their duties, in order to ensure that they retain the position and maintain the financial health of the organization.
Interestingly, Coakley’s proposal implicitly focuses on large nonprofits and ignores small ones. Many – if not most – nonprofits could not compensate their directors even if they wanted to. They can’t afford it. In fact, many small nonprofits find it very difficult to recruit competent and committed board members
. Often, the problem isn’t a conflict of interest, but a lack of interest. Many nonprofit board members don’t care about their fiduciary duties to the organization, or don’t even realize those duties exist. And an absentee board is an invitation to trouble. Coakley is focusing on nonprofits that are aggressively recruiting board members. I hope she directs her attention to those that don’t.