BOSTON (Legal Newsline) -- Massachusetts Attorney General Martha Coakley says she supports legislation that would prohibit state-based public charities from compensating their board of directors unless they obtain approval from her office.
Coakley testified Tuesday before the state's Joint Committee on the Judiciary.
House Bill 3516, An Act Regulating Compensation of Board Members of Public Charities, was filed on April 14 and co-sponsored by Coakley; state Sen. Mark C. Montigny, D-New Bedford; and state Rep. Martha M. Walz, a Boston Democrat who also serves as the vice-chair of the House Ways and Means Committee.
"Voluntary service by board members is the practice at the overwhelming majority of public charities, and for good reason," Coakley said.
"Compensation of board members raises concerns about maintaining board independence and ensuring the proper use of charitable funds. Our bill strikes the right balance by providing the necessary tools to protect the public interest and ensure the appropriate use of charitable funds."
In her testimony, the attorney general pointed out that the practice of paying board members creates an unavoidable conflict between board members' personal financial interests and their obligation to safeguard the organizations charitable resources.
The attorney general's Public Charities Division is responsible for the oversight of more than 25,000 non-profit charitable organizations, which includes everything from local social service organizations to large health care systems.
Joining Coakley in support of the bill and testifying Tuesday were Montigny, Walz and Harvard professor F. Warren McFarlan.
McFarlan said he supports Coakley's legislation and is "deeply troubled" that it is even necessary.
"In addition to teaching and publishing extensively on the issue of non-profit governance, I have personally served as a board member for both publicly-held companies and public charities for more than 30 years. In my capacity as a trustee and as a chairman of the board of a public charity, I have never had any trouble recruiting the right number and quality of directors who are happy to serve," the business administration professor said in a statement.
"Without exception, all of these public charities have had their board members serve as unpaid volunteers because of their deep belief in the mission of the public charity. I firmly believe that this is the appropriate role of a public charity board member."
Coakley's legislation follows a report issued by her office in April examining the compensation of board members at Massachusetts' four major charitable health insurers: Blue Cross Blue Shield, Fallon Community Health Plan, Harvard Pilgrim Health Care and Tufts Health Plan.
As part of that investigation, the health insurers were given an opportunity to justify the rationale for compensating their board members in contrast to the overwhelming majority of charitable board members, including those at large hospitals and universities, who volunteer their time.
Coakley's office found that the rationales provided by the health insurers were unsupported.
Since then, Blue Cross and Fallon have stopped compensating their board members, while Tufts and Harvard Pilgrim have continued the practice.
As a result of the investigation, the Attorney General's Office will now require annual statements from all Massachusetts-based public charities that compensate independent directors, explaining in detail the basis for this practice.
The office will then make those compensation levels and explanations available to the public in an annual report, it said.
From Legal Newsline: Reach Jessica Karmasek by email at email@example.com.