On Tuesday, September 27, 2011, the Massachusetts Joint
Committee on the Judiciary heard testimony on H.3516 – a
bill that would regulate compensation of board members for public
The bill, introduced by Representative Martha Walz, would
prohibit Massachusetts-based public charities from compensating
independent (non-employee) officers, directors and trustees, except
in instances where the charity can make a clear and convincing
showing, by means of an application to the Non-Profit
Organizations/Public Charities Division of the Attorney
General's Office (AGO), that compensation is necessary to
enable the public charity to attract and retain the services of
experienced and competent individuals. The bill allows the AGO to
prescribe criteria for approval of such applications, and also
allows the AGO to rescind its approval if it determines that the
level of compensation paid by the public charity exceeds what is
Attorney General Martha Coakley testified in favor of the bill,
arguing that compensation of board members of public charities
raises conflict of interest concerns and is antithetical to the
charitable mission of the organizations that the board members
serve, concluding that "voluntary service has been the rule
historically and makes sense."
The Attorney General was joined in testifying in support of the
bill by Representative Walz, as well as Senator Mark Montigny, who
has introduced similar legislation in the Senate, and Professor F.
Warren McFarlan of Harvard Business School, who testified that, in
his experience, public charities have no trouble attracting
qualified individuals to board service absent compensation.
Testifying in opposition to the bill, Jeffrey Poulos, the
Executive Director of Associated Grant Makers, argued that current
laws sufficiently regulate director compensation at public
We have previously
covered the increased scrutiny of public charities that choose
to compensate independent directors, and will continue to track the
progress of H.3516, as well as similar legislation pending before
the Senate. Foley Hoag is available to assist organizations and
their boards in navigating the requirements that may be imposed by
this legislation. All Massachusetts-based public charities are
well-advised to assess the processes and rationale by which
decisions about independent director compensation are made.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The decision earlier this month in Cyprus Amax Minerals v. TCI Pacific Communications is a useful reminder that corporate form exists for a reason and that parent corporations who ignore corporate niceties do so at their peril.
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