In the current corporate responsibility environment, board
members should be particularly sensitive to the propriety (both
actual and perceived) of their individual and collective spending
and reimbursement practices. This is important, in particular,
following the high profile action by South Carolina
Governor Nikki Haley to request the trustees of the
Medical University of South Carolina to repay funds previously
reimbursed by the University for hotel, dining and similar
meeting-related expenses. While the South Carolina focus was on
state-owned facilities, the same concept could easily be applied by
state charity officials to nonprofit health systems.
The Governor’s action followed the investigative report by
a Charleston newspaper that, over the last several years, the board
had incurred over $560,000 in food, beverages and hotel expenses.
The Medical University’s board chair ordered an investigation
of the board’s spending practices and the state inspector general has reportedly
commenced an investigation of the spending practices
of other state university boards. As one might expect, the
newspaper story referred to “pricey meals, expensive bottles
of wine and luxury hotel rooms.”
Historically, state and federal charity officials have become
involved in the board meeting expenditure practices of nonprofit
board members and executives, only where there were clear
suggestions of financial excess and abuse (e.g.,
extraordinarily high expenses, failure to properly allocate between
spousal and non-business related expenses, submitting reimbursement
claims for hotel expenses outside the meeting period or for
outrageous or inappropriate expenses). In addition, virtually all
recent statements of governance principles acknowledge the need for
an appropriate frequency and duration of board meetings and for
appropriate levels of director education programming (all of which
can be enhanced, from time to time, by going
“offsite”). Concerns about such expenses are often (but
not always) lower when board members are serving without
Yet, appearances can create the most unfortunate
impressions—particularly when the subject of media scrutiny.
In the current environment, such appearances can prompt
embarrassing inquiry from charity officials (most often, the state
attorney general). Health systems should take notice of the Medical
University situation and, with the direction and advice of their
general counsel, adopt a board spending and reimbursement protocol
that is appropriate and reasonable given the size of the
organization, the complexity of the board agenda, and the typical
costs of meals and lodging in the headquarters locale
(i.e., different thresholds if the board office is in a
major urban area or a smaller regional community). Those who review
and approve reimbursement requests under the protocol should
receive some form of enhanced job protection against retaliation
for their activity.
Allegations of corporate malfeasance may arise in myriad ways: whistleblowers, current or former employees, internal or external auditors, shareholders, the media, regulatory or law enforcement agencies, and/or the plaintiff 's bar.
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
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