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Bar Journal - Summer 2004

Sarbanes-Oxley and the Impact Upon NH Nonprofit Organizations


"Always do right. This will gratify some people and astonish the rest."

- Mark Twain

"CEOs do not need a business ethicist to tell them right from wrong. What they need is the character to do the right thing…."

- The Wall Street Journal
July 2002


The corporate scandals that emerged with such ferocity during the past three years caused the United States Congress to enact Sarbanes-Oxley, a piece of legislation that addresses financial practices and board governance in the for-profit sector.1 Questions are now being asked about the applicability and implications of Sarbanes-Oxley for the nonprofit sector. Do provisions of Sarbanes-Oxley apply to both for-profit entities and nonprofit entities? If not, should nonprofit organizations use Sarbanes-Oxley as a guide for good governance and "best practices" in the hope of avoiding the scandals and humiliation that bedeviled for-profit corporations, their public auditors, the CEOs and other senior executive officers that stood accused of manipulating shareholder assets, and individual board members? There is much commentary in the nonprofit sector about all of these issues.

This article asks three major sets of questions. First, what was at the core of the original scandals that led to the enactment of Sarbanes-Oxley? What wrong-doing was Sarbanes-Oxley intended to address? Second, does Sarbanes-Oxley apply in a technical sense to nonprofit organizations? Or, does it serve a broader purpose? Is it best viewed as a wake-up call to nonprofits, prodding them to reexamine their governance structure, the independence of their board members, the potential for excessive compensation and the fiduciary duty of board members to monitor the nonprofits they serve? Third, what does New Hampshire law require in terms of "good governance" for nonprofits? What are the "best practices" that are emerging? Finally, this article also comments upon the major vulnerabilities or deficiencies in the nonprofit sector: (i) the absence of shareholders to hold governing boards accountable, (ii) the inability of the Internal Revenue Service to monitor a rapidly growing sector, and (iii) the limited role that auditors play in the nonprofit sector.

The author is expressing his own perspective on these issues and his opinions are not necessarily those of the Attorney General’s Office. As this article goes to press, Senator Charles Grassley (R-Iowa), chair of the U.S. Senate Committee on Finance, has announced that his committee will hold hearings on tax-exempt organizations, with a focus upon "governance and best practices of charities…"2 Senator Grassley expressed concern over transactions that "may be unfairly enriching individuals and corporations." In addition, Steve Miller, the head of the IRS Exempt Organization Section, has announced a new enforcement initiative that will focus upon compensation at nonprofit organizations this year.3


The most prominent corporations at the center of the original corporate scandals included WorldCom, Tyco, Enron, and Adelphi Communications.4 The common thread among these original entities was the alleged financial manipulation of corporate assets on a grand scale by CEOs and senior executive officers – i.e., the "looting" of shareholder assets for personal gain. The names associated with these entities are L. Dennis Kozlowski, Mark H. Swartz and Mark A. Belnick (Tyco), Bernard Ebbers and Scott Sullivan (WorldCom), John J. Rigas (Adelphia Communications), and Kenneth Lay, Andrew S. Fastow and Jeffrey Skilling (Enron).5 Each week, however, brings still additional announcements from corporations about the discovery of major financial problems. Nortel Networks, for example, announced recently the termination of three senior executive officers in what has become almost standard form.6 Its announcement stated that its CEO had been terminated, that its financial statements had to be restated, and that steps were being taken to "restore investor confidence in the company leadership and in its financial reporting."7

A second wave of corporate scandals engulfed the securities industry and raised questions about unfair and illegal treatment of mutual fund investors.8 In this second wave, the core elements included "late trading," a practice that gives preferential treatment and advantages to favored clients to the detriment of all other investors.9 Also unearthed were practices where shares of highly desirable initial public offerings (IPOs) were allocated to clients of firms as rewards for their business or in the expectation of new business. In 2002, Credit Suisse First Boston (CSFB) paid $100 million to settle civil matters relating to these improper allocations. In the usual manner, CSFB neither admitted nor denied wrongdoing.10 New York Attorney General Eliot Spitzer took the lead in investigating and imposing penalties during this second wave, since many of the major securities firms are based in New York.

In addition to the enforcement actions taken by the SEC and the New York Attorney General, investors have also brought claims against investment banking companies for still a third component of the scandals, leading Citigroup to enter into a settlement agreement for $2.6 billion with investors who purchased stocks and bonds in WorldCom.11 That case involves allegations about conflicts of interest between investment advice given by Jack Grubman, a former analyst with Citigroup’s analysis unit, and the clients represented by Citigroup’s investment banking section. As is the norm, Citigroup denied any wrongdoing. It then moved to capture the moral high ground by stating that it was "taking a leadership position in bringing to a close this difficult era…"12 The litigation is still ongoing for other defendants, including J.P. Morgan Chase, Bank of America, and Deutsche Bank. The allegations are that bank officials offering WorldCom stock had expressed concern over WorldCom’s viability and downgraded its stock in private but did not mention the downgrading of the stock in the public offering documents.13 Citigroup is also involved in litigation relating to the collapse of Enron Corporation.

A critical segment of the scandals involved the failure of the Securities and Exchange Commission (the "SEC")14 and the accounting industry to detect financial fraud and to monitor the sector adequately.15 One extensive analysis in The Wall Street Journal asked the obvious question: "How could they have missed all the wrongdoing?"16 The stories published about both the original wave and second wave of corporate scandals are numerous and the corporate manipulations have undermined public confidence both in the securities markets and in the agencies that regulate those markets.17 In essence, the rigorous system of checks-and-balances that the public thought was in place to protect its interests did not function as intended.

Sarbanes-Oxley. Sarbanes-Oxley addresses the original wave of these scandals by focusing upon the failure of public accountants to detect fraud during the auditing process and the role of the senior executive officers in manipulating financial data to deceive auditors. Consequently, Sarbanes-Oxley is tightly focused upon the role of independent public auditors, the need for certifications by the CEOs and CFOs, and the need for independent directors to be involved in the auditing process.18 It focuses upon three Achilles’ heels of the for-profit world: (i) the failure of some auditors to be independent of their clients and to detect fraud; (ii) the failure of audit committees of the governing boards to be independent and rigorous; and (iii) the role of the senior executive officers in manipulating financial data.

Sarbanes-Oxley does not deal with general governance issues as much as it deals with the auditing problems and the financial manipulation that occurred. However, the public anger that produced Sarbanes-Oxley has caused for-profit corporations to reexamine their governance structures. The Walt Disney Corporation provides a good example of a corporation that has adopted codes of conduct and defined mandates for its audit, compensation, and governance committees. The 2004 proxy statement for Walt Disney Corporation is available online and provides a handy guide to the types of committee structures and committee mandates that corporations should be considering. In addition, the "revolt of the shareholders" at the 2004 annual meeting of the Disney Corporation, where 43% of the voting shareholders cast ballots against the re-election of Michael Eisner, who served as both the chair of the board as well as the CEO, opens up a second front (led by institutional investors) in the effort to achieve a more independent and rigorous governing board, one that truly oversees senior management.19

There are many provisions contained in Sarbanes-Oxley that are not addressed in this article, including the establishment of a Public Company Accounting Oversight Board. That new Board will enforce standards for public accountants that perform audits. Sarbanes-Oxley also provides greater protection for corporate whistleblowers and prohibits the destruction of corporate documents. These last two provisions apply equally to for-profit and nonprofit organizations.

New Hampshire’s Good Governance Initiative. In October 2002, New Hampshire’s Bureau of Securities entered into a settlement agreement with Tyco International, Ltd. to resolve allegations about violations of state securities laws and corporate wrongdoing. The settlement was in the amount of $5,000,000. In September 2003, the Bureau of Securities announced the creation of the Center for Public Responsibility and Corporate Citizenship, a nonprofit initiative designed to increase ethical behavior in the corporate world. Mark Connolly, the Director of the Bureau, and his staff deserve high praise for securing the settlement and using the funds to advance good governance.


Strictly speaking, the requirements and prohibitions contained in Sarbanes-Oxley do not impact nonprofit entities in the same manner that they impact for-profit entities. However, at least two commentators have stated that certain provisions are relevant to large nonprofit healthcare entities: those relating to auditor independence (Sarbanes Section 201-207), Audit Committee Standards (Sec. 301), Corporate Responsibility for Financial Report (Section 302), Improper Influence on Conduct of Auditors (Section 303), Disclosures in Periodic Reports (Section 401), Management Reassessment of Internal Controls (Section 404), Adoption of Code of Ethics for Senior Financial Officers (Section 406), and Disclosure of Audit Committees Financial Expert (Section 407).20

In broader terms, Sarbanes-Oxley has caused nonprofit leaders to focus upon "good governance" and review the practices of the nonprofit entities, including (i) the adequacy of internal controls on financial matters, (ii) the effectiveness of board committees, (iii) the understanding of fiduciary duties, and (iv) the importance of conflicts of interest policies.

The nonprofit landscape offers numerous examples of improper behavior or unwise practices,21 including the recent sentencing of the president of a major Washington, D.C. charity accused of embezzling $500,000 from that charity.22 In May 2004, the president of that charity was sentenced to 27 months in prison for charging personal expenses to the charity, draining over $90,000 from the pension fund, and paying himself about one-third of a million dollars in undeserved annual leave.23 In April 2004, public attention also focused upon Blue Cross Blue Shield of Rhode Island, where that healthcare nonprofit wrote off a $600,000 loan to its president, made payments of $12,500 to board members, $15,000 to committee chairs, and $25,000 to its chair. As the Governor of that state said, "People should be serving on that board …because they are interested in the issue of health care and bringing service, if you will, to the benefit of our citizens."24

Sarbanes-Oxley Requirements

Sarbanes-Oxley is a complex piece of legislation. The brief summary set forth below contains only highlights of the statute. A solid analysis may be found at and in the National Law Journal (Vol. 26, no. 9, March 22, 2004, page 12).

  • Sections 101-107. Public accounting firms must register with the newly established Public Company Accounting Oversight Board. The Board may conduct disciplinary hearings and impose sanctions upon accounting firms.

  • Sections 201. Accounting firms engaged in auditing a publicly traded corporation are prohibited from also offering certain other services – e.g., bookkeeping, financial information services, fairness opinions, actuarial services, management functions, and broker dealer, investment advisor or investment banking services, among others.

  • Section 203. The lead partner and the reviewing partner of the accounting firm must rotate off the audit every 5 years.

  • Section 206. Prohibition on the CEO, Controller, CFO, or Chief Accounting Officer of the publicly traded corporation from having been employed by the accounting firm during the year prior to the audit.

  • Section 301. Each member of the Audit Committee of the Board must be independent. The Audit Committee is directly responsible for appointing, compensating, and overseeing the work of the accounting firm.

  • Section 302. The CEO and CFO of a public corporation must certify that the audited financial statements "fairly represent, in all material respects, the operations and financial condition of the issuer."

  • Section 401(a). Annual and quarterly reports must disclose all "material off-balance sheet transactions" and "other relationships" with unconsolidated entities that may have an effect upon the financial condition of the corporation.

  • Section 402(a). It is unlawful for an issuer to extend credit to any director or officer.

  • Section 404. Every annual report must contain a statement on "internal controls" and their effectiveness. Annual reports must disclose the adoption of a code of ethics for senior financial officers and the contents of that code. There must be immediate disclosure of any change in that code of conduct.

  • Section 407. At least one member of the Audit Committee must be a "financial expert."

  • Title VIII (Corporate Fraud and Criminal Fraud Accountability Act of 2002). It is a felony to "knowingly" destroy or create documents that impede, obstruct or influence federal investigations. The statute of limitations on securities fraud claims is extended; and employees of both corporations and the accounting firms are subject to protection of the whistleblowers statutes.

Boston University. In Massachusetts, the board of trustees of Boston University was the subject of media scrutiny as it hired and then dismissed a new President of Boston University. Questions about board governance, term limits and conflicts of interest involving board members dominated the Boston newspapers on this issue. The board is reported to have paid a settlement of $1.8 million to the terminated presidential appointee, who did not serve a single day in office and was terminated on the eve of his inauguration. Under continuing public scrutiny, the governing board proceeded to change its governance and board structure, calling the changes "a milestone."25

St. Paul’s School. In New Hampshire, St. Paul’s School, a private school with approximately 520 students, was also the subject of media scrutiny in the Wall Street Journal, the Concord Monitor and the Union Leader.26 The media focused upon compensation for the Rector and Vice Rector of St. Paul’s School and also raised questions about the Rector’s Discretionary Fund and the ways in which that fund was being used. The Attorney General’s Office examined both the compensation issues and the Rector’s Discretionary Fund. (The author of this article was involved, as Director of Charitable Trusts, in both the examination of St. Paul's School and the agreement discussed below.)

In February 2004, St. Paul’s School and the Attorney General’s Office reached an agreement (the "Agreement") that addressed these issues. First, the Agreement acknowledged that a 10% reduction in compensation would take place in July 2004. Second, the Agreement placed a "cap" or limitation on the compensation paid to both the Rector and Vice Rector for a two-year period. During that period, no increases in salary are permitted. Third, the Agreement imposed a limitation on the amount of any increase in salaries after the end of the two-year period. Neither the Rector nor the Vice Rector could receive increases in salary that exceeded the percentage increase granted to members of the faculty at St. Paul’s School. This provision established, for the first time in New Hampshire, a ratio or connection between faculty compensation and the compensation of the two senior executive officers that manage the institution. St. Paul’s School also agreed to provide audited financial statements to the Attorney General’s Office annually and to meet with the Attorney General’s Office annually from 2004 until December 2008 to ensure compliance with the Agreement.

With respect to the Rector’s Discretionary Fund, the Wall Street Journal reported that moneys were being used by the Rector to pay for yacht club and country club fees in Maine and for fees at the Canyon Ranch Spa, outside of New Hampshire, as well as for other benefits.27 The Agreement between the School and the Attorney General’s Office provided for the establishment of internal controls on the Rector’s Discretionary Fund and for a limitation on the uses to which those funds could be put.28

The Agreement also provided for the hiring of four experts to review St. Paul’s policies and management of its investment portfolio and to examine its governance structure. The experts retained included David Ormstedt, Esquire, a former Director of Charitable Trusts at the Connecticut Attorney General’s Office; Richard Allen, a former Director of Charitable Trusts at the Massachusetts Attorney General’s Office; Professor Jay Light, from the Harvard University School of Business; and Harold Janeway, a New Hampshire investment expert. The four reports may be found on the webpages of both St. Paul’s School and the Attorney General’s Office.29

Best Practices #1: The Endowment for Health. What is needed, in New Hampshire, are positive models of best practices, good governance, transparency and accountability for nonprofit entities to emulate. One of the premier New Hampshire institutions in this respect is the Endowment for Health, the $87,000,000 foundation created in 1999 from the sale of Blue Cross Blue Shield. Although it is a private foundation and not a public charity, under the leadership of Dr. James Squires, its president, and Sylvio Dupuis, its first chair, the governing board adopted conflicts of interest policies, instituted internal controls, and established a reputation for connecting well with its constituencies. The Endowment does far more than issue an annual report on its activities. It holds regular meetings throughout the state to listen to its constituencies and craft its programs; and it has assembled for its governing board and its staff an "Accounting Procedures Manual" that spells out in great detail how financial matters are to be handled.

What is also needed is a different, more elastic, definition of "accountability." Accountability is generally defined as culpability or responsibility for mistakes and errors that have occurred in the past. Accountability, however, should also mean responsibility for putting into place preventive measures and internal control systems that will avoid problems. Effective leaders do precisely that.

Best Practices #2: The New Hampshire Charitable Foundation. Another exemplary New Hampshire model is the New Hampshire Charitable Foundation (the "Charitable Foundation") that has embraced the recommendations of Independent Sector and the Council on Foundations on "best practices." The Charitable Foundation has been reviewing Sarbanes-Oxley provisions; and although the Charitable Foundation had many of the recommended policies in place, it recently formalized those policies. It has adopted all of the policies recommended by Independent Sector and has voluntarily complied with key provisions of Sarbanes-Oxley. The Charitable Foundation has clearly taken the lead in setting high standards for itself, its board and its staff. New Hampshire charitable entities should examine the path that this foundation has taken.

More specifically, the Charitable Foundation has reviewed its practices relating to its code of ethics, employee gift acceptance, insider transactions and conflicts of interest, whistle-blower protection, and document retention and destruction. The Charitable Foundation has also crafted a clear charter for its Audit Committee, reflecting the Sarbanes-Oxley provisions, and adopted the certification requirements of Sarbanes-Oxley. It has made clear the procedures whereby staff members may confidentially voice their concerns about any perceived improper conduct. Finally, its code of ethics makes "stewardship" one of the keystones of its operations.

What is impressive about the Charitable Foundation’s work is not only the end-product but, equally, the fact that its governing board took the need for "best practices" so seriously and committed resources to the task.  

Best Practices #3: The Nature Conservancy. The most recent "case study" involving a charitable entity under public scrutiny is The Nature Conservancy. The Conservancy offers a positive model for embracing change. After public criticism of its practices, the governing board hired outside experts, including former Harvard University President Derek C. Bok, to strengthen its "governance, transparency and accountability." The panel of experts held extensive interviews with trustees, volunteers, staff and others. In March 2004, the panel then made detailed recommendations to the governing board. Of special note was the openness of the process and the attempt to be inclusive. The process was not an attempt to defend prior behavior or avoid major changes. Instead of retreating into a defensive mode, the governing board embraced the opportunity to rethink its operations and its policies.

The report to the Conservancy recommended six basic committees, each required to report quarterly to the governing board. The report also recommended a conflicts policy that prohibits the purchase or sale of land involving any board members or members of their immediate families. The conflicts policy is to be clearly set forth on the Conservancy’s website and in its Form 990. After identifying compensation as a sensitive issue, the Report recommended that compensation for senior executive officers be scrutinized and "be disclosed in great detail in the Form 990." [emphasis added]. Finally, the report recommended that the Conservancy use the Form 990 to disclose "as much as possible" (about its mission, policies, programs goals, etc.). It compared the Form 990 to a publicly traded corporation’s annual report filed with the SEC and recommended the Memorial Sloan-Kettering Form 990 as a model.

Best Practices #4: New Hampshire Initiative. There is a statewide initiative now underway that deals with all of these issues. Eighteen months ago, nine New Hampshire funders created a unique coalition - the "Statewide Collaboration for Enhancing Nonprofit Effectiveness ("SCENE"). SCENE has committed itself to creating a system to better support nonprofit organizations in this state. This project is intended (i) to produce high quality training to assist charities in improving their internal operations, their management and governance, (ii) to build a collective effort on ethical and accountability issues, on methods for increasing charitable giving, and on providing the general public with a better understanding of the charitable sector, and (iii) to create a "voice" for the sector both in the legislature and in the public at large.

SCENE will be partnering with the New Hampshire Center for Nonprofits over the next six months in planning on the best ways to accomplish these goals. This planning time will be used to consult with national experts, research best practices, and build a network in our state to support strong nonprofit organizations. The nine members of SCENE are to be congratulated for taking the initiative. (The members are the New Hampshire Charitable Foundation, the Endowment for Health, the Hoffman Family Foundation, Public Service of New Hampshire, Fidelity Investments, United Ways of New Hampshire, the Foundation for Seacoast Health, the Bean Foundation and the Children's Trust Fund of New Hampshire.) New Hampshire charities looking for "best practices" should consider this initiative, as well as the Endowment for Health, the New Hampshire Charitable Foundation and The Nature Conservancy.


The structures of the nonprofit and for-profit sectors differ in several key ways. For nonprofit entities, the continuing problems center on the lack of rigorous governance structures and the inability of the federal and state agencies to monitor the sector properly. Since 1990, when proliferation of nonprofits began in earnest, the ability of the Internal Revenue Service (IRS) to monitor the sector has eroded.

1. Public Perception

In recent months, three very different studies were published on the problems that nonprofits face. First, the series of articles on excessive compensation paid to foundation trustees published by the Boston Globe was a body blow to the charitable sector,30 reinforcing a public perception that something is amiss in this sector. The excessive compensation described in the newspaper articles was one of the reasons that the Attorney General’s Office in Massachusetts moved to draft legislation that tightened scrutiny of nonprofit organizations in the Commonwealth.

Second, the Brookings Institution in Washington, D.C. published its survey of how the public perceives the nonprofit sector.31 The perception is not healthy. According to the Brookings Institution, public confidence in the charitable sector declined after the events of 9/11 and has not recovered since then. This is in marked contrast to the public confidence in other established institutions in our society that rebounded after the events of 9/11. Since public confidence in the sector is critical for obtaining financial support and volunteer support, this study warrants consideration.

Third, the Hauser Center at Harvard University published its analysis of illegal and inappropriate behavior in the charitable sector.32 The report has a stark title: "Wrongdoing by Officers and Directors of Nonprofit Organizations: Press Reports 1995-2003." In the article, the criminal and civil wrongdoing at nonprofits was catalogued, analyzed and set forth in tables, suggesting recurrent patterns of wrongdoing in the sector. Many of the illegal and inappropriate behaviors stemmed from a lack of rigorous scrutiny of operations by governing boards.

These three studies by three reputable organizations raise the question of why the charitable sector appears so vulnerable to these excesses – and what constitutes a proper corrective.

2. No Shareholders/Inadequate Disclosure/Absence of an "SEC" to monitor the sector

Absence of Shareholders. Historically, self-perpetuating boards have managed nonprofit entities. Unlike the for-profit world, where shareholders exist and act as a check upon a board of directors, there are no shareholders in the nonprofit universe. Shareholders in the for-profit world have a cluster of remarkable legal rights and act as a check upon the boards of publicly traded corporations. Shareholders have the right (i) to demand access to corporate documents, including minutes of board meetings; (ii) to receive audited financial statements and quarterly financial statements; (iii) to submit shareholder resolutions that must be placed in the annual proxy statement; (iv) to vote for board members and vote on mergers and acquisitions; and (v) to bring shareholder derivative suits. There is no similar mechanism for accountability among nonprofits.

The importance of shareholders as a check cannot be underestimated. The impact of a single shareholder is best illustrated by a recent New Hampshire situation involving Barbara Pressly, a holder of one share of the common stock of Pennichuck Water Works. That single shareholder demanded access to voting lists and other documents in an effort to question the proposed sale of Pennichuck Water Works to an out-of-state purchaser.33

The impact of a concerted minority of shareholders is best illustrated by the 43% of the Disney shareholders who voted against the re-election of Michael Eisner as a board member, leading to his removal as chair of the governing board of Walt Disney Corporation and the splitting of the position of CEO and board chair. Shareholder resolutions, including those submitted by institutional investors, for many corporations have been demanding the election of more "independent directors" and greater accountability on compensation issues.

The IRS. In April 2002, the Government Accounting Office (GAO) reviewed the performance of the IRS in regulating the nonprofit sector.34 The GAO report found that existing regulation was not adequate. Given the remarkable number of nonprofits that exist (about 1,300,000 nonprofit entities in 2000) and the rate at which new nonprofits are formed annually, the IRS does not have the staff or the ability to regulate the sector adequately. As the GAO Report concluded, "…from 1996 through 2001, IRS staffing for overseeing exempt organizations fell by about 15 percent while the number of applicants to become tax-exempt charities increased by 9 percent, and the number of Forms 990 filed by charities increased by 25 percent."35 As of 2000, there were 1.35 million tax-exempt organizations organized in the United States. Of that number, 820,000 were charities.36 The number of nonprofits has now increased to approximately 1.8 million.

The Form 990. In the for-profit universe, the major accountability tool for publicly-traded corporations is the audited financial statement, prepared by independent public accountants who follow industry-wide standards. Those financial statements for publicly traded corporations are certified by public accountants and are made part of the annual reports circulated to all shareholders within 120 days of the end of the fiscal year. These annual reports and the quarterly statements are also filed with the Securities and Exchange Commission. The SEC has the ability to review these financial statements and impose penalties for improper practices.

There is no such parallel disclosure document for larger charitable entities in the nonprofit universe. Instead, there is the Form 990, filed by all charities that are registered with the IRS. However, the Form 990 is generally prepared by the executive director or president or treasurer of the nonprofit and no public accountant is required to be involved in its preparation. Although the Form 990 is supposed to provide information on critical areas such as compensation of the five most highly paid employees, on the value of the assets held, and on the revenue and liabilities of the entity, it remains a weak accountability tool, given the discrepancies that appear on those forms.37


1. The Existing Legal Framework. There is a legal framework in New Hampshire that attempts to produce "good governance" for charitable nonprofit entities. New Hampshire statutes mandate that charitable trusts adhere to some minimal level of acceptable conduct. However, these minimal requirements do not necessarily produce "good governance."

Since 1997, the Legislature has required a conflict of interest policy for every New Hampshire charitable entity (RSA 7:19-a). It wrestled with self-dealing by members of a board and its officers (RSA 7:19-a). It mandated a minimum number of independent directors on a nonprofit entity’s governing board (RSA 292:6-e). In addition, six years before the enactment of Sarbanes-Oxley, the New Hampshire Legislature adopted its own prohibition against loans being made to officers and directors of charitable entities (RSA 7:19-a). In RSA 7:19-a, the Legislature defined conflicts of interest broadly, including not only board members but their spouses, children and associated business entities as well.

To enforce the conflicts of interest provisions, the Legislature empowered the Attorney General’s Office to monitor compliance, but it also required that a public notice be published where contracts were awarded by a charity to a board member.38 The Attorney General’s Office, for its part, will not register or renew a registration for any charitable trust that does not complete its one-page "ethical audit" – a brief questionnaire about conflicts of interest. The Legislature also required a two-thirds vote of the independent directors to approve any contract with a board member – substantially higher than the normal requirement.

In 2004, the New Hampshire Legislature added another brick in the framework that governs New Hampshire charitable trusts - House Bill 1408. HB 1408 requires all charitable trusts with revenue of $500,000 or more to submit additional financial disclosures to the Attorney General’s Office. This step was required because of the inadequate information provided by the Form 990 filings. The Legislative objectives underlying HB 1408 were a concern for ensuring integrity, accountability and transparency in the nonprofit sector.

2. Investment Statutes: Prudent Behaviors. In 2000, the New Hampshire Legislature adopted a major statute that defines the elements of "good governance" in the investment area. (RSA 564-A:3-b, the "General Standards of Prudent Investment"). That statute is binding upon all boards of directors of charitable entities.

RSA 564-A:3-b is broad in scope. It adopts the total return concept, mandates how trustees must select and monitor their investment advisors, establishes clear duties for trustees, and reaffirms the duty of loyalty and impartiality. RSA 564-A:3-b is explicit in its language. It uses simple declarative sentences and has few, if any, ambiguities. It offers a comprehensive statement of what a trustee’s duties are in this jurisdiction. The statute goes beyond general terms such as "prudent" and "reasonable," describing with specificity duties such as the "duty to monitor" and the "duty to diversify."

Duty to Diversify. RSA 564-A:3-b begins with the duty to diversity the investment portfolio. "In making and implementing investment decisions, a trustee has a duty to diversify the investments of the trust, unless, under the circumstances, it is prudent not to do so." (RSA 564-A:3-b, III). Diversification relates to the asset allocation or the division of investments among different vehicles. For the largest of charitable entities, diversification might include elements from the following: treasury bills, corporate bonds, high-yield bonds, large cap stocks, and small cap stocks, among others. The proper mix in each portfolio depends upon a variety of factors – the nature of the foundation’s charitable mission, the need for liquidity and regularity of income, and general economic conditions, among other factors.

Duty to Invest in a Prudent Manner. This duty is owed by the trustee to the beneficiaries of the trust; and investment decisions must be made "in light of" the trust’s purposes, its terms and distribution requirements. Consequently, trustees – and the members of the investment committee that is charged with oversight of the investment portfolio – should keep in mind these basic reference points when working with their investment advisers.

One recent example of imprudent investment is the Cleveland Clinic Foundation, one of the premier nonprofit health care systems in the nation.39 With $1.2 billion dollars in investments in 1999, it rivaled many of the nation’s major medical clinics. However, by December 2002, the Foundation had a value of $650,000,000, a loss of approximately 50%. It lost a substantial portion of its investment portfolio because it had invested aggressively in technology stocks in the 1990’s. As a result of the investment losses, a planned new $300,000,000 cardiology center was postponed and debt financing had to be restructured. Moody’s downgraded the hospital’s bonds; and Standard & Poor lowered its rating. The question of whether the Foundation’s governing board acted prudently and engaged in "prudent investment" is an important one.

Delegation of Investment Function/Duty to Monitor. RSA 564-A:3-b, IX permits trustees to delegate the investment and management functions to an investment adviser or agent. However, it mandates certain standards when trustees decide to exercise that option. The statute requires that the trustees use "reasonable care, skill, and caution" in selecting an agent, in establishing the scope and terms of the relationship, and in periodically reviewing and monitoring compliance. The recent decision in Liss v. Smith (a case that relates to fiduciary duties under ERISA) provides a list of "red flags" that raises questions about the financial adviser and his performance.40 In the Liss case, the Court pointed to the "failure to implement an investment policy; failure to diversify Fund assets; failure to retain investment advisers; failure to properly investigate Fund investments; failure to monitor the Pension Fund’s solvency and the failure to exercise due diligence in selecting service providers for the Fund."41

Trustees must monitor the work of the investment advisor. For example, is an investment adviser acting prudently if the adviser invested the portfolio’s assets in limited partnerships that had "call" features (requiring future payments from the charitable entity), given the nature of the charitable entity and its needs for liquidity? Or, did the investment adviser invest in vehicles that carried an inappropriate level of risk for the charitable entity? Did the investment advisor adhere carefully to the investment policy crafted by the charitable entity?

Simply stated, governing boards have the ability to delegate – but not abdicate – their responsibilities under RSA 564:3-b.

Duties of Loyalty and Care. RSA 564-A:3-b contains other clear statements of fiduciary duties for trustees, including the following core mandates: to conform to the duties of loyalty and impartiality; to incur only those costs that are reasonable; and to identify the trust's purpose and develop an investment strategy. The issue of trustee liability has presented itself here in New Hampshire, when trustees of a New Hampshire charitable trust (the Portsmouth Home for Aged Women) were sued individually for breach of their fiduciary duties in the financial management of the charitable entity.

Practical Questions. A series of practical questions arise from any discussion of RSA 564-A:3-b.

For Attorneys: Have you informed your trustee/clients about the existence of these duties and reviewed the statutes with them? Have you discussed with them the meaning of the phrase "duty to diversify" or "the duty to monitor"? These statutory requirements are not mere guidelines. They are statutory mandates.

For Trustees: Do you review these standards when you organize your investment committee each year and charge its members with their mission? When trustees adopt an investment policy, do they discuss the "duty to diversify" and the "duty to monitor" and the "duty to keep costs down?" Have the trustees been given an opportunity before the board meeting to read the report of the investment committee so that they may be prepared to ask questions about the performance of the portfolio and the level of risk that the charitable entity is being asked to assume? Are the trustees passive spectators when it comes to performing these duties or are they actively involved in the discussion?

UMIFA. There are other statutes that deal with the responsibilities of the governing board, including the critical UMIFA statute that governs endowments.42 There is also the common law that governs charitable trusts in general and provides a body of law that mandates good governance. Given the constraints of this article, however, this is not the proper place to address those areas. The absence of those components from this article should not be viewed as a basis for ignoring them.


Since the corporate scandals and the enactment of Sarbanes-Oxley, many commentators have opined on what constitutes "good governance." The most recent commentaries are those by BoardSource, Independent Sector, and the Nature Conservancy. All merit attention, as does the ethical code of conduct that organizations such as the Association of Fundraising Professionals adopted many years ago.43 What follows is a brief, but not exclusive, checklist of elements for "good governance." Because the concept is an evolving one, what follows is a bare minimum and is not exhaustive:

1. Make Ethical Behavior Central to a Board’s Culture

The board should establish an ethical code of conduct for board members, officers, staff members and volunteers. Instead of treating the code or the policy as a document "to be kept on file," the chair of the board must make ethical conduct a personal theme. If ethical behavior is important to the chair and the president, it will be important to everyone in the organization. If the chair chooses to "file" the document, then board members, officers and staff will act accordingly.

The key to ethical behavior lies with good leadership. The chair should circulate a conflicts questionnaire annually to board members asking them to describe the real and potential conflicts of interest for that director. It is the chair’s responsibility to review those conflicts statements and surface the conflicts issue when appropriate. There should also be a mechanism for encouraging board members, staff members and others to surface ethical and legal problems in a confidential manner.

2. Strengthen Internal Controls

Part and parcel of a governing board’s fiduciary duty is the duty of care. This includes making certain that such basic elements as check-signing authority, the use of the corporate credit card, and the producing of regular reports by the treasurer are in place and are followed. Other examples of internal controls include methods for ensuring that restricted gifts to the charity are properly administered, including the disbursement of funds for the purpose the donor intended. In addition, the keeping of proper board minutes and other records is important, as is the timely filing of the annual application for a property tax exemption and the timely filing of the Form 990 or other regulatory reports.

3. Review By-Laws

Nonprofit organizations do not always re-examine their basic core documents to reflect the growth in the organization, changes in the nonprofit sector, or the experiences of peer groups. By-laws should be revisited periodically to ensure they reflect emerging best practices. One or more of the following committees should be in place, with clear written mandates:

  • Audit Committee
  • Investment Committee
  • Nominating Committee
  • Finance Committee

Larger institutions may require all four committees; smaller charities may not.

4. Use the Internet to Inform the Public

The Internet has transformed the relationship between a charitable trust and its constituency. Charities should use the Internet to post its annual Form 990, its core governing documents, as well as information about the governing board, the staff, and the mission of the entity. However, the website should also be used to tell the story of what the charity is doing in a compelling way. The Cheshire Medical Center, a New Hampshire nonprofit organization, has made interesting use of the Internet ( in that respect. In addition, public filings with the Attorney General’s Office provide materials on its corporate structure, board membership, community needs assessment and its community benefits program.

5. Investment and Spending Policies

Is the entity in compliance with the prudent investor statute (RSA 564-A:3-b) and with the Uniform Management of Institutional Funds (RSA 292:B)? Does the board:

  • Review the performance of the investment manager and the portfolio
  • Monitor the investment manager’s fees
  • Ensure there is an investment policy in place and that it is followed
  • Review the investment policy periodically

6. Board Training and Evaluations

Does the board require periodic evaluations of board members and an annual evaluation of the CEO? Does the board emphasize the role of independent directors? Has the board reexamined the methods used to solicit nominations for new board members? Has the board discussed the issue of term limits for board members and term limits for officers of the board? (See the report of David Ormstedt at the New Hampshire Attorney General’s website for a discussion of term limits and limits on the terms that officers serve.)

Does the charity have a policy or process in place for recruitment of new board members, with an eye for specific skills that are needed and for diversity? Does the charity fully inform potential board members upfront about what is required in terms of time and effort – and about the conflicts of interest policies? Is there a clear process for removal of board members or for board training, if needed?

7. Compensation

Excessive compensation is among the most sensitive of issues for the general public. The public retains the image of excessive compensation for many years, coloring its view of that charity and affecting both potential donors and volunteers. The board should be fully informed about both the actual salary component and all the perquisites of the position. Two of the most egregious cases of excessive compensation remain The Bishop Trust in Hawaii, where each trustee was paid $1 million annually, and Adelphi University, where 17 trustees were removed for breach of their fiduciary duty in connection with the compensation paid to the University’s president.44 The Boston Globe reported that the president of Adelphi University "was the second-highest paid college president in the country."45 However, the Adelphi board was negligent in establishing performance criteria and in obtaining comparable data.

Judging the reasonableness of compensation for senior executive officers is among the most basic duties of a governing board. Both federal and state laws need to be consulted. The Internal Revenue Service adopted regulations ("Intermediate Sanctions") in this area several years ago.46 Those regulations include both processes to be followed and penal ties that will be imposed for excessive compensation.

In 1997, the Charitable Trusts Unit published a "Guidebook for Directors of New Hampshire Charitable Trusts." That Guidebook focused attention upon three basic concepts for directors and officers: integrity, stewardship, and accountability. Integrity -in the selection and behavior of board members and officers. Stewardship - as the core mandate for board members and officers in protecting charitable assets. Accountability – for decisions made by board members and officers. These three concepts remain as valid in 2004 as they were in 1997; and nonprofit leaders should remind themselves that they are the stewards of assets that are held in trust for charitable purposes, not for individual gain.

From those three concepts flow specific fiduciary duties: (i) the duty of undivided loyalty to the charity, (ii) the duty of care, and (iii) the prohibition on self-dealing. The finest description of those duties came in the statement, now legendary, by Justice Cardozo in December 1928 about "not honesty alone, but the punctilio of an honor most sensitive."47 The full quotation should be read by every board member of every nonprofit entity, for it captures the enormous responsibility that a board member assumes:

"Many forms of conduct permissible in a workaday world for those acting at arm’s length, are forbidden by those bound by fiduciary ties. A trustee is held to something stricter than the morals of the marketplace. Not honesty alone, but the punctilio of honor the most sensitive, is then the standard of behavior."48 [emphasis added.]

Although the Meinhard case did not deal with charitable trustees, the comment by Justice Cardozo has resonated through the years with great force about the standards expected of trustees.


Sarbanes-Oxley’s ultimate value to the nonprofit sector lies as a wake-up call to governing boards, causing them to stop and re-examine their own internal practices and the need to find better ways to connect with their constituencies. New Hampshire adopted its own statutory mandates for the sector, beginning in 1997; but, given the diversity of the sector, there is a need for each charitable entity to think about ways to do more than the minimal requirements set by law.


  1. Sarbanes-Oxley is shorthand for "The American Competitiveness and Corporate Accountability Act of 2002." It was signed into law in July 2002.
  2. See, U.S. Senate Committee on Finance, Press Release, June 1, 2004, at
  3. Joann S. Lubin, "Compensation at Other Nonprofits Examined," The Wall Street Journal, May 25, 2004, page A-1. Also, Mark Taylor, "Executive Pay Hide-and-Seek," Modern Healthcare, May 31, 2004, pages 6-7, 16.
  4. On Tyco and L. Dennis Kozlowski, see "Andrew Ross Sorkin and Susan Saulny, "Former Tyco Chief Faces New Charges," New York Times, June 27, 2002. Also, on Tyco and Kozlowski, see Mark Maremont and Laurie P. Cohen, "How Tyco’s CEO Enriched Himself," The Wall Street Journal, August 7, 2002. See also, Matthew Brelis and Jeffrey Krasner, "Ex-official bought home as he was getting Tyco loans to build another," Boston Globe, October 11, 2002. David Leonhardt, "A Prime Example of Anything Goes Executive Pay," New York Times, June 4, 2002. On Adelphia Communications and John J. Rigas, see Andrew Ross Sorkin, "Founder of Adelphia and 2 Sons Arrested," New York Times, July 25 , 2002. Barry Meier, "Key Witness Tells of Deception at Adelphia," New York Times, April 30, 2004. Peter Grant, "Adelphia Ex-Officials’ Defense Has Rocky Start," The Wall Street Journal, June 2, 2004. On WorldCom and Bernard Ebbers, Larry Neumeister, "Ebbers surrenders to FBI in fraud case," Union Leader, March 4, 2004, page D9. See also Simon Romero, "S.E.C. accuses WorldCom of Fraud; Bush vows to press an investigation," New York Times, June 27, 2002. Robert F. Worth, "Ex-Official of WorldCom Pleads Guilty to Fraud," New York Times, October 8, 2002. Also, "Ex-Controller of WorldCom Pleads Guilty in Fraud Case," New York Times, September 27, 2002. On the scope of the scandals, see Joann S. Lublin and Jared Sandberg, "Deadbeat CEOs plague firms as economy and markets roil," The Wall Street Journal, August 1, 2002. On the implications of the scandals, see Scott Bernard Nelson, "Reeling from WorldCom– State’s pension funds see $25 million loss," Boston Globe, June 28, 2002. On the behavior of senior executive officers at Enron Corporation, see "As Enron teetered, executives drew generous pay," Boston Globe, June 18, 2002. Kurt Eichenwald, "Fraud Charge Expected Soon in Enron Case," New York Times, October 1, 2002. Kathryn Kranhold and Jonathan Weil, "Enron Shareholders’ Suits Adds Big Banks: Roster of Defendants Grows," The Wall Street Journal, April 8, 2002. On the financial mismanagement by senior executive officers at Rite Aid, see Scott Kilman, "Rite Aid Ex-Officials Charged in Accounting Fraud Probe, "The Wall Street Journal, June 24, 2002. See also, "Former Rite-Aid CEO gets 8 years," Boston Globe, May 28, 2004. On Attorney General Eliot Spitzer’s role, see Patrick McGeehan, ‘"Spitzer Sues Executives of Telecom Companies over ‘Ill Gotten Gains," New York Times, October 1, 2002. Also, Kara Scannell, "Spitzer’s Winning Streak Heads for Court," The Wall Street Journal, May 25, 2004. On Richard Grasso, former Chief of the New York Stock Exchange, see Kate Kelly and Susanne Craig, "Spitzer Files Suit Seeking Millions of Grasso Money," The Wall Street Journal, May 25, 2004.
  5. Carrie Johnson, "Former Enron Chief Executive Surrenders to FBI," Washington Post, February 19, 2004. See also, Jonathan D. Glater, "Character to be Major Issue in Tyco Trial," New York Times, May 6, 2004 (reporting on Mark A. Belnick, Esquire, the former chief counsel at Tyco).
  6. Ken Belson, "Nortel Fires 3 Top Executives and Will Halve 2003 Profit," New York Times, April 29, 2004, page C1. Nortel terminated its CEO, its CFO, and Controller. The SEC, the Ontario Securities Commission, and the Canadian Mounted Royal Police are all investigating Nortel.
  7. Paul Taylor and Ken Warn, "Nortel fires top three executives," The Financial Times, April 29, 2004.
  8. Beth Healy, "Putnam agrees to $110 million settlement: Trading Penalty is 10 times more than investor restitution," Boston Globe, April 9, 2004, page D-1.
  9. See, Christopher Oster and Tom Lauricella, "Defense Arguments Emerge in Fund Scandal," The Wall Street Journal, April 12, 2004, page C1; also, Tom Lauricella, "Law Firm Said SEC Wasn’t A Threat," The Wall Street Journal, April 12, 2004, page C1.
  10. Randall Smith, "Quattrone Trial Yields Big Win for Government," The Wall Street Journal, May 4, 2004.
  11. Gretchen Morgenson, "Citigroup Agrees to a Settlement over WorldCom," New York Times, May 11, 2004, page 1. The Citigroup settlement dwarfs the settlement reached by Attorney General Eliot Spitzer and 10 Wall Street firms over biased research in December 2002. See, "Investor Paybacks Small and Slow," Washington Post May 15, 2004, page E-1. See also, Gretchen Morgenson and Timothy L. O’Brien, "When Citigroup Met WorldCom," The Sunday New York Times, May 16, 2004, page C-1.
  12. Id.
  13. Id.
  14. Stephen Labaton, "Government Report Details a Chaotic S.E.C. under Pitt," New York Times, December 20, 2002. Editorial, "The Mess at the S.E.C." New York Times, November 2002. Diana B. Henriques, "Wall Street Wants Nonpolitical S.E.C. Chief, and Quickly," New York Times, November 7, 2002. Gretchen Morgenson and Patrick McGeehan, "Wall Street Firms Are Ready to Pay $1 Billion in Fines," New York Times, December 20, 2002, page C1.
  15. On the role of Auditors. William J. Holstein, "A Culture Turned Against Itself at Andersen," New York Sunday Times, February 23, 2003. David S. Hilzenrath, "After Enron, New Doubts About Auditors," Washington Post, December 5, 2001. Jonathan Weil, "Behind Wave of Corporate Fraud: A Change in How Auditors Work," The Wall Street Journal, March 25, 2004. David S. Hilzenrath, "Enron’s ‘Outside’ Accountants Also Did Inside Audit," Washington Post, December 14, 2001, page E1.
  16. Jonathan Weil, "Behind Wave of Corporate Fraud: A Change in How Auditors Work," The Wall Street Journal, March 25, 2004. The article examines the changing nature of auditors and their practices.
  17. See, "Scandal at Parmalat Broadens; Staff May Have Destroyed Files," The Wall Street Journal, December 20, 2003, page A-1. Andrew Caffrey, "Bank of America fined record $10 m," Boston Globe, March 11, 2004, page E-1. See also, "Edward Iwata and Barbara Hansen, "Pay, performance don’t always add up," USA Today, April 30, 2004.
  18. For a concise summary of Sarbanes-Oxley’s provision, see Kenneth Clarkson, Roger Miller, Gaylord Jentz, and Frank Cross, West’s Business Law (2004, South-Western, Mason, Ohio) at pages 784-786 and pages 1033-1035.
  19. Bruce Orwall, Brian Steinberg and Joann S. Lublin, "Eisner Loses 43% of Disney Vote: Rebuke by Shareholders Weakens CEO’s Grip, May Spark Board Shift," The Wall Street Journal, March 4, 2004.
  20. Michael Peregrine and James R. Schwartz, "Key Nonprofit Corporate Law Developments in 2003," Health Law Reporter (Washington, D.C., BNA, Inc.), Vol. 13, no. 4 (January 22, 2004), p. 2.
  21. See, Frank Phillips, "Yawkey Trust acknowledges conflict," Boston Globe, September 6, 2003, page B-1. The Massachusetts Attorney General’s Office entered into an agreement with the Yawkey Foundation regarding a $15 million donation but the foundation agreed to tighten its conflict-of-interest policies. Also see, Richard A. Knox and Steven Wilmsen, "Severance deals at HMO voided," Boston Globe, January 13, 2000, page A-1. The Massachusetts Attorney General’s Office negated the $1.3 million in severance pay (or "golden parachutes") that were awarded to the CEO and CFO of the troubled nonprofit HMO.
  22. Jerry Markon, "Ex-Chief of Local United Way Sentenced," Washington Post, May 15, 2004, page A-1.
  23. Id.
  24. Katherine Gregg, "Carcieri criticizes Blue Cross, says state scrutiny lacking," The Providence Journal, April 2, 2004, page 1. The newspaper article reports that Genevieve Martin, Esquire, of the Rhode Island Attorney General’s Office questioned a year earlier the forgiven $600,000 loan and other "extravagant expenses" including a $4,002 payment to the Squantum Club for "country club dues."
  25. Martin Finucane, "Boston University board of trustees Oks overhaul recommendations," Boston Globe, April 15,, 2004. Marcella Bombardieri, "Panel wants to overhaul BU trustees," Boston Globe, April 9, 2004. The changes included term limits and new conflicts of interest policies.
  26. See, Anne Ruderman, "Attorney General reviewing St. Paul’s pay," Concord Monitor, February 5, 2004; Anne Rud, e, rman, "St. Paul’s pens salary agreement: raises to be on par with faculty’s," Concord Monitor, February 14, 2004; Anne Ruderman, "St. Paul’s School lays off eight staff members," Concord Monitor, February 3, 2004; Anne Ruderman, "St. Paul’s pay far exceeds peer schools," Concord Monitor, August 29, 2003, page A-1; Anne Ruderman, "St. Paul’s salaries stump alumnus," Sunday Monitor, September 7, 2003, page B-1. Also, see Juliet Chung and Daniel Golden, "At Elite Prep School, Rector’s Pay Is More than College Green," The Wall Street Journal, page A-1. See, Tom Fahey, "St. Paul’s headmaster pay, perks raise eyebrows," The Union Leader, August 26, 2003, page A-1. Joann S. Lubin, "Compensation at Other Nonprofits Examined," The Wall Street Journal, May 25, 2004, p.A-1.
  27. Wall Street Journal, supra.
  28. The author of this article participated in the review of the St. Paul matter.
  29. See, and
  30. Beth Healy, Francie Latour, Sacha Pfeiffer and Michael Rezendes, "Some Officers of Charities Steer Assets to Selves," Boston Globe, October 9, 2003, page 1. Michael Rezendes and Sacha Pfeiffer, "Legislation eyed to fight abuses at foundations," Boston Globe, March 1, 2004.
  31. Paul C. Light, "To Give or Not to Give: The Crisis of Confidence in Charities," The Brookings Institution, Policy Brief, December 2003 (Reform Watch #7).
  32. Marion R. Fremont-Smith and Andras Kosaras, "Wrongdoing by Officers and Directors of Charities", The Exempt Organization Tax Review, Vol. 42, No.1 (October 2003), pp. 25-57.
  33. Hunter McGee, "With a single share, one woman battles the sale of Nashua-based Pennichuck Water Works," New Hampshire Sunday News, October 20, 2002.
  34. United States General Accounting Office (GAO), "Tax-Exempt Organizations: Improvements Possible in Public, IRS and State Oversight of Charities" (Washington, D.C., GAO-02-526). See also, Stephanie Strom, "Questions About Some Charities’ Actions Lead to a Push for Tighter Regulation," New York Times, March 21, 2004.
  35. GAO Report, page 3.
  36. GAO Report, page 4.
  37. In recent years, the Form 990s have been made available on the Internet at and donors and citizens may access that website to compare the Form 990 disclosures of charitable entities.
  38. RSA 7:19-a requires that a public notice be published in a newspaper of general circulation when a governing board votes to award a contract to a board member that exceeds $5,000 in any one year.
  39. See the Form 990s (Return of Organization Exempt from Income Tax) filed with the Internal Revenue Service by the Cleveland Clinic Foundation and made available on The website for the Cleveland Clinic is
  40. Liss v. Smith, 991 F.Supp 278 (S.D.N.Y. 1998)
  41. Liss v. Smith, 991 F.Supp 278, 294 (S.D.N.Y. 1998).
  42. RSA 292:B (Uniform Management of Institutional Funds)
  43. The AFP website contains the code of conduct and may be found at The AFP was formerly known as NSFRE (the National Society for Fund-Raising Executives) and has approximately 20,000 members. It provides a solid example of how a nonprofit association can contribute to ethical conduct by setting standards and policing its members.
  44. Colum Lynch, "N.Y. Suing Silber, other ex-Trustees over Adelphi Chief," Boston Globe, March 26, 1997.
  45. Id.
  46. Section 4958 of the Internal Revenue Code.
  47. See, the Attorney General’s Report on Optima Health (March 10, 1998), page 2. Also, Meinhard v. Salmon, 164 N.E. 545 (N.Y.Ct.App. 1928).
  48. Id.


Michael S. DeLucia is the Director of Charitable Trusts and Senior Assistant Attorney General at the Department of Justice, Concord, New Hampshire.



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