1. Time for Criminal Penalties Against Non-Profit Board Members?

    Time for Criminal Penalties Against Non-Profit Board Members?

    This past week, two high-profile non-profit institutions have seen their stellar reputations collapse at the hands of “alleged” criminal activity by their eminent leaders. First, Westfield State University has been sent reeling from widespread media coverage concerning accusations against its President, Evan Dobelle, and his alleged inappropriate personal spending of university funds. The Commonwealth of Massachusetts has commenced an investigation and it appears that Dobelle will soon be out of a job (although he may be assigned one as an inmate within a state prison). Not to be outdone, Metropolitan New York Council on Jewish Poverty found itself in The New York Times this week after its CEO, William Rapfogel, was arrested for stealing more than $5 million over the past twenty years. While certainly it is encouraging that these alleged acts are coming to light and being dealt with by appropriate state authorities, what is disappointing is that the stewards of these non-profits – their board of trustees – have escaped relatively unnoticed in these scandals. The time has come for states to raise the expected standard of corporate governance at non-profits by enacting legislation providing for criminal penalties against board members whose activities extend beyond simple negligence.

    Critics, of course, will argue that such criminal penalties will do more harm than good for non-profits as it will be even more of a challenge for them to recruit new board members. After all, these are unpaid positions that rely upon the generosity of the individual to give of his/her time and talents to the nonprofit. Critics will further argue that such legislation is unnecessary as states already have laws that address trustee negligence (usually providing a standard of liability rooted in “gross negligence”). How are those laws working? Just ask the donors, employees and beneficiaries of Westfield State University and the Metropolitan New York Council on Jewish Poverty. Clearly, these state laws aimed at curbing the negligence of non-profit trustees are, in certain circumstances, insufficient.

    Let’s also be clear – in the cases of Westfield State University and the Metropolitan New York Council on Jewish Poverty, the actions by the trustees go way beyond simple negligence. In the case of Westfield State University, Dobelle was hired after he had been fired for cause as President of the University of Hawaii for extravagant personal spending of university funds. At the time of his termination, one University of Hawaii trustee was quoted as saying Dobelle “simply has no integrity and you cannot trust him”. It is simply astounding that Westfield hired him after such an incident, but what is even more shocking is that the trustees failed to put into place the appropriate controls to monitor and prevent Dobelle from engaging in the same activity that got him fired from the University of Hawaii.

    According to state prosecutors in New York, Rapfogel began stealing from the Metropolitan New York Council on Jewish Poverty shortly after he became CEO in 1992. More than twenty years and $5 million in stolen funds later, Rapfogel’s criminal conspiracy finally comes to a close. Twenty years. During all that time, no one on the charity’s board of trustees questioned his activities? Reports suggest that a routine audit would have at least raised an eyebrow and caused a preliminary investigation.

    What happened at Westfield State University and the Metropolitan New York Council on Jewish Poverty are not simply shortcomings in corporate governance best practices. Rather, these are massive failures in the public’s trust of those who are charged with the oversight of these vital institutions. It is a sad fact that there will always be figures like Dobelle and Rapfogel who pilfer non-profits – and rightfully so, there are laws which address such criminal activities. Doesn’t the public deserve laws directed at those whose oversight of those figures and the charitable funds they control reaches a level of reckless abandon?

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