Spitzer Sees Improvements in Nonprofit Governance

Spitzer Sees Improvements in Nonprofit Governance

By Jay Dismukes

A proposed state law that would impose Sarbanes-Oxley–style regulations on the not-for-profit sector appears to be idling in Albany and, in the view of its principal promoter, Eliot Spitzer, is unlikely to make much headway this year. But, striking an optimistic note, the New York attorney general suggests that the bill already has had a positive impact.

“The legislation has not moved on a terribly fast track up in Albany,” Spitzer said last month of a bill intended to raise the nonprofit community’s bar of accountability and safeguard its large asset base. “…I see nothing happening legislatively.

“(But) we at least have a change in behavior,” he later said, referring to governance across both the for-profit and nonprofit sectors. “Our behavior is changing and that is good news.”

Among other provisions, the amended bill, S4836-A, would require the president or CEO and the treasurer or CFO of nonprofits with annual gross revenues of at least $1 million, or assets of at least $3 million, to certify the accuracy and validity of the annual report as well as the adequacy of the internal controls.

Rather than focusing much attention on the actual legislative proposal, Spitzer used his Feb. 19 speech at Baruch College to stoke the large crowd of nonprofit experts and board members to continue to seek stronger governance oversight for their organizations.

The corporate scandals that continue to shake the foundation of the for-profit world exposed the vulnerability of the not-for-profit community that lacks the for-profit sector’s “alternative decision makers” such as institutional shareholders, investment bankers and lawyers. As he has noted in the past, Spitzer said this dearth of checks and balances makes increased transparency and nonprofit board involvement all the more important.

Because nonprofits have few “carrots” that they can dangle before their board members to become more active, Spitzer said improved governance becomes a matter of “educating, cajoling and encouraging them to live up to their responsibilities.”

Educating board members about their obligations may be the most critical step to ensuring the future wellbeing of the nonprofit sector, he said.

Like Spitzer, former NYSSCPA Not-for-Profit Organizations Committee Chair Julie Floch, who spoke before the Baruch audience as well, also believes the year-long blitz of governance education in the nonprofit sector is making a difference.

“The proposed legislation has accomplished exactly what it was set out to accomplish, which was raising awareness. What has come out of all this in the past year has been an incredible amount of promulgation of best practices,” Floch said. “So in point of view of what’s happening in the nonprofit marketplace, it certainly made an enormous impact.”

In a related story, The Wall Street Journal reported on March 1 that Spitzer is setting the stage to sue Dick Grasso for the return of as much as $120 million in pay Grasso received for the eight years he served as head of the New York Stock Exchange, a not-for-profit organization. Members of the board that approved his pay could also be sued, the Journal stated.

At the time of his Feb. 19 speech, Spitzer mentioned Grasso’s pay in the context of executive compensation gone awry, noting that the “nonprofit salary paid should be commensurate with the value of the services provided.”