We found this posting from a major law firm that represents major nonprofits.
“The AG alleges that the NRA’s board of directors facilitated this conduct by turning a blind eye to LaPierre and other senior figures’ self-dealing behavior. The complaint is a stark, 189-page reminder for nonprofit boards to exercise meaningful oversight of management.”
“NRA assets allegedly were routinely wasted on private travel and entertainment expenses. Over $10 million were used for flights on private jets, which included regularly transporting LaPierre and his extended family to and from their Nebraska hometown. In 2018, for example, LaPierre allegedly took a personal trip from Washington D.C. to Dallas, stopping in Nebraska both ways so that his niece and grandniece could join him, costing the NRA $59,790.”
“Further, at least five NRA board members contracted with the NRA to provide consulting, public speaking, and fundraising services. Each received up to $220,000 per year from the NRA. None of these contracts were approved by the NRA board or the board’s audit committee before the fact, allegedly without consideration of their reasonableness.”
“The NRA board allegedly acted as a rubber stamp for senior executives’ pay raises. The organization’s assets declined by a startling $63 million between 2015 and 2018. Nevertheless, in 2018, the NRA board allegedly agreed to raise the salaries of LaPierre, the treasurer, and the general counsel.”
“The board’s audit committee allegedly swept these revelations under the rug, keeping any mention of the complaints out of meeting minutes and concealing them from auditors.”
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This case highlights what can happen when nonprofit corporations lack effective oversight of management. Providing this oversight is central to any board of director’s duties of good faith, ordinary prudence, and loyalty. Here are some of the specific lessons that nonprofit directors should take from the NRA’s legal troubles:
Directors should have a basic awareness of their legal obligations
Nonprofit directors are not expected to be experts in the law or in financial matters, but they should inform themselves of their oversight duties to avoid being asleep at the wheel.
The Attorney General’s complaint describes a board of directors which lacked even a basic understanding of its oversight responsibilities. According to the AG, though the NRA board was legally obliged to oversee accounting and reporting processes, the board’s audit committee chair had “no knowledge of New York law governing audit committees, whistleblowers, or conflicts of interest.” Accordingly, no meaningful steps were ever taken to create or enforce internal safeguards that may have reined in the senior executives’ alleged excesses. By way of easy example, the board allegedly failed to create a policy on charter travel or to monitor compliance with its reimbursement procedures.”
“The NRA board allegedly allowed self-dealing to run rampant. Like most states’ laws, New York law prohibits a nonprofit corporation from entering any related party transaction unless the board determines that the transaction is fair, reasonable, and in the organization’s best interest. NRA policy, on paper, required the same review for any transaction that might implicate a conflict of interest. But the NRA board allegedly neglected both obligations.”
“Directors are required to adequately inform themselves before signing off on changes in executive compensation. Nonprofit boards should objectively consider benchmarks such as job performance, compensation at peer nonprofit organizations, and their own organizations’ financial health when determining executive compensation. . . . However, the amended complaint alleges that “the majority of the NRA board disregarded their responsibilities . . . concerning oversight of compensation of corporate officers.” The NRA board allegedly conducted only cursory review before issuing one-page “pro forma” approvals of recommended compensation levels – figures often generated with data provided by the same executives whose pay is being considered.”
NRA in Danger 