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May 17, 2011
MA Attorney General Finds Charitable Board Compensation Unjustified

A recent investigation by Attorney General Martha Coakley found no justification for the compensation of board members at the commonwealth’s four major not-for-profit health insurers. As a result of the investigation, Coakley has announced plans to publish an annual public report detailing board compensation levels and rationales for all public Massachusetts-based charities. In addition, she has proposed legislation that would allow the Attorney General’s Office to prohibit charities from compensating directors.

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Coakley investigated the compensation of board members of Blue Cross Blue Shield, Fallon Community Health Plan, Harvard Pilgrim Health Care and Tufts Health Plan. During the course of the investigation, the boards at Blue Cross Blue Shield and Fallon agreed to suspend board compensation, while the Harvard Pilgrim and Tufts boards decided to continue compensating board members, Coakley reported.

“The vast majority of board members at charities volunteer their service, and for good reason,” Coakley said. “Compensation of board members creates unavoidable conflicts of interest and diverts resources otherwise focused on achieving the mission of the charity. These organizations enjoy significant tax and other benefits due to their charitable status, and we asked them to justify why they should be treated differently from other charitable boards.”

The insurers responded that their organizations were more complex and required more highly skilled directors; their directors committed significant time to their duties; and nationally health insurers pay their directors, so they must do likewise to compete. Coakley found that the insurers’ rationales were “unsupported.”

Coakley has proposed legislation that would prohibit Massachusetts-based public charities from compensating directors without approval from the Attorney General’s Office. House Ways and Means Vice Chair Martha Walz, a sponsor of the legislation, said, “Volunteering on a non-profit board is a time-honored tradition that should be jettisoned only in the rarest of circumstances.”

Read the Attorney General’s full report, available online.

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