When is a brother not a family member?

The Boston Globe (Khazei OK’d hiring brother at nonprofit, 8/22/2011) reported that Democratic primary Senate candidate Alan Khazei, former president and chief executive officer of the nonprofit, Be the Change, approved a consulting contract for his brother, Lance Khazei, a Hollywood writer, for his Be the Change work on media strategy.  According to the article, Lance Khazei received $50 per hour to work on establishing a Los Angeles office. Alan Khazei, stated that the compensation was “such a small amount, $50 an hour, $2,500 a month”, totaling about $40,000 over several years, in what appears to be an attempt to minimize the situation.

The contract with Alan Khazei’s brother was not initially reviewed and approved by the board of directors of Be the Change. In fact, as reported by the Globe, members of the board of directors only learned about the  consulting engagement when it reviewed its annual tax filing, the Form 990.

Be the Change has a conflict of interest policy that states if officers have a financial interest “directly or indirectly, through business, investment or family,” the transaction would need to come before the board to determine whether the transaction constitutes a conflict of interest, and that individuals with a potential conflict should not be present during the review of the transaction.  As such, from all accounts, it appears that Be the Change has a standard conflict of interest policy.

Caught in a public relations scandal, the organization argued that the brother of a chief executive should not be considered a family member under the organization’s conflict of interest policy. In a memo drafted by Be the Change’s attorney, the organization argues that the contract with Lance Khazei was not in violation of the conflict of interest policy because Alan Khazei would not benefit financially from his brother’s income, a gross misinterpretation of the intent of the policy. Most conflict of interest policies address decisions that financially impact officers or related parties, thereby intending to prevent individuals or their family members from benefiting from the decision.

So, in effect, for this argument to hold, Be the Change is arguing that because “family” is not defined, that a brother would fall outside of the definition of a family member and therefore any financial benefit to him is outside the scope of the conflict of interest policy. Conventional wisdom is that a brother is actually a family member.  Personnel policies generally define a brother as a family member.  If you asked a person on the street if a brother would be considered a member of the family, chances are, they would answer in the affirmative.  Also, when looking at the IRS Form 990 (the informational form nonprofits file annually with the IRS), the instructions state, ““Unless specified otherwise, the family of an individual includes only his or her spouse, ancestors, brothers and sisters (whether whole or half blood), children (whether natural or adopted), grandchildren, great-grandchildren, and spouses of brothers, sisters, children, grandchildren, and great-grandchildren.”  However, under the same document’s definition of disqualified persons, and family members of disqualified persons, brother and sisters are not included:

“For this purpose, ‘family member’ includes only the individual’s spouse, ancestors, children, grandchildren, great grandchildren, and the spouses of children, grandchildren, and great-grandchildren.”

The Standards for Excellence: An Ethics and Accountability Code for the Nonprofit Sector states that “Nonprofits should have a written conflict of interest policy. The policy should be applicable to board members and staff, and volunteers who have significant independent decision making authority regarding the resources of the organization.  The policy should identify the types of conduct or transactions that raise conflict of interest concerns, should set forth procedures for disclosure of actual or potential conflicts, and should provide for review of individual transactions by the uninvolved members of the board of directors.”

For more information on the Standards for Excellence educational resource packet on conflicts of interest available to members of the Standards for Excellence Institute, please click here.  For access to the members only resources, click here.

For information on how you can join the Standards for Excellence Institute, please visit our website.

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About Amy Coates Madsen

Amy Coates Madsen serves as the Program Director of the Standards for Excellence Institute.
This entry was posted in Conflict of Interest, Financial Management, Governing Board, Legal, Openness, Uncategorized. Bookmark the permalink.

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