Corporate Responsibility: Monitoring Board Expenses
In the current corporate responsibility environment, board members should be particularly sensitive to the propriety (both actual and perceived) of their individual and collective spending and reimbursement practices. This is important, in particular, following the high profile action by South Carolina Governor Nikki Haley to request the trustees of the Medical University of South Carolina to repay funds previously reimbursed by the University for hotel, dining and similar meeting-related expenses. While the South Carolina focus was on state-owned facilities, the same concept could easily be applied by state charity officials to nonprofit health systems.
The Governor’s action followed the investigative report by a Charleston newspaper that, over the last several years, the board had incurred over $560,000 in food, beverages and hotel expenses. The Medical University’s board chair ordered an investigation of the board’s spending practices and the state inspector general has reportedly commenced an investigation of the spending practices of other state university boards. As one might expect, the newspaper story referred to “pricey meals, expensive bottles of wine and luxury hotel rooms.”
Historically, state and federal charity officials have become involved in the board meeting expenditure practices of nonprofit board members and executives, only where there were clear suggestions of financial excess and abuse (e.g., extraordinarily high expenses, failure to properly allocate between spousal and non-business related expenses, submitting reimbursement claims for hotel expenses outside the meeting period or for outrageous or inappropriate expenses). In addition, virtually all recent statements of governance principles acknowledge the need for an appropriate frequency and duration of board meetings and for appropriate levels of director education programming (all of which can be enhanced, from time to time, by going “offsite”). Concerns about such expenses are often (but not always) lower when board members are serving without compensation.
Yet, appearances can create the most unfortunate impressions—particularly when the subject of media scrutiny. In the current environment, such appearances can prompt embarrassing inquiry from charity officials (most often, the state attorney general). Health systems should take notice of the Medical University situation and, with the direction and advice of their general counsel, adopt a board spending and reimbursement protocol that is appropriate and reasonable given the size of the organization, the complexity of the board agenda, and the typical costs of meals and lodging in the headquarters locale (i.e., different thresholds if the board office is in a major urban area or a smaller regional community). Those who review and approve reimbursement requests under the protocol should receive some form of enhanced job protection against retaliation for their activity.