Nonprofit Company Makes Its Owners Wealthy
What’s the matter with this picture? The headline is from a front page report (in this morning’s Los Angeles Times) by Alan Zarembo (whose stories I’ve linked to a number of times).
Let’s make some distinctions.
1. An entrepreneurial individual starts a private company and makes a fortune. That’s an inspiration and fulfillment of the American dream.
2. A CEO makes a fortune while leading a public corporation, while investors lose big time as the company’s stocks plummet after the CEO has cashed in. The Board of Directors – supposedly responsible not to a handful of top executives of the corporation (no matter how smart and hard-working these execs are), but to the shareholders – goes along for the ride.
That’s not an inspiration, that’s not the American dream, that’s a nightmare and a failure of the marketplace.
3. An entrepreneurial individual launches a nonprofit, which receives most of its funding from the state, and becomes rich – in large part because of “side deals” between his for-profit businesses and the nonprofit organization he heads. The nonprofit’s Board of Directors – apparently – goes along for the ride.
That’s unseemly, even if – to highlight two quotes from the Times‘ story – “there is no bright line for what constitutes reasonable compensation” (according to a senior attorney in the Attorney General’s office) and, “If you have good lawyering and you are very brazen, you can work around things” (a Pace University law professor).
Putting aside questions of nonprofit governance, let’s take a moment to consider – from the standpoint of a voter and taxpayer – the transparency of the State of California’s funding and activities.
We should expect some sunlight on this issue – without having to wait for Alan Zarembo’s next expose months from now on another wayward nonprofit organization. Or, at least, we should make Mr. Zarembo’s muckraking easier.
Does the State of California or (if funding funnels through California counties) the County of Los Angeles have a list of all nonprofit organizations receiving public funding, the reasons for the funding, and the amount of taxpayer dollars going to these organizations? That list, if it exists, should be available on the Internet in an accessible form. I haven’t been able to find such a list. I guess I’ll have to keep looking.
“To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual.” – IRS.gov
