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Monday, June 6, 2011

Fiduciary Irresponsibility - Tori

“I’m trying to enhance the chamber’s image.”

The board had not created any policies “that said exactly what you could spend money on.”

“I’m expected to do this with very little guidance.”

“Who does he answer to and look to for guidance?”

On May 27th, a Montgomery County jury failed to reach a verdict in an embezzlement case against the former CEO of the Montgomery County Chamber and Tourism Development Council Shane Adams. Prosecutors presented evidence that Adams had made several highly irregular purchases using chamber funds between February 2005 and July 2009. For example, prosecutors state that Adams used chamber money to purchase Virginia Tech shirts for his family to wear on trips outside the region. Adams justified the expense by claiming the apparel could be worn to promote the area. In addition, prosecutors alleged that Adams double-billed the chamber for trips by requesting a mileage reimbursement even though he had used a chamber credit card to pay for gas or rental car fees.[1] Prosecutors also charged that Adams used chamber funds to repair his personal vehicle, to make improvements to his beach home, and to provide year-end bonuses to chamber staff and himself. Adams’ defense attorney countered that while Adams may have violated board policies, his actions did not show criminal intent. Turk also claimed that board members were provided access to financial statements and knew about many of Adams’ alleged improper expenses. Taking the stand in his own defense, Adams said that the mileage reimbursement requests were accounting errors that were subsequently reimbursed and that the board had given approval to year-end bonuses. He also contended that board members appeared confused on the chamber’s operational policies and did not provide adequate supervision. Prosecutors indicated that they will likely retry this case.[2]

The testimony in this case reveals a fractured and distrustful relationship between the principal (Montgomery Chamber of Commerce Board) and the agent (CEO Shane Adams). Fortunately, the vast literature on nonprofit governance provides several lessons on how nonprofits can build and sustain a successful principal-agent relationship. In their March 2011 article Board/Staff Relationships in a Growth Crisis: Implications for Nonprofit Governance, Reid and Turbide suggest that effective nonprofits should rely on a balance of trust and distrust to structure the principal/agent relationship. The trust/distrust model allows organizations to avoid excessively trusting situations and/or distrusting (hyper-control) situations that inhibit collaboration between the board and staff. [3] Brown, Hillman, and Okun assert that nonprofit organizations that effectively promote mission attachment and conduct ongoing board training tend to have higher board performance on monitoring roles.[4] Likewise, Drucker suggests that principals and agents are complementary and should forge a collegial relationship. The nonprofit executive directors should strive to ensure the organs of board governance are effective. In addition, Drucker believes that board members should meddle constructively with nonprofit staff to gain a keener understanding of how the organization is working. Drucker cautions that the executive director should be notified of any contact between the board and staff.[5] Finally, Ebrahim argues that instead of relying on external mechanisms of accountability such as performance measures or government regulations, principals and agents should work together to promote integrity and mission.[6] While disagreements between agents and principals are inevitable in any nonprofit organization, proactive steps can be taken to mitigate against the formation of a dysfunctional, uncooperative relationship between the board and executive director.

[1] Shawna Morrison, “Police Interviews Shown in Embezzlement Trial,” The Roanoke Times, May 27, 2011, p.11.

[2] Shawna Morrison, “Jury Fails to Reach Verdict in Shane Adams Embezzlement Case,” The Roanoke Times, May, 28, 2011, p. 1.

[3] Wendy Reid and Jonathan Turbide, “Board Staff Relationships in a Growth Crisis: Implications for Nonprofit Governance,” Nonprofit and Voluntary Sector Quarterly, March 2011, p. 14.

[4] William A. Brown, Amy J. Hillman, and Morris A. Okun, “Factors That Influence Monitoring and Resource Provision Among Nonprofit Board Members,” Nonprofit and Voluntary Sector Quarterly, March 2011, p. 9.

[5] Peter F. Drucker, “Lessons for Successful Nonprofit Governance,” Nonprofit Management and Leadership, vol.1, no.1, Fall 1990, pp. 9-13.

[6] Alnoor Ebrahim, “Placing the Normative Logics of Accountability in Thick Perspective,” American Behavioral Scientist, vol. 52, no. 6, February 2009, p. 890.

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