Private charities, public interest

The rise of the nonprofit sector in America is often traced to a famous 1819 U.S. Supreme Court case, Trustees of Dartmouth College v. Woodward. In that case, argued for Dartmouth by renowned orator Daniel Webster, the court held that the state of New Hampshire lacked the power to unilaterally amend the college’s charter, originally granted by King George III, and thus the attempted hostile takeover was thwarted.

Responding to Webster’s impassioned please that Dartmouth “is a small college, but there are those who love it,” the Court, sensing that Dartmouth had fallen out of political favor, determined that charities should not be subject to political whim. The Court noted that if it was Dartmouth who had a few friends that day, it could be Harvard or Yale tomorrow. All stood on the same legal ground, that of a private charity, set up by private individuals with private funds for charitable purposes.

The ruling has stood for 185 years for the proposition that private donors have the right to set up charities with their own private funds, and determine, within very broad limits, how and for what charitable purposes the funds will be used, and who will determine, after the death of the original donor, how the successor trustees will be chosen, and how the charity will be run.

Today, the nonprofit sector is a major part of the U.S. economy, producing 6 percent of the gross domestic product, and employing about one in 10 working Americans. Many non-profits today still follow the model of private money, private governance. Prominent local citizens, including Stephen King, Galen Cole and Irving Kagen, have set up private charitable foundations, which undertake charitable works according to the vision of their founders. To maintain their 501(c)(3) status, the tax returns of those foundations are public, but no one seriously suggests that the public has a right to tell those donors how they should spend their charitable contributions, and who should make decisions about corporate governance of the foundations.

That brings us to the controversy du jour, the attempt by Eastern Maine Healthcare and its affiliates to effectively eliminate corporate members, formerly incorporators, from any role in the corporate governance of this local behemoth charitable organization. In light of the history and principles set for above, why shouldn’t the rule of private money, private governance apply equally to Eastern Maine Healthcare? There are several things that distinguish the Eastern Maine Healthcare situation.

First, what started more than 100 years ago as Eastern Maine General Hospital is not one man’s charity. Over the course of its existence, thousands of citizens from throughout Maine and the entire country have contributed to making the charitable conglomerate what it is today. In a very real sense, it is the charity of everyone in the area, and broad representation, not the charitable direction of an individual or small group, is entirely consistent with its history and its mission.

Second, the concept of checks and balances, so brilliantly woven into the Constitution by our founding fathers, is equally valid any time, any place where there is the potential for an undue concentration of power in a single institution or small group. As the region’s largest employer, leading provider of health care, and producer of about a billion dollars in revenue, the Eastern Maine Healthcare network is the proverbial 800-pound gorilla. The gorilla clearly wants to be its own keeper, but history and common sense teach that an institutionalized system of checks and balances will go a long way toward preventing abuse of that concentrated power.

In the last seven years, there have been well-publicized scandals at the United Way national headquarters, and at the New York Stock Exchange, as well as a host of lesser-known disputes involving non-profits. The common theme in most of those situations was that the administration hand-picked (or perhaps hand-packed) the board, the board did not exercise the type of independent oversight which was required, and administrators had way too much free rein, including in determining their own extravagant compensation. With another, more representative layer of oversight in the form of members, the checks and balances are in place to prevent the abuse of power. It should be emphasized, due to the recurrence of these types of problems over the years and in different settings, that the problem is an institutional one, not the failing of any particular board or board member. Thus, it is not an issue of personality or makeup of the current or any other board.

Third, response to recent corporate scandals in the for-profit world has spilled over into the area of nonprofit governance. Many respected academics and practitioners in the field of non-profit governance are on record as advocating that the types of reforms forced onto the private sector be voluntarily accepted in the non-profit world by adoption of “Best Practices” for nonprofits. Increased disclosure and transparency are among those practices. Although Eastern Maine Healthcare has publicly indicated that elimination of members will be more efficient and less cumbersome, no one had claimed or cited any authority that the proposed action meets those developing “Best Practices.”

In fact, the action proposed seems to run contrary to nationally recognized industry standards adopted by Voluntary Hospitals of America (VHA), an organization to which at least some other New England hospitals belong. Such national standards are consensus standards, adopted only after presentation, discussion and agreement by all interested constituencies. They carry considerable weight. VHA has adopted standards for “community benefit” to which health care providers should aspired.

These include:

. demonstrate leadership as a charitable institution;

. provide essential health care services;

. be accountable to the community;

. evidence of commitment to community benefit;

. operate free from profit.

Eliminating members lessons accountability to the community, and demonstrates a lack of commitment to community benefits.

Representational governance, more commonly known as democracy, can be inefficient, cumbersome and messy. It isn’t how private companies are run. Eastern Maine Healthcare is not a private company, nor in any meaningful sense does it remain a private charity. Given the amount of the public’s money, reliance on its services, and interest inextricably tied up with the charity known as Eastern Maine Healthcare, more, not less, community oversights is called for.

Charles E. Gilbert III is an attorney practicing in Bangor.