A successful school for working adults provides an example of why legal compliance doesn't eliminate risks in charity governance.
The article in the National Law Journal that we used to contrast the legal and accounting approaches to charity governance included a quote from Mahesh Sharma, president of Cambridge College (EIN 51-0163080 Form 990), about hiring an in-house counsel as a way to address concerns about charity accountability.
I took a look at Cambridge College and found that it is a very successful adult learning program based in Cambridge (as its web site says, just a 10 minute walk from Harvard Square), but with other branches in Massachusetts, California, Virginia, Georgia, and Puerto Rico. About 90% of its income of nearly $46 million is program service revenue (tuition and fees), with most of the rest from contributions (there is also a bit of rental income). It has a staff of 501.
On the compensation side (found in an attachment on page 33 of the 46 page form), the organization pays Mr. Sharma $319,600 in compensation, $57,045 in benefits, and $10,000 in other allowances. Founder and chancellor Eileen Brown receives $220,087 in compensation, benefits of $79,340, and $10,000 in other allowances. Reading further (page 40) we find that Ms. Brown receives an additional $60,000 rent for offices and a condominium she leases to the college.
After these two key employees, the compensation levels drop abruptly. The EVP of administration, Ezat Parnia (who worked at Cambridge College for eighteen years before leaving this year), was next with just $147,340 in compensation, $19,185 in benefits, and $2,600 in other allowances, less than half the compensation of the key employees. There are a couple of employees in the $120,000s, three in the $110,000s, and a handful in the $100,000s.
What concerns me about this structure is that two employees, one a founder and the other with the organization for over thirty years, have disproportionate influence in the organization and lack sufficient checks and balances. In this context, it seems to me that hiring an in-house counsel (reporting to one of the key employees, of course) eliminates a potential counterbalance to the influence of the key staffers.
There's nothing illegal about a governance structure where one, two, or a handful of long-tenured employees run the show. I suspect it is a very common model among charities in the $1 million to $50 million range, based on charities I've encountered over the years. Nevertheless, it has its obvious risks (and a deep dig into the Form 990 reveals other cozy links between trustees and the organization that I think raise concerns). I think you would not find this kind of a structure in an organization that is genuinely committed to COSO-style internal controls and effective checks and balances.
What I look for in an organization is not only the compensation of key employees relative to others with a similar title or position, but also relative to others in the organization. Where there is too much of a gap between the key staff and others, or when a few staff have long tenure while most others on the board and staff do not, I think there is a real risk to the organization.