Conflict of Interest

A recent article about the Conserve School in Wisconsin focuses on the decision of the board of trustees to close the school. The school has an endowment of $181 million. The school was born through a trust created by James R, Lowenstine, the former CEO of Central Steele and Wire, when he died in 1996. $132 million of the endowment is in Central Steele and Wire stock. Last year the company, which is closely held, paid $30 a share as a dividend. The value of the stock is down about 10% this year. The school's board is made up of directors of the company. Mr. Lowenstine in planning his trust apparently didn't understand how the governance of the school by Central Steele and Wire board members would create a conflict of interest. It has, and parents are suing the school. A good set of by laws of any nonprofit organization would of necessity include a conflict of interest policy. A conflict of interest is a situation in which a board member or senior executive encourages or makes a decision that effects the financial interests or political actions of the organization, but which in turn will benefit the member individually or the member's friend, relative or business. Is this the case at the Conserve School? Today, most state attorney generals have set up charities divisions within their departments. They are concerned with governing boards fulfilling their fiduciary responsibilities. The fiduciary responsibilities of governing boards include:

• Attend and participate in meetings
• Apply Robert's Rules of Order to board meetings
• Become knowledgeable about the organization
• Hire and annually evaluate the CEO
• Support and practice open communication and transparency
• Support an organizational structure that ensures fiscal strength and security
• Review financial reports and participate in financial management and planning, seeking help when necessary to fully understand the financial information at hand
• Support a conflict of interest policy
• Select auditors, review their report, and act on their recommendations
• Review and understand all contracts and their implications
• Maintain and support due process for employees
• Support and participate in fundraising
• Support and participate in a program to bring diversity to the organization.

With the little information provided by the New York Times, it is hard to make a judgement. However, it appears that the school is tied to Central Steele and Wire. The corporation and this nonprofit school need to have a clear separation. Certainly, the endowment needs to be diversified. It will be interesting to see what happens in the months ahead.