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26 Ent. & Sports Law. 5 (2008-2009)
Nonprofit Laws and Prescriptions for Transparency - The New York and California Attorneys General Offices of Charities Sound Off On Money, Secrets, and Justice

handle is hein.journals/entspl26 and id is 129 raw text is: Nonprofit Laws and
Prescriptions for Transparency
The New York and California Attorneys
General Offices of Charities Sound Off on
Money, Secrets, and Justice
BY JESSICA DARRABY
Introduction and endnotes by Stephanie Dominguez

On October 13, 2006, the ABA
Forum on the Entertainment
and Sports Industries presented
a roundtable at the Annual Meeting re-
garding nonprofit laws and prescriptions
for transparency moderated by Jessica
Darraby, an art and architecture lawyer
in private practice and author of the
treatise Art, Artifact, Architecture and
Museum Law.1 This CLE program re-
united a panel of national experts such
as Ed Able, past CEO and president of
the American Association of Museums
(Washington, DC); James M. Cordi,
supervising deputy attorney general
from the Charitable Trusts Section of
the California Attorney General's Office
in Los Angeles; and Gerald A. Rosen-
berg, chief of the Charities Bureau from
the Office of the Attorney General of
the State of New York (New York, NY).
Here is a transcript of their discussion,
which remains timely and relevant.
Corporate governance of museum
boards is under scrutiny by enforcement
agencies and professional associations
for conduct ranging from acquisitions to
compensation. Board activities revealed
in 2006 that some cases have triggered
flash points in a public debate about the
proper use of public assets. This panel of
experts explored new models of compli-
ance for cultural boards and trustees
based upon the new Non-Profit Integrity
Act,2 Uniform Charitable Trust laws,3
and arts groups' codes of ethics. They
discussed interesting cases involving
charitable organizations and forging
strategies for challenges at art institu-
tions by adapting the lessons learned
from corporate boards like Enron and
the financial reporting mandated by new
state laws as well as federal laws like the
Sarbanes-Oxley Act.4 In spite of the
seriousness of the subject and the then-

recent publication of the Getty Report'
some days before this meeting, it was
with good humor that this roundtable
took place.
CONFIDENTIALITY
JESSICA DARRABY: Hewlett-Packard
(HP) has been in the news of late, and
in Congress as well, regarding so-called
leaks on the board and the board's in-
vestigation of the sources of those leaks.
Putting aside HP's investigative meth-
ods, let's examine the broader issue-
confidentiality-which is as applicable to
nonprofits as it is to the for-profit sector.
How does a board properly define and
protect its information perimeter?
GERRY ROSENBERG: The question
of confidentiality requires that you ask
the prior question, which is, secret from
whom? Because the question of protect-
ing the secrecy of what happens in the
boardroom depends enormously on who's
asking the questions and who's seeking
disclosure. The board has a relationship
to its members, if it's a true member-
ship organization, and the members'
rights to find out what's going on in the
boardroom will generally be answered by
looking at the bylaws. If we step back a
little bit and we ask about the attorney
general, who is statutorily the regulator
of the nonprofits, the board really can
do very little to insulate itself from the
legitimate inquiries made by the at-
torney general. Confidentiality orders,
secrecy pacts, and the like will yield to
Jim's or my offices' subpoenas. There are
all kinds of matters for which I think
secrecy works and is appropriate. But
there are public policy deliberations of
the board, particularly advocacy organi-
zations and museums and other nonprof-
its, which should not be shielded from
legitimate inquiry.

ED ABLE: I find nonprofits are
not very good-including our own
museums-about getting out ahead of
the problem. They wait until a prob-
lem exists and there's a question about
whether or not something should be kept
confidential after the fact, and then it's
very difficult to make policy about what
should be confidential and what's not in
the middle of an argument over whether
something should be confidential. So, the
issue here is for these nonprofits, in an
era of demanded transparency and public
accountability, to think through ahead of
time and establish the policies, certainly
with advice and participation of legal
counsel, on what of their deliberations
should be confidential and what should
be public.
GERRY ROSENBERG: Let me respond
to Ed's point, which I think is very
important, and it's to say this: Unlike
business corporation law, not-for-profit
corporation law in New York and in
most other jurisdictions actually has
a sizeable component of ethics in [the
law]-at least, read properly. Most non-
profits are subject to, or board members
and officers, as you know, are subject to
the duty of care, the duty of loyalty, and
the duty of obedience, the last two of
which, I think, cannot be understood
apart from ethical norms. On the subject
of confidentiality, as you know, I've had
discussions with the American Civil
Liberties Union on this subject; I think
it's a very difficult field. I think that
we may differ on this. I think there are
domains where a board may well say,
We're going to go into executive ses-
sion, and nothing leaves this room, and
that's entirely appropriate. But where
an organization such as the ACLU is
deliberating on public policy issues of
enormous importance and where it's
going to take a public stand-such as
whether the Patriot Act should be de-
fied, obeyed, or rallied against-it seems
to me impermissible for the deliberations
at the ACLU board level to be sealed.
JESSICA DARRABY: May the board of
a nonprofit adopt a bylaw or a protocol
that renders certain discussion confiden-
tial? And, if so, what does it apply to?
JIM CORDI: Well, I think in Cali-
fornia, they don't have to adopt such a
bylaw. The records of the corporation,
including the minutes of the board, are
not publicly available, raising perhaps a
question: Is that a good idea? Should we

Winter 2009 / Volume 26, Number 4 / Entertainment and Sports Lawyer

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