Give and Take

The charitable impulse is an important motivator of executives in the non-profit sector. It is not the only motivation, but it is at least on par with a desire for satisfactory compensation and challenging professional responsibilities. No such impulse is expected to be found in business. As much as we admire the charities, we also respect and even extol successful businessmen who accumulate vast personal wealth while providing a desired product or service and value to shareholders. Yet, we find examples of extraordinary philanthropy among them, from Andrew Carnegie to Bill Gates.

As much as we might admire the charity executive, we don't want her to be too profit-minded. Of course there is no profit in the non-profit sector, but charities can pay handsome salaries, hand out generous benefits, erect sumptuous offices and accumulate huge surpluses--and they do. The public frowns upon most of those things, which is why Congress and the IRS have focused recently on executive compensation in non-profits. There is no sign that effort has had any appreciable effect on how much charity executives get paid.

This is an analog to huge Wall Street bonuses. Congressional outrage and legislation aimed at the billions paid out to individuals whose companies received taxpayer bailouts has also had little effect. The evidence: During the first nine months of 2009, Goldman Sachs reserved $17 billion for bonuses and other compensation, even as the recession dragged on for millions of Americans. The scale of the excesses within businesses and non-profits is hardly comparable, of course, but the persistence of the excesses in both sectors in the face of public attention is comparable.

CareFirst Inc., a non-profit company, is the major health insurer in Maryland, Washington, D.C., and northern Virginia. A few years ago Maryland regulators thwarted its executives' attempt to convert the company to a for-profit and sell itself to WellPoint, in part because of the several million dollars the executives would pocket, and because it appeared the company was being sold for less than it was worth. More recently, the Washington, D.C., government attacked CareFirst for maintaining excessive financial reserves the district claims could be used to reduce premiums or to support local health care programs. [Disclosure: I am a CareFirst subscriber.]

CareFirst is adamant that its $687 million in reserves is an appropriate level to maintain financial stability; that its charitable duty under its Congressional charter is not to the general public, but to its subscribers; and that its designation in the charter as a "charitable and benevolent" organization relates only to its tax-exempt status and not to any duty to be charitable and benevolent.

Critics claim the reserves are far in excess of the amount needed to be financially sound; CareFirst as a non-profit charity is "owned" by the public and should serve that public; and that CareFirst could afford to spend at least $300 million on either lowered premiums or support to the community without any risk to fulfilling its mission. The company had a related dispute with the District of Columbia when in 2008 CareFirst changed its mind on an agreement to donate $5 million to a district health program. That led to the district filing a lawsuit to get $100 million of the company's reserves.

The facts of this matter are numerous and nuanced. The arguments are closely made. Even as I acknowledge the merits of each side, I am left wondering whether the charitable impulse has been overwhelmed by an outsized view of "financial stability" and a too legalistic interpretation of "charitable and benevolent."

At some point the leaders of a charity have to be charitable. If they can rationalize their conduct in those terms, good for them. If they can't, what are they saving the money for?

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Bruce D. Collins

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