Serving on Non-Profit Boards: Complications for Public Officials

Individuals who volunteer their time in service on non-profit boards of directors contribute greatly to society, but they can easily stumble into legal pitfalls if they are also serving as state, county or municipal officials at the same time. This is true even if their public service is uncompensated.

It should be noted that same or similar principles discussed below apply to those who serve on boards of for-profit companies as to their interaction with government officials.

For a hypothetical example regarding a non-profit entity, consider someone who volunteers her time as an unpaid member of the local park board of her town government. During the work day she has a full-time job as a partner with a small architectural firm based in the same municipality. She has also been tapped to serve, on an uncompensated basis, as chair of the board directors of the local historical society, which has a 501(c)(3) tax exemption.

Assume that the historical society’s headquarters abut a municipal park on one side, and that the society is seeking to build an addition that requires a variance from the town’s zoning board.

Under relevant principles of government ethics law, this architect may be considered a “public employee” even though her service on the town’s park board is without compensation. See, e.g., M.G.L. c.268A, ڇ(g) definition of “municipal employee” (includes a person performing municipal services or holding a municipal position, “whether serving with or without compensation … on a part-time … basis”).

The applicable state conflict of interest law could, depending on other relevant facts (such as how many days she spends annually as park board chair), bar her from interacting with other town officials on the historical society’s behalf in connection with the variance. She will also need to be careful not to disclose confidential municipal information about the town park board’s view on the variance application to her fellow volunteers at the historical society.

In addition, her business partner in the architectural firm may possibly be barred from appearing before the zoning board in support of the historical society’s variance application, if, as seems likely, the park board (as an abutter) has a position on the issue.

Far-Reaching Law

Massachusetts imposes a far-reaching scheme of statutory constraints on public employees in their interactions with the governmental entities that employ them. Contained in the state conflict of interest law, this scheme is largely enforced by the state’s ethics commission, which itself has over the years developed an extensive record of interpretative authority (see http://www.mass.gov/ethics).

In addition to provisions addressing bribery and illegal gratuities, this law limits the activities of public employees “outside” of their governmental responsibilities, prohibits public employees from having financial interests in governmental contracts, and bars public employees from taking part in official matters in which they or certain organizations with which they are associated have a financial interest.

The statute also limits the activities of the public employee’s business partners. The statute concludes with a “standards of conduct” section addressing incompatible activities, unwarranted privileges, and appearances of conflict. Parallel tracks are established under the conflict of interest law for state, county and municipal officials and employees.

Other New England states have examples of similar regulatory schemes of varying application. See, e.g., Connecticut’s Code of Ethics for Public Officials (Ct. Gen. Stat., Chapter 10, Part I, §ڇ-79 through1-89); Rhode Island’s Code of Ethics in Government (R.I Gen. Laws, §§ 36-14-1 through 36-14-7); New Hampshire’s State Code of Ethics (NH RSA 21-G: 21 through G: 29).

Rhode Island’s code covers both state and municipal officials, while Connecticut’s and New Hampshire’s are limited to various state employees. The reach of Maine’s governmental ethics statute, 1 M.R.S.A. Ch. 25, §?-1023, is limited to members of the Legislature. Vermont has an ethics code applicable to its state executive branch employees pursuant to the governor’s executive order; Executive Order 10-03.

Under the Massachusetts statute, as noted, a public employee may not in his official capacity participate in a “particular matter” in which, to his knowledge, a “business organization” in which he serves as an officer, director, trustee, partner or employee has a “financial interest.” MG.L. c.268A, §§ 6, 13, 19.

The term “particular matter” is defined to include almost any official activity, such as proceedings, applications, contracts, decisions and determinations. M.G.L. c. 268A, ڇ(k). The Massachusetts State Ethics Commission has interpreted “financial interest” as “meaning a financial interest of any size, either positive or negative, as long as it is direct and immediate or reasonably foreseeable.” SEC Advisory Opinion EC-COI-02-2.

Of special significance here, the Commission has historically interpreted “business organization” to include non-profit entities. See SEC Advisory Opinions COI-02-2; EC-COI-98-5 and EC-COI-88-4; see also SEC Spring 2005 Bulletin, p.4.

Need for Vigilance

Thus, in a Massachusetts setting, the public official (whether elected or appointed, paid or unpaid, full-time or part-time) who volunteers time as a director of a non-profit board, needs to be vigilant in his official activities, in order to avoid violating the statute. The statute reaches all types of public employees, including department heads, board and commission members, governmental contractors, and the public workforce at large.

So, if the employee’s non-profit entity has business of financial consequence before his governmental agency, the statute generally requires abstention from official participation.

The statute’s “standards of ethics” section (M.G.L. c.268A, 䅓) also bars the public employee from using his official position “to secure . . . unwarranted privileges or exemptions which are of substantial value [applied to mean $50 or more] and … not properly available to similarly situated individuals.”

The employee will thus need to be judicious in refraining from the use of public resources (such as governmental telephones, copying machines, or other facilities) when engaging in the non-profit organization’s business. This section further prohibits the public employee from acting “in a manner which would cause a reasonable person, having knowledge of the relevant circumstances, to conclude” that the public employee is subject to improper or undue influence in his/her official duties. This means no special “perks” from the non-profit.

One additional Massachusetts provision worth noting: The statute bars the public official from acting as “agent or attorney” for the non-profit in connection with any particular matter in which the applicable governmental entity has a direct and substantial interest.

Violations of the Massachusetts statute can carry both civil and criminal penalties. The statutory restrictions are a little less severe for public employees who work less than full time as such, the so-called “special employees” (a term defined according to strict parameters regarding compensation levels or permitted private employment during normal work hours).

In some circumstances, a public employee is permitted to participate in a matter where his outside organization has a financial involvement, if the employee makes appropriate public disclosure of the conflicting interest, and the employee’s appointing authority approves such participation.

However, the parameters for such permission can be narrow. See, e.g., M.G.L. c.268A, 䅏(b)(1). Connecticut and Rhode Island provide for disclosure, coupled with advice from the state ethics regulatory entity. See Ct. Gen. Stat., Ch. 10, Part I, ڇ-86; R.I. Gen. Laws, 䅠-14-6(2)(ii).

Space does not permit a full examination of these complex and highly-nuanced ethics laws. Suffice it to say that public officials need to be mindful of the ramifications that may follow from the well-intentioned contribution of their service to local non-profits. In the arena of government ethics, it may be that no good deed is without complication.

Dean Nicastro practices health care and non-profit law with Pierce & Mandell, P.C. in Boston. He is a former vice president and general counsel of the Massachusetts Medical Society, a former Massachusetts assistant attorney general, and a former city solicitor of Quincy, Mass.