The Board of Trustees of Alliance Healthcare Foundation (“Alliance”), recognizing that we are entrusted with a large endowment devoted to charitable purposes, has adopted this Conflict of Interest Policy (“Policy”).
Conflicts of interest place personal interests at odds with the fundamental duty of loyalty owed by Trustees and staff members as fiduciaries of Alliance with a philosophy of broad public accountability. In addition, the appearance of a conflict of interest can damage institutional credibility and the ability to fulfill the institution’s mission and programmatic goals. The Board of Trustees (“Board”) expects that each of the Trustees and staff members will respect his/her obligations to act in the best interest of Alliance in fulfilling its charitable mission.
A primary purpose of this Policy is to assist Trustees and staff members in the performance of their duties. The Policy strives to state clear guidelines to be followed in identifying and resolving conflict of interest and self dealing issues. The Policy recognizes that Trustees and staff members may have been selected in part for their strong involvement in the community, and therefore encourages broad disclosure of affiliations and establishes procedures by which the Board may make the determination whether a conflict of interest exists.
There are three sources of rules regarding conflicts of interest that are included in the Policy. They are:
- the prohibition of self dealing and private inurement under the Internal Revenue Code,
- the requirement of special steps in approving transactions in which Trustees have material financial interests under Section 5233 of the California Corporations Code, and transactions involving interlocking directorships under Section 5234 of the California Corporations Code, and
- additional limitations which the Board has adopted.
Because each covers common areas as well as areas not covered by the others, each potential conflict of interest must be tested against all three standards.
“Disclosable Relationship” shall mean a relationship in which a Foundation Manager, staff member, or Family Member has Potential Conflict of Interest.
“Community Support” shall mean grants not exceeding $10,000 annually which include sponsorship of a community event of activity.
“Family Member” shall mean a spouse or equivalent, ancestors (parents, grandparents, etc.), direct descendants (children, grandchildren, and great grandchildren) and the spouses of their direct descendants.
“Foundation Manager” shall mean a Trustee, Outside committee member, Community Advisory Committee member, or other community group constituted to advise AHF on grant decisions, community assessments, or other business, and any other officer of Alliance deemed by the CEO upon the advice of counsel to be a Foundation Manager.
“Grant” shall mean grants, Board recommended grants, direct charitable activity contracts, sponsorships, or matching gifts.
“Potential Conflict of Interest” shall mean an instance where a Foundation Manager or a staff member, or their Family Member have:
(a) a close relationship (such as service as an employee, trustee, director, committee member, consultant, advisor, shareholder, beneficiary or partner) with an organization or person:
(i) seeking or having received a Grant from Alliance; or
(ii) with which Alliance proposes to enter into a financial, investment or business transaction,
(b) a material financial interest:
(i) in any existing or potential Alliance Grant; or
(ii) in any financial, investment or business transaction which is intended to be supported by an Alliance Grant or potential Grant; or iii) in any financial, investment or business transaction to which Alliance is a party.1
“Responsive Grants” shall mean grants which cannot exceed $25,000 annually that are time sensitive, allow the Alliance to participate in an important co-funding opportunity or provide the Alliance a novel funding opportunity.”
“Transaction” shall mean any financial, investment, or business transaction.
[box] 1 Incidental Benefits. The receipt of the following types of benefits shall not be a conflict of interest or violate this Conflict of Interest Policy: a. incidental or tenuous benefits from Alliance’s grant making or financial, investment or business transactions, or b. benefits (received in good faith and without favoritism) solely by virtue of being among the class of persons intended to be benefited by charitable or public benefit programs conducted by Alliance or supported by Alliance’s Grants.[/box]
III. SELF DEALING AND CONFLICTS OF INTEREST
A. Internal Revenue Code: Prohibition of Self Dealing With Disqualified Persons and Private Inurement
1. Under the Internal Revenue Code, Alliance, as a private foundation, may not engage in self dealing transactions with disqualified persons. Self dealing may exist even if the transaction is economically beneficial to Alliance. See Attachment A from the Alliance Bylaws.
2. In addition to the prohibition on self dealing, the Internal Revenue Code requires that no part of the net earnings of Alliance may inure to the benefit of any private individual. The consequences of violations of the prohibition of private inurement may include loss of Alliance’s tax exempt status.
B. California Nonprofit Corporation Law: Process for Approval of Self Dealing by Trustee
1. Section 5233 of the California Corporations Code defines self dealing as a transaction in which a Trustee has a material financial interest. Unlike Federal Tax law, the California Corporations Code does not prohibit self dealing transactions. It requires adherence to a specific process in order to approve any self dealing transactions with Alliance. See Attachment B from the Alliance Bylaws.
2. Section 5234 of the California Corporations Code permits transactions between corporations having common trustees and provides process in order to approve such transactions. See Attachment C from the Alliance Bylaws.
C. Alliance’s Definition of “Potential Conflict of Interest.”
“Potential Conflict of Interest” is defined in Section II, above.
D. Disclosure of Potential Conflicts of Interest
1. Disclosure Forms – Foundation Managers and staff members will fully and regularly disclose all material facts relating to any Potential Conflict of Interest. Disclosures should encompass current affiliations as well as affiliations for the prior two years. They will submit conflict of interest disclosure forms:
a. annually, before the Annual Meeting; and
b. where appropriate as soon as possible after a new affiliation begins but no later than at or prior to action on Grants and transactions. (An example would be a new affiliation such as becoming a director of a proposed grantee during the year.)
2. Existing Grantees and Vendors – Annually, prior to the Annual Meeting, Alliance staff will provide to Foundation Managers and staff members a list of grantees and vendors of the Alliance over the past two years including existing contracts and vendors, to assist the Foundation Managers and staff members in completing the disclosure form.
3. Other Disclosure Obligations – If a Foundation Manager or staff member becomes aware of any Potential Conflict of Interest related to another Foundation Manager/staff member, it should be brought to the attention of the Foundation Manager/staff member with the Potential Conflict of Interest. Should the Foundation Manager/staff member feel uncomfortable bringing the Potential Conflict of Interest issue to the other Foundation/staff member’s attention, they may bring it to the attention of the Board Chairperson, the President, or the Chair of the Audit Committee promptly. In that instance, the Foundation Manager/staff member with the Potential Conflict of Interest should be informed by the Board Chairperson, the President or Audit Chair of the Potential Conflict of Interest. After initial consideration, the Board Chairperson, the President, or Audit Chair and the Foundation Manager/staff member should, individually or together, decide if a review is advisable, and inform the Audit Committee.
4. Disclosure to the Board of Trustees – All material facts concerning the existence and nature of the Potential Conflict of Interest and the relationship of any interested Foundation Manager to the Potential Conflict of Interest shall be disclosed to the Board of Trustees. Such facts shall be recorded in the minutes of the Board meeting that considered the authorization or approval of the affected Grant or transaction, and where applicable in any proposal summary or recommendations presented to committees and/or the Board for decision.
E. Procedures for Approval or Rejection of Grants Involving Potential Conflicts of Interest involving Staff Members who are not Foundation Managers.
1. A Grant may be made where there is a Potential Conflict of Interest if:
a. Potential Conflicts of Interest involving staff members who are not Foundation Managers, as defined in Section III.C., are disclosed in writing and the staff member will not be involved in the presentation, review, awarding, monitoring, or evaluation of the Grant. The Board will be informed that this process has occurred.
b. The Grant meets Alliance’s stated eligibility and selection criteria and was found, after an objective review, to carry out Alliance’s goals and objectives.
c. The review was conducted and the recommendation arrived at without the involvement or input of the interested staff member prior to the relevant review meetings where action is taken except that the interested staff member may provide factual information, but not advocacy, upon request of uninterested staff members. Notwithstanding the above, this section does not preclude staff members from initiating matching gifts.
d. In addition to disclosing the relationships in writing, the staff member will recuse himself/herself from all meetings in which this Grant recommendation is discussed. This recusal will be reflected in the meeting’s minutes. The Board will be informed that this process has occurred.
e. Any Grant to an organization that employs a former Alliance staff member, when that staff member was employed by Alliance at a senior level, must be approved by the Board as a Disclosable Relationship for two years from the departure date of Alliance staff member.
F. Board Procedures for Approval or Rejection of Grants or Transactions Involving Potential Conflicts of Interest involving Foundation Managers.
A Grant may be made, or a transaction entered into, where there is a Potential Conflict of Interest if:
1. The disclosures set forth in Section D above have been made.
2. The Grant or Transaction would not constitute a self dealing transaction under Section 4941 of the Internal Revenue Code.
3. In the case of a Grant, the Grant met Alliance’s stated eligibility and selection criteria and was found, after an objective review, to carry out Alliance’s programmatic goals and objectives.
4. In the case of a Transaction, the Board determines in good faith that Alliance has entered into the Transaction for its own benefit, that the Transaction is fair and reasonable to Alliance, and that Alliance could not have obtained a more advantageous arrangement with reasonable effort under the circumstances.
5. The review was conducted and the recommendation arrived at without the involvement or input of the interested Foundation Manager prior to the relevant committee or Board meeting where action is taken. The Trustees must receive information about the Grant or Transaction from other representatives of the other party rather than the interested Foundation Manager.
6. The interested Foundation Manager is absent from the room during Board deliberations, action or vote.
7. A Grant or Transaction involving a Foundation Manager with a material financial interest is approved by a majority of the Trustees in office. All other Grants and Transactions must be approved by a majority of the Trustees present.
8. A Grant, with the exception of sponsorships and matching gifts, to an organization where the Trustee (or the Trustee’s family member) is compensated more than $1,000 must be reviewed by the Audit Committee.
An exception to this provision is made for universities. A Board recommended Grant or matching gift may be made to a university that employs a Trustee (or family member) if the department receiving the Grant is distinct from the department that employs the Board member.
9. Any Grant to or Transaction with an organization that compensates a former Alliance Board member more than $1,000 is approved by the Board is a disclosable relationship for two years from the departure date of Alliance Board member.
10. Trustees disclose a potential conflict of interest when it pertains to a Grant or Transaction that is brought to the Board for consideration. The Board member recuses himself/herself from consideration and vote of the pending Grant or Transaction.
G. Community Support and Responsive Grants.
Notwithstanding Subsections E and F above, a Responsive Grant or Community Support may be made by the Alliance pursuant to a Board-approved policy unless the CEO has a Potential Conflict of Interest. In such a case, the procedure outlined in Subsection F will be followed.
IV. ADDITIONAL GUIDELINES FOR FOUNDATION MANAGERS AND STAFF
1. Foundation Managers and staff members shall not use their position as a Trustee or staff member of Alliance to benefit the interests of a particular organization, constituency, or special interest group by any means, including but not limited to providing information not available to grantees or potential grantees, lobbying on behalf of or serving as spokesperson to Alliance for an organization, constituency, or special interest group with which he or she is affiliated, or attempting to effect a decision through his or her position within Alliance.
2. Foundation Managers and staff members will not enter into any close relationship (such as serving as a director, trustee, committee member, employee, shareholder or partner) with any organization which has obtained, is seeking, or is likely to seek, a grant from Alliance unless and until prior written approval is granted by the Board Chair. The approval will be based upon a determination by the Board Chair that such an exception will not be contrary to the interests of Alliance.
3. Foundation Managers and staff members will maintain the confidentiality of internal information about Alliance. Information about Alliance’s activities should be disseminated widely once determined to be available for public use to promote equal opportunities for access. Conduct should not create preferential access nor create material benefit from any information regarding grant making, investment or other business actions or decisions by Alliance which has not been fully disclosed to the general public by Alliance. Nothing herein shall prohibit Foundation Managers and staff members from sharing information about the Alliance in the ordinary course of conducting their business. Foundation Managers and staff members may not derive personal financial benefit through the inappropriate use of investment information acquired through the Foundation.
4. Responsive Grants and Community Support made pursuant to Board authorized policy shall be reported at the first Board meeting following the Grant.
5. Nothing herein prevents a Foundation Manager or staff member from recommending to the Alliance a potential Grantee or from recommending that a potential Grantee apply for a Grant from the Alliance.
V. INVESTMENT ACTIVITIES
Staff members will not co-invest their personal assets with any investment manager, general partner or other entity that manages assets for Alliance, except in mutual funds or other products offered to the general public. Staff members will not invest in private equity or venture capital partnerships which Alliance is considering for investment or in any non-publicly traded companies where Alliance has a beneficial interest through an investment in a private equity or venture capital partnership.
VI. RECEIPT OF BENEFITS FROM THIRD PARTIES (GIFTS, COMPLIMENTARY INVITATIONS AND GRATUITIES.
A. To The Alliance
1. Persons or organizations doing business or seeking to do business with the Alliance (including but not limited to grantees, vendors, independent contractor and professional service agents) are encouraged to make their gifts, complimentary invitations to events, such as dinners, lunches, benefit programs, fundraising events, seminars, and gratuities to the Alliance rather than to a Foundation Manager or staff member.
2. Gifts, complimentary invitations and gratuities that would otherwise be a gift to a Foundation Manager or staff member will be considered a gift to the Alliance in such cases. The President/CEO or Chair, as appropriate, shall select the most appropriate Alliance representative to use the payment. The donor may not designate the name of the Alliance representative to use the payment, but may designate the purpose of the payment.
B. To Foundation Managers and Staff
1. Foundation Managers and staff members will not solicit or accept anything of monetary value from persons or organizations doing business or seeking to do business with Alliance (including but not limited to grantees, potential grantees, former grantees, vendors, independent contractors and professional service agents.) Unless the solicitation or acceptance is based upon a relationship with a person or organization in a capacity other than that of a Foundation Manager or staff member of the Alliance.
2. Items of monetary value (exceeding $50 per year, per source) include gifts; complimentary invitations to events related to Alliance such as dinners, luncheons, benefits, fundraising events and seminars; and gratuities.
3. Meals, courtesy food, refreshment or social invitations, offers while conducting Alliance business may be accepted if they are reasonable and are in keeping with good business ethics and do not influence the recipient from making any decision on behalf of Alliance.
4. If items of monetary value, as defined above, are received by Foundation Managers or staff members, the person or organization offering the payment will be thanked and informed of Alliance policy and if the person or organization will not make the payment to the Alliance under VI.A., above, it will be returned. Items of monetary value that cannot be returned will be donated to a nonprofit organization or disposed of in a manner that does not directly benefit the individual Foundation Manager or staff member.
VII. VIOLATIONS OF THE CONFLICTS OF INTEREST POLICY
If the Audit Committee has reasonable cause to believe that a Foundation Manager or staff member has failed to disclose actual or possible conflict of interests, it shall inform the Foundation Manager or staff member of the basis for such belief and afford him/her the opportunity to explain the alleged failure to disclose.
If, after hearing the Foundation Manager or staff member’s response and after making further investigation as warranted by the circumstances, the Audit Committee determined the Foundation Manager or staff member has failed to disclose an actual or possible conflict of interest, it shall refer the matter to the Board to take appropriate disciplinary and corrective action.
ATTACHMENT A FROM THE ALLIANCE BYLAWS
(a) Article IV, Section 11 of the Alliance Bylaws.
Any provision of these Bylaws or the Articles of Incorporation of this corporation to the contrary notwithstanding, so long as this corporation is deemed to be a “private foundation” as defined in Section 509 of the Internal Revenue Code of 1986, as amended (the “Code”), this corporation:
a. shall distribute its income for each taxable year (and principal, if necessary) at such time and in such manner as not to subject this corporation to tax under Section 4942 of the Code;
b. shall not approve of, or engage in, any act of self-dealing as defined in subsection (d) of Section 4941 of the Code;
c. shall not retain any excess business holdings as defined in subsection (c) of Section 4943 of the Code;
d. shall not make any investments in such a manner as to subject this corporation to tax under Section 4944 of the Code; and
e. shall not make any taxable expenditure as defined in subsection (d) of Section 4945 of the Code.
(b) Section 4941(d) of the Code.
For purposes of this section, the term “self dealing” means any direct or indirect:
a. sale or exchange, or leasing, of property between a private foundation and a disqualified person;
b. lending money or other extension of credit between a private foundation and a disqualified person;
c. furnishing of goods, services, or facilities between a private foundation and a disqualified person;
d. payment of compensation (or payment or reimbursement of expenses) by a private foundation to a disqualified person;
e. transfer to, or use by or for the benefit of, a disqualified person of the income or assets of a private foundation; and
f. agreement by a private foundation to make any payment of money or other property to a government official (as defined in section 4946(c)), other than an agreement to employ such individual for any period after the termination of his government service if such individual is terminating his government service within a 90-day period.
ATTACHMENT B FROM THE ALLIANCE BYLAWS
(a) Article IV, Section 24 of the Alliance Bylaws.
Except as provided in subsection a. below, a self-dealing transactions means transactions to which the corporation is a party and in which one or more of the trustees (“interested trustee(s)”) has a material financial interest and which does not meet the requirements of subsection b.(i), (ii), or (iii) below.
a. A self-dealing transaction does not include:
(i) An action by the Board fixing the compensation of a trustee as a trustee or officer of the corporation.
(ii) A transaction which is part of a charitable program of the corporation if the transaction is (A) approved or authorized by the corporation in good faith and without unjustified favoritism, and (B) results in a benefit to one or more trustees or their families because they are in a class of persons intended to be benefited by the public or charitable program.
(iii) A transaction of which the interested trustees have no actual knowledge, and which does not exceed the lesser of one percent (1%) of the corporation’s gross receipts for the preceding fiscal year or One Hundred Thousand Dollars ($100,000). Gross receipts for these purposes shall be investment income plus any other receipts.
b. None of the remedies available under Section 5233(h) of the California Nonprofit Public Benefit Corporation Law will be granted to a party permitted to bring an action under Section 5233(c) of the California Nonprofit Public Benefit Corporation Law (with respect to a self-dealing transaction), if:
(i) The Attorney General, or the court in an action in which the Attorney General is an indispensable party, has approved the transaction before or after it was consummated; or
(ii) The following facts are established:
(A) The corporation entered into the transaction for its own benefit;
(B) The transaction was fair and reasonable as to the corporation at the time the corporation entered into the transaction;
(C) Prior to consummating the transaction or any part thereof, the Board authorized or approved the transaction in good faith by vote of a majority of the trustees then in office without counting the vote of the interested trustee(s), and with knowledge of the material facts concerning the transaction and the interested trustee’s interest in the transaction. Except as provided in subsection b.(iii) below, action by a committee of the Board will not satisfy this requirement; and
(D) (I) Prior to authorizing or approving the transaction, the Board considered and in good faith determined after reasonable investigation under the circumstances that the corporation could not have obtained a more advantageous arrangement with reasonable effort under the circumstances, or (II) the corporation in fact could not have obtained a more advantageous arrangement with reasonable effort under the circumstances; or
(iii) The following facts are established:
(A) A committee or person authorized by the Board approved the transaction in a manner consistent with the standards prescribed for approval by the Board under subsection b.(ii) above;
(B) It was not reasonably practical to obtain approval of the Board prior to entering into the transaction; and
(C) The Board, after determining in good faith that the conditions set forth in subparagraphs (A) and (B) of this subsection b.(iii) were satisfied, ratified the transaction at its next meeting by a vote of a majority of the trustees then in office without counting the vote of the interested trustee(s).
ATTACHMENT C FROM THE ALLIANCE BYLAWS
Article IV, Section 27 of the Alliance Bylaws.
Contracts or Transactions With Mutual Trustees. No contract or other transaction between the corporation and any domestic or foreign corporation, firm or association of which one or more of the corporation’s trustees are trustees is either void or voidable because such trustee(s) are present at the meeting of the Board or committee thereof which authorizes, approves or ratifies the contract or transaction if:
(i) The material facts as to the transaction and as to such trustee’s other directorship are fully disclosed or known to the Board or committee, and the Board or committee authorizes, approves or ratifies the contract or transaction in good faith by a vote sufficient without counting the vote of the common trustee(s); or
(ii) As to contracts or transactions not approved as provided in subsection (i) of this Section, the contract or transaction is just and reasonable as to the corporation at the time it is authorized, approved or ratified.
Notwithstanding the foregoing, this Section shall not apply to self-dealing transactions described in Section 24 of this Article above.