Heifer CEO Suing Board For $5 Million
August 18, 2011 Mark Hrywna
The president and CEO of Heifer International Foundation (HIF) is seeking $5 million in damages from the organization because he believes board members retaliated against him after he raised questions about governance and conflict of interest policies.
Domingo Barrios, the president and CEO of HIF since July 2010, filed suit in the Circuit Court of Pulaski County, Arkansas. Named in the suit were Chubb Group of insurance companies (which insures Heifer and the foundation), Heifer Project International’s board chairman, C. Douglas Smith, and board members Marcia E. Williams, Don Hammond and Norman Doll. Williams also serves as board chair of the foundation and the other three also serve as members of the foundation’s board.
The Little Rock, Ark.-based foundation was created in 1991 by Heifer Project International’s board of directors to oversee and manage its endowment. Several Heifer board members also serve on the board of the foundation, something Barrios pointed out could be an issue for the organization.
In his lawsuit, Barrios alleges that Williams and Smith encouraged him to “violate his fiduciary responsibilities” to the foundation by directing him not to reveal “certain pertinent information which would be detrimental to the foundation.” In June, the board approved a resolution that would give Heifer’s CEO the power to decide on unrestricted bequests, permitting the organization “to control and participate in planned giving,” Barrios said, and essentially destroying a primary purpose of the foundation.
Barrios claims he was asked by Smith and Williams not to share the proposal with the foundation until Heifer met to approve the resolution, which he believes violated rules of governance. He informed the foundation’s board of the adverse effect the resolution could have and subsequently was suspended for allegedly violating confidentiality rules and claims by the board chairman that he was “ripping the organizations apart,” according to court documents.
Shannon Boshears, director of communications and research at the foundation, said the organization has not been served with legal papers and does not comment on pending or ongoing litigation.
“When you have two nonprofits like this, that’s how you control them. You want control. It would be foolish, in my judgment, for a charity to set up an endowment and not control it in a separate entity,” said Bruce Hopkins, a senior partner with the Kansas City, Mo., law firm Polsinelli Shughart.
“That’s how you do it. There are other mechanisms, but you don’t really resolve the problem. It’s very common in the nonprofit world to have this kind of board overlap, just because of control,” he said. Normally, it’s not a problem because they work in tandem and have common interests. “It’s not an issue, but every now and then…it doesn’t work so well,” he said.
“In the purest sense, the answer probably has to be yes,” Hopkins said, as to whether a conflict exists when board members serve both a nonprofit and its foundation. “For what it’s worth, it’s done all the time,” he said. Then again, if one were to “get rid of all board overlaps, you would have an endowment fund floating around that an entity doesn’t control. That’s bad practice,” said Hopkins.
“There are all sorts of mechanisms that can be put in place,” he said, such as board members recusing themselves or forming a special committee of non-overlapping board members to make a decision or recommendation to the board.
“The cure is usually worse than the disease. It’s foolhardy to cultivate an endowment that you don’t control. To me, this is more a retaliation question than a conflict of interest question,” said Hopkins, as there’s an inherent conflict of interest, or at least the potential of one.