When Your Nonprofit’s CEO Is Also Board Chair—and Makes Top Dollar

July 22, 2018; Crain’s Detroit Business

In these days of higher media scrutiny of nonprofits, it is good to consider how things might look to the public, who expect the highest forms of accountability from nonprofits.

For instance, this year, when Crain’s Detroit Business was doing its annual look at the highest nonprofit CEO salaries in Detroit, it came across a new name—Norman Yatooma.

Yatooma works for Charity Motors, a 22-year-old 501c3 with annual revenue in the $6 million range. He’s not just the 12^th-highest-paid nonprofit executive in Detroit, with compensation of $263,585; he’s also chair of the board. The organization’s 2016 Form 990 also listed Martin Setchel as pulling down six figures in compensation as the organization’s operations director.

The nonprofit’s review process for this 990, according to that self-same report, is reported to involve the board chair and the operations director—in other words, two paid members of staff, one of whom sits on the board. There is no mention of the board treasurer. This in and of itself suggests that conflict-of-interest policies may not be fully embraced in spirit.

Let’s remember for a moment that part of what a board does is ensure that an organization’s policies are ethical and in line with its stated purpose and values. This requires the board to take an objective view of the performance of the executive and executive team. This oversight is part of the accountability structure of every nonprofit, so that self-interest never overcomes public benefit. When both top executives sit on the board, possibilities for a serious ethical slide abound.

One might think Yatooma should know to err on the side of caution. He has a full-time job as an attorney at his own law firm, Norman Yatooma & Associates, PC. Yatooma is also founder and current president of the 17-year-old Yatooma’s Foundation for the Kids, where he purportedly volunteers 15 hours per week. Thus, the managing of Charity Motors, which operates in the sometimes ethically questionable field of vehicle donation programs (see here and here), is one of many key roles Yatooma is juggling.

While it is not illegal to have one person in both seats, and it is done in publicly traded companies, one would think a lawyer would be aware of the inherent conflicts of interest, both actual and perceived, this brings to the nonprofit,. And if the same person is in all those seats of oversight, and doing it in a small window of time, can even simple mistakes be caught? If that same person is overseeing the responsibilities of the chief financial officer, who is the same person taking on the legal counsel duties, where are the checks and balances?

Leslie Lenkowsky, senior counselor to the dean of the Indiana University Lilly Family School of Philanthropy and retired professor of philanthropic studies, comments simply, “How is a board going to have a degree of independence to question the CEO, if the chairman—a key member of the board—is also the CEO?”

Yatooma is following the path set by a predecessor at the nonprofit. Originally, Charity Motors used contracted vendors to manage its program of taking donated vehicles, making them street-worthy, and selling them at half market value to low-income individuals. The chairman of the board in 1997, Bobby Ivory, Jr., also took the position of president and manager of the operation for six years; however, he was not paid for the role.

Ivory remains as the vice chairman and the only founding member still active on the board of directors. Any discussion about possible conflict of interest and the lack of checks and balances must start with Ivory, who created this leadership paradigm for Charity Motors which has, under Yatooma’s lead, expanded into 38 states since 2015.

“Having had that experience of being at the helm and dealing with legal issues as well as staff issues, to have someone (like Yatooma) with that level of skill and commitment seemed to be very attractive to myself and the rest of the board,” Ivory said. “He actually seemed a bargain because he assumed a lot of those (operational) responsibilities.”

There are a lot of dollars in play under one person’s management. According to the 2016 990 form, filed in November of 2017, revenue was $6.67 million and total expenses were $7.3 million, creating a deficit of almost $610,000. The organization has been in deficit each year since 2013, but the organization still declared net assets of almost $640,000 in 2016. Last year, Charity Motors took in 5,332 vehicles, scrapping only one percent and selling a declared 5,279 to low-income individuals. Half the book value of each vehicle is figured to be program benefits, and the buyer pays the rest of the sale price. Yatooma reports that Charity Motors has contributed over $114 million to nearly 1,500 charities over its history and sold vehicles to just under 207,400 people. On the other hand, programs that operate largely on in-kind donations are sometimes hard to track well without a good deal of work.

Experts have weighed in on the situation. The COO and chief communications officer of the National Council of Nonprofits, Rick Cohen, suggested in an email to Crain’s Detroit that while it is impossible to know from the outside looking in, it is important to have a strong policy in place to recognize and act on any conflicts when the chair is serving as the president: “We don’t know what internal controls the organization has on paper, nor whether or how they follow any written policies.”

Jenifer Gager Holland, associate vice president, consulting and learning practice, at BoardSource, a Washington, DC-based nonprofit that focuses on nonprofit board leadership and practices, says that, as the assets of a nonprofit are held by the board in a public trust, “it’s really the central question…is the board doing its job to demonstrate whether any real or perceived conflicts of interest have been addressed?”—Marian Conway and Ruth McCambridge