Monthly Archives: July 2017

Bishop Estate Trust Case Study: Avoiding Conflicts of Interest

conflicts of interest

Most people involved with nonprofit organizations are familiar with the concept of “conflicts of interest.” Generally, nonprofit board members should have a high standard of care and undivided loyalty to the nonprofits they serve. There should be no instances of self-dealing for themselves, people, or businesses related to them. For example, if a nonprofit is interested in purchasing a board members’ piece of property to expand their organization, they should be made aware of any costly problems beforehand. If the board member does not disclose this information, they will have violated their fiduciary duty by transferring their problems to the nonprofit.

Most board members generously donate their time, talent, and money with no expectation of return other than the satisfaction of being involved with a significant cause. However, nonprofits should be proactive by enforcing a conflict of interest policy, in the event a conflict of interest arises. Potential conflicts of interest could end up destroying both the public and donors’ trust in the organization. A sample conflict of interest policy can be found on the IRS website.

One of the greatest case studies on conflicts of interest is the Bishop Estate Trust controversy.

At the time of her death in 1884, Princess Pauahi Bishop was considered to be the most affluent landowner in Hawaii. In total, she owned approximately 10 % of the land in the state. Detailed in her will, Princess Bishop established a trust where all income from the land would be used to erect and maintain two schools on the Hawaiian Islands. The citizens were extremely enthusiastic for the Kamehameha Schools that would educate their children in the years to come. Since 1884, the Hawaii Supreme Court justices have appointed numerous groups of trustees to oversee the trust. The new board of trustees in combination with the increase in land and development values, which have driven up the trust’s worth to be billions, have created a high probability for conflicts and self-dealing to occur.

In August 1997, a Honolulu Star-Bulletin article outlined some of the conflicts of interests regarding the trust. These types of conflicts went beyond the board members’ relationship with the organization:

  • Many cases regarding the Bishop estate went before the Hawaii Supreme Court justices who selected the trustees. Allegations arose that the appointments by the Supreme Court justices were based on a tangled web of politics and favors.
  • The stakes were very high. By 1997, the trustees received approximately $900,000 in compensation for their services. This was extremely unusual, as most nonprofit trustees serve without compensation.
  • Some trustees invested personal money in some of the active investments they selected for the trust, including oil and gas deals. This created conflicts to whether their decisions reflected what was best for the trust or for the individual trustees.
  • The organization spent millions of dollars lobbying against intermediate sanctions regulations. Generally, an individual trustee or insider could be held personally liable if they unfairly benefited from transactions with the organization, with repayment obligations to the nonprofit.
  • Trustees allegedly used school employees to work on their own properties during work hours with no repayment.

These conflicts were considered so corrupt that the IRS threatened to revoke the trusts’ tax exempt status. Ultimately, the allegations were resolved through private settlements and jail time. A full account of the case is detailed in the nonprofit management book, “Broken Trust: Greed, Mismanagement & Political Manipulation at America’s Largest Charitable Trust.”

Conflicts of interest are an important topic for many organizations. If you have any questions or would like to discuss any issues specific to your organization, please contact Aronson’s Nonprofit & Association Services Group at 301.231.6200.

Pricing Strategies for Membership Associations that Build Relationships

Membership Association Pricing

It is crucial for membership associations to form strong relationships with their current and prospective members. During a webinar hosted by Abila, the presenter gave advice on new ways associations can approach their membership pricing and packaging strategies. The specialist proposed taking Costco’s effective marketing template and applying it to membership organizations that provide their members with services, such as continuing education classes. At first glance, Costco may seem very different from membership associations. However, the company’s basic pricing and packaging concepts can be applicable to organizations across industries and may even spark fresh marketing ideas for your own association.

Similar to associations and other nonprofit organizations, Costco strives for continued customer loyalty. They achieve this by tapping into the psychological aspect of shopping for the best perceived value. Costco’s pricing strategy can be broken down into four main categories:

  • Bundling – Give your members different offerings through a variety of packages. You can break this up by content and topic type or by professional needs.
  • Free samples – Who doesn’t love free samples? Don’t give away your main offering, but give potential members a taste of what would be available to them should they become a member or sign up for new offerings. Allow them to attend a free meeting or networking event.
  • Subscription – Similar to Netflix and Pandora, think about how you can bundle a variety of services or class subscription.
  • Bulk – Consider giving discounts to businesses or groups that purchase memberships at certain thresholds or quantities.

Costco markets their products knowing that there is an increased perception of value over cost. Essentially, the idea of “Buy 2, Get 1 Free“ works best because the customer sees more benefits to acquiring more products for their dollar than spending less money.

As an association, it is important to remember that you are building and maintaining relationships over time. Members should see value in your association that encourages them to renew their membership and remain loyal.

To learn more pricing strategy tips from Abila, view their session, “The Costco Effect Part 2: Professional Development Pricing and Packaging Strategies” and download the Member Professional Development Study.

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