Court Imposes Detailed Nonprofit Governance Reform on NRA

Last summer I told you that the NY Attorney General might be overstepping a bit in her effort to impose an internal “compliance monitor” on the National Rifle Association.  La Pierre and his greasy cronies got what they deserved but the AG also wanted an “internal compliance officer” — a snitch, really — who would monitor and report back to the Court and the AG.  Here is a restatement of the NRA’s objection from the prior post:    

But once the state assumes governance authority and supervision over a charitable organization, it is better able to control an organization’s substantive policies if that’s what an apparatchik wants to do.   What if the State thinks it’s a bad idea for NRA to oppose gun control and instead that it should support mental health treatment?  Couldn’t the State exercise monitoring and governance authority in a manner that leads NRA towards acceptance of more gun control?  And how does State supervision impact donations?  Some potential donors, for example, might decide to withhold financial support for fear of government appropriation.  Because if donors want to contribute to a government controlled effort, they can just pay taxes.  That result — depressed donations — could be an indirect means of controlling NRA’s message or views.  So a court should be careful about putting an organization into the sort of government receivership NY is advocating. 

Those good arguments were first made by NRA and La Pierre’s counsel, I only expressed agreement.  On Wednesday, the Court issued a final order omitting the internal compliance monitor but imposing a different sort of supervision.  It’s a good bet that a Court got it right when both sides claim victory, as does the NRA here and the AG here.  The order imposed significant governance requirements, including that the NRA must issue annual compliance reports and “enhanced” IRS 990s and state reports, follow a detailed Director nomination policy, implement a detailed audit committee requirement, and implement additional safeguards against private inurement and excess benefit via a beefed up related-party transaction policy.  Most of those impositions are consistent with measures the NRA voluntarily adopted earlier to fend off further AG supervision.  Although the Court did not adopt the AG’s proposed internal compliance monitor, it requires the NRA to hire a court-approved consultant:

(11) Consultant. The NRA shall retain a Court-approved consultant to work with the Chief Compliance Officer and staff to make recommendations to the Board of Directors in connection with implementing any directives from the Court in the above-captioned action, as well as regarding best governance practices.  The NRA shall submit  the name and background information of its proposed consultant to the Court and the Attorney General.  After giving the Attorney General 14 days to comment, the Court will decide whether to approve the candidate or require the NRA to propose a new one.  The proposed consultant shall not be someone who appeared as a witness at trial on behalf of the NRA in this matter.  

A “consultant” might not be much different from a “monitor,” actually.  The difference, one that probably makes the appointment tolerable despite NRA’s objections, is that the “consultant” is not required to make reports to the attorney general and the Court, but is answerable only to the Board after an initial court and AG approval process.  It all might be a delicate dance in terms of preserving a charitable organization’s independence while also preventing the misappropriation of charitable assets.

darryll k. jones