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These weren’t the first embarrassing scandals in recent memory for Y.U. or for Met Council, both of which lost donor money in the 2008 Madoff fraud. Madoff was chairman of the board of Y.U.’s business school and a former treasurer of the university; J. Ezra Merkin, who managed funds that secretly fed millions into Madoff’s Ponzi scheme, was on Y.U.’s investment committee. That Merkin was on the board committee charged with overseeing the university’s investments didn’t keep Y.U. from investing in his fund, a conflict that received heavy criticism after the Madoff fraud was revealed. Y.U. lost $105 million invested with Madoff through Merkin.
Met Council lost an account invested with Madoff through Merkin with a purported value of $1.4 million.
A number of Jewish charities turned down offers to invest with Madoff before 2008, citing questions about his returns and their own conflict-of-interest policies.
The four scandals in 2013 are different in their circumstances. But according to Andrés Spokoiny, president and CEO of the Jewish Funders Network, all four come down to poor oversight on the part of their boards.
“Nobody in those boards had bad will,” Spokoiny said. “They simply didn’t have the mechanisms in place to have a more effective governance.”
One way in which governance controls fail at not-for-profits, Spokoiny and others said, is when top executives serve excessively long terms. Three of the four groups that faced scandals in 2013 had top officers in office for more than two decades. Rapfogel led Met Council for 20 years, Adler led the 92nd Street Y for 25 years, and Lamm was president of Y.U. for 27 years and then chancellor for another ten.
“It’s certainly put us in a position of vulnerability when the board does not feel like they need to, or can be, that power check against the executive,” said Mark Charendoff, former president and CEO of the JFN. Executives who stay too long build boards that are simply unable to challenge them, explained Charendoff, a longtime critic of extended tenures for executive directors.
Such CEOs “are basically working with a board who they have put in place,” he said. The board members “can’t imagine any world other than the world of that executive being synonymous with the organization…. There’s an erosion of those checks and balances.”
Teutsch, who works as a consultant to some Jewish not-for-profit boards and serves on others, echoed Charendoff’s warning. “The longer a CEO is in office and the more successful he is at his work, the less careful people are to do any double checking of his activities,” Teutsch said.
Two-decade terms are common among Jewish charity executives nationwide. Malcolm Hoenlein has led the Conference of Presidents of Major American Jewish Organizations for 27 years; Abraham Foxman has led the Anti-Defamation League for 26 years; David Harris has led the American Jewish Committee for 23 years; Barry Shrage has led Boston’s Jewish federation for 27 years; Steve Nasatir has led Chicago’s Jewish federation for 35 years; Dan Mariaschin has headed B’nai B’rith International for 25 years, and Michael Miller has led the Jewish Community Relations Council of New York for 26 years.
(Sam Norich, publisher of the Forward, has been the executive director of the Forward Association for 16 years.)
According to Spokoiny, charismatic CEOs can escape scrutiny. “There is something to be said [for] distributing leadership,” Spokoiny said. “It’s great to have a good, powerful, visionary CEO, and somebody that knows the business inside-out, but the concentration of power is never good.”