http://www.washingtonpost.com/wp-dyn/articles/A37463-2004Mar30.html
 
Overhaul of Nature Conservancy Urged
Report by Independent Panel Calls for Greater Openness By Joe Stephens
Washington Post Staff Writer
Wednesday, March 31, 2004; Page A01

An independent panel of experts created by the Nature Conservancy last year to revamp the environmental group's operations has issued a final report calling for sweeping reforms that the group hopes will become a model of ethical standards for nonprofit organizations.

The panel is urging the Conservancy to make its finances more public, to scrutinize tax deductions taken by its donors and to vow to "walk away" from financial transactions that fail to meet the proposed standards.

Conservancy board members and their companies should be barred from selling land to the Conservancy or buying property from the group, the report says, and the Conservancy's conflict of interest policy for board members and executives should be extended to cover major donors of cash or land.

The report also says board members and their companies should not enter into "cause-related marketing" campaigns with the Conservancy, where the group's logo is stamped on products and used in corporate ads.

The panel urges the Arlington-based nonprofit to bar its board members and their companies from claiming federal income tax deductions for giving land to the charity.

The recommendations come in a 28-page report prepared over six months by an outside committee led by Ira M. Millstein, a New York lawyer and an expert on business ethics. Other panelists include former Harvard University president Derek Bok and former Los Angeles Times publisher Richard T. Schlosberg III.

The Conservancy, the world's largest environmental group, created the panel last year, after articles in The Washington Post described controversial practices at the organization. The Conservancy also immediately after the articles were published in early May banned many of the practices, saying it would no longer lend money to corporate insiders, sell land to its trustees or drill for oil on nature preserve land.

The Conservancy already has adopted one of the panel's major recommendations, made months ago in an interim report. In January, the environmental group approved a "complete restructuring" of its governing board to strengthen accountability and oversight at the $3 billion organization. The changes include creation of an 11-member executive committee that will wield power formerly distributed across the 36-member board. A major focus of the executive committee will be to promote greater openness at the Conservancy.

In the final report distributed to Conservancy board members this week, the panel did not dwell on past practices at the Conservancy, choosing instead to focus on setting new standards to increase efficiency and safeguard the charity's reputation.

"I have a high degree of confidence this will be carried out," Millstein said of the recommendations. Conservancy spokesman James Petterson said most of the changes are already underway.

In a statement, Conservancy board Chairman Henry M. Paulson Jr. said the organization has made a "commitment to strive for the best standards in governance in the nonprofit sector. With the assistance of this esteemed panel, and through our own comprehensive internal review of our governance structure, we have made significant progress toward that commitment."

Senate Finance Committee Chairman Charles E. Grassley (R-Iowa), who has been investigating Conservancy practices since last year, welcomed the report as an important step and said the proposed reforms might have wider applicability to other charities.

"I'm pleased that it looks like Nature Conservancy has gotten the message that business as usual won't cut it," Grassley said in a statement. "People should have confidence that when they write a check for charity, the money will help the needy, not the greedy."

Millstein, the panel chairman, said he hopes the recommendations will become a benchmark for the charitable industry's best practices.

"It is essential that a non-profit board . . . scrupulously operate in a transparent, lawful and ethical manner," the report stresses.

The report says appropriate concerns have been raised about the validity of appraisals used to justify tax deductions claimed by individuals and companies that donate conservation easements, which restrict some types of intrusive development on particular tracts of land. In many cases, the donors continue to use the land as home sites.

"The panel recommends that TNC [the Nature Conservancy] put in place careful, systemic and strict procedures that will ensure compliance with all aspects of the spirit and letter of the rules for charitable contributions of conservation donations, with particular emphasis on appraisals," the panel wrote.

The Conservancy should refuse to sign Internal Revenue Service documents, known as Form 8283s and used by the IRS to document non-cash gifts to charities, unless the value placed on the gift of land or an easement is backed by a report from a qualified, state-certified appraiser, the report says.

The Conservancy, the panel wrote, "must demonstrate that it is willing to 'walk away' from an otherwise advantageous transaction where all aspects of the transaction do not meet TNC's new standards, including where a donor wishes to claim a tax deduction based on an appraisal that is not justified."

The report urges the organization to strengthen efforts to monitor and enforce the development restrictions created by the easements and to take "aggressive action" against land owners who violate them.

"Adequate monitoring and enforcement of easements is critical to achieving long-term conservation results," the panel wrote.

The report also urges the Conservancy to use its annual return filed with the IRS, known as a Form 990 and available for public inspection, as a sort of annual report to its members. The Conservancy should make more disclosures in the filings than is required by law, the report says, and should include details about executive compensation, conservation activities and the organization's ethical record.

The annual Form 990 return, the panel wrote, could serve as the nonprofit's version of the Sarbanes-Oxley reports, which are now filed by publicly traded, for-profit companies. Those reports were created by Congress after disclosures of self-dealing and profiteering at Enron and other Fortune 500 companies.

In an interview, Millstein said, "What we are saying is, go along with the spirit of what the law requires, not just the letter."

Staff writer David B. Ottaway also contributed to this report.