Context and Obligations
In considering one’s obligations as a director, officer or member of the staff of the Lucile Packard Foundation for Children’s Health (the “Foundation”), it is important to understand the special public status of the Foundation and its accompanying obligations.
The Lucile Packard Foundation for Children’s Health was formally granted its tax-exempt status as a “public charity” in 1996. As such, it is accorded the privileges of a public trust, based on the assumption that the Foundation will optimize use of its tax-exempt resources in the public’s direct interest. The burden of proof is on the Foundation to demonstrate that it is meeting this standard, and, therefore, deserves the continuing privileges of its public charity status.
In distributing Foundation resources to the community in the form of grants and raising funds on behalf of Lucile Packard Children’s Hospital (“LPCH”) and the pediatric programs at the Stanford University School of Medicine (“SOM”), the overriding obligation of the directors, officers and staff is to protect the Foundation’s credibility, integrity, and fairness in dealing with the issues it addresses and the grantee communities and organizations with which it partners as a grantmaker to improve the health of children. This requires that the actions directors, officers and staff members take, and the decisions they make, always be driven by what is in the best interest of the Foundation and not of other organizations, causes, populations, or ideologies.
The issue of conflicts of interest is salient because the Foundation’s directors, officers and members of the Foundation’s staff are often active individuals in their communities, with multiple areas of personal and professional interest and involvement. It is inevitable – indeed expected – that situations will arise in which the Foundation must reach a decision about an organization or activity in which a director, officer or staff member has an interest that represents an actual, potential, or apparent conflict.
Accordingly, it is important that the Foundation directors, officers and members of Foundation staff, both as individuals and as a group, adopt standards of conduct and behavior designed to protect the integrity of Foundation decision-making processes, and preserve the quality, fairness, and openness of the Foundation’s program development, review, funding, and oversight processes, as well as all its other financial transactions. This policy is designed to assist Foundation directors in meeting their fiduciary duties to the Foundation.
ARTICLE 1
Purpose
1.1 Financial Conflicts of Interest. The purpose of this Conflict of Interest Policy is to protect the Foundation’s interests when it contemplates entering into a transaction or arrangement that might benefit the private interest of a “disqualified person,” or might result in a possible “excess benefit transaction” under Section 4958 of the Internal Revenue Code of 1986, as amended, a “self-dealing transaction” under Section 5233 of the California Corporations Code.
1.2 Affiliation Conflicts of Interest. In addition to avoiding financial conflicts of interest, Foundation leadership owes a duty of loyalty to the Foundation. Each decision made by the Board must be made in good faith, and in a manner that the Board believes to be in the Foundation’s best interests, notwithstanding the fact that Board member (or his or her family):
(a) may also act in a fiduciary capacity with respect to other nonprofit organizations with which the Foundation may interact in some fashion, or (b) may have a direct professional interest in the outcome of a particular Foundation decision.
ARTICLE 2
Policy
2.1 Transactions with Disqualified Persons or Interested Directors. The Foundation shall not enter into any transaction with a “disqualified person” or an “interested director,” except in conformance with the Due Diligence Procedure attached to this Policy as Exhibit A.
2.2 Affiliation Conflicts. Any director or officer of the Foundation who has an “affiliation conflict” (as defined in Section 3.4 below) shall disclose the same, and the Board shall act with respect thereto in conformance with the Due Diligence Procedures attached to this Policy as Exhibit A.
ARTICLE 3
Definitions
3.1 Disqualified Persons. For purposes of this Policy, a “disqualified person” is any of the following persons:
(a) A member of the Board of Directors of the Foundation (the “Board”);
(b) A member of any committee of the Board;
(c) The Foundation’s President & CEO, Chief Financial Officer, or anyone holding any of the powers or responsibilities of these offices, regardless of title;
(d) Any other individual who is in a position to exercise substantial influence over the affairs of the Foundation, or who has been in such position at any time during the five- year period ending on the date of a transaction proposed to be entered into between that individual and the Foundation;
(e) The spouse, ancestors, brothers, sisters, children, grandchildren, and great grandchildren of any individual described in subparagraphs (a) through (d) above, and the spouses of the brothers, sisters, children, grandchildren and great grandchildren; and
(f) Any legal entity in which more than 35% of the combined voting power (in the case of a corporation), profits interest (in the case of a partnership), or beneficial interest (in the case of a trust) is owned by persons described in subparagraphs (a) through (e).
3.2 Interested Director. For purposes of this Policy, an “interested director” is a Director who has a material financial interest in a transaction or arrangement to which the Foundation is proposed to be a party. If a Director’s spouse has a material financial interest in the transaction or arrangement, that Director is an “interested director.”
3.3 Financial Interest. A person has a financial interest if the person has, directly or indirectly, through business, investment, or family:
(a) an ownership or investment interest in any entity with which the Foundation has a transaction or arrangement;
(b) a compensation arrangement with the Foundation;
(c) a compensation arrangement with any entity or individual with which the Foundation has a transaction or arrangement;
(d) a potential ownership or investment interest in any entity or individual with which the Foundation is negotiating a transaction or arrangement; or
(e) a potential compensation arrangement with any entity or individual with which the Foundation is negotiating a transaction or arrangement.
Compensation includes direct and indirect remuneration as well as gifts or favors. A financial interest is not necessarily a conflict of interest. A conflict of interest exists only upon a determination of its existence by the Board in accordance with the Due Diligence Procedure.
3.4 Affiliation Conflicts.
(a) A person is considered to have an “affiliation conflict” if such person either (i) has a fiduciary duty with respect to another organization; (ii) has a professional relationship with another organization and the Foundation is contemplating a business, grantor/grantee, or other relationship with that organization; or (iii) has a direct professional interest in the outcome of a particular Foundation decision. A person is considered to have a fiduciary duty with respect to an organization if that person is a current member or officer of its board of directors, or otherwise currently acts in a leadership capacity with respect to that organization. Membership in an organization, without more, will not be considered to confer a fiduciary duty on the member. Being a past member of a board (or prior officer) will not be considered to confer a fiduciary duty with respect to such person but should be disclosed to the Board.
(b) The foregoing paragraph (a) notwithstanding, transactions between the Foundation and LPCH, Stanford University, Stanford Hospital and Clinics or other Stanford University-affiliated entities will not ordinarily create an affiliation conflict, absent a material effect on a personal interest of a Foundation Director. Accordingly, Foundation Directors who also serve as Trustees of Stanford University or as Directors of LPCH or Stanford Hospital and Clinics may generally vote on transactions between the Foundation and LPCH or Stanford University or Stanford Hospital and Clinics. Such Directors are acting in a fiduciary capacity to the Foundation when they vote as part of the Foundation Board of Directors and should approve such a transaction only if they find it to be just and reasonable to, and in the best interest of, the Foundation.
ARTICLE 4
Violations of the Conflict of Interest Policy
4.1 If the Board (or a committee designated by the Board) has reasonable cause to believe that a disqualified person or interested director has failed to disclose actual or possible conflicts of interest, the Board (or such committee) shall inform such person of the basis for such belief and afford him or her an opportunity to explain the alleged failure to disclose. If, after hearing the response of the disqualified person or interested director and after making further investigation as warranted by the circumstances, the Board (or such committee) determines that such person has failed to disclose an actual or possible conflict of interest, the Board shall take appropriate disciplinary and corrective action.
ARTICLE 5
Compensation
5.1 Any Director who receives compensation, directly or indirectly, from the Foundation for services is precluded from voting on matters pertaining to his or her compensation.
5.2 Any member of a committee of the Board whose jurisdiction includes compensation matters and who receives compensation, directly or indirectly, from the Foundation for services is precluded from voting on matters pertaining to his or her compensation.
5.3 Directors and committee members described in Sections 5.1 and 5.2 above shall not be prohibited from providing information to any committee regarding compensation.
ARTICLE 6
Annual Certification
6.1 Each Director and principal officer of the Foundation, each member of a committee with Board-delegated powers, and each employee who is an administrator shall annually sign the Conflict of Interest Statement and Disclosure Form attached to this Policy as Exhibit B.
ARTICLE 7
Periodic Reviews
7.1 To ensure the Foundation operates in a manner consistent with its tax-exempt purposes and does not engage in activities that could jeopardize its tax-exempt status, periodic reviews shall be conducted. The periodic reviews shall, at a minimum, include the following:
(a) Whether compensation arrangements (including benefits) with disqualified persons and interested directors are reasonable, based on competent survey information, and the result of arm’s length bargaining.
(b) Whether partnerships, joint ventures, and arrangements with management organizations conform to the Foundation’s written policies, are properly recorded, reflect reasonable investment or payments for goods and services, further tax-exempt purposes and do not result in inurement, impermissible private benefit, in an excess benefit transaction, or in a self-dealing transaction.
7.2 When conducting the periodic reviews as above provided, the Foundation may, but need not, use outside experts. If outside experts are used, their use shall not relieve the Board of its responsibility for ensuring that periodic reviews are conducted.
Exhibit A
Due Diligence Procedure
Board Meeting to Determine Whether Financial or Affiliation Conflict of Interest Exists
1. The disqualified person or interested director shall disclose the existence of his or her financial interest or affiliation interest in the proposed transaction or arrangement to the Board. The disqualified person or interested director shall be given an opportunity to disclose all material facts to the Board respecting the proposed transaction or arrangement.
Alternatively, staff shall identify the disqualified person or the interested director and the proposed transaction or arrangement. Staff shall also gather facts for disclosure to the Board about the proposed transaction or arrangement and the interest of the disqualified person or interested director in the proposed transaction or arrangement.
2. After disclosure of the financial interest or affiliation interest and all material facts, and after any discussion with the disqualified person or interested director, the Board, without the participation or vote of the disqualified person or interested director, shall decide if a conflict exists.
3. If a financial conflict of interest exists:
a. The Board shall appoint an independent committee or staff to investigate possible reasonable alternatives to the proposed transaction or arrangement for report to the Board. For example, if the services proposed to be rendered to the Foundation by the disqualified person are also available from independent third-parties, such alternatives shall be investigated and reported to the Board.
b. Staff shall obtain appropriate comparability data. In the case of compensation to be paid to the disqualified person or interested director, comparability data includes, but is not limited to: (a) compensation levels paid by similarly situated organizations, both tax exempt and non-exempt, for functionally comparable positions, (b) actual written offers from similar institutions competing for the services of the disqualified person or interested director, and (c) current compensation surveys compiled by independent firms. Comparable compensation surveys may be surveys of national organizations so long as the survey divides the compensation data by categories (e.g., the size of surveyed organizations, the nature of services provided by the surveyed organizations, revenue amounts, geographic area, the level of experience and specific responsibilities of the comparable positions). If the Foundation elects to have a compensation survey made by an independent firm, that firm must be one that specializes in consulting on issues related to placement and compensation, and the Board must be afforded an opportunity to ask questions of the member of the firm that prepared the survey. In either case, the survey results shall be provided to the Board, together with a detailed written analysis comparing the disqualified person or interested director with those covered by the survey.
In the case of property, comparability data shall consist of either a current independent appraisal of the value of the property to be sold or acquired by the Foundation, or offer(s) received as part of an open and competitive bidding process.
Board Meeting to Consider the Proposed Transaction or Arrangement and the Alternatives
Financial Conflicts of Interest
1. The Board shall hear report by the independent committee or staff on possible alternatives to the proposed transaction or arrangement. The disqualified person or interested director may make a presentation to the Board. However, after the presentation, he or she shall leave the meeting during the discussion of, and the vote on, the alternatives and/or proposed transaction or arrangement.
2. The Board shall review the information presented, including comparability data for the proposed transaction or arrangement, and ask questions, as appropriate.
3. The Board shall consider alternatives (if any) to the proposed transaction or arrangement and determine, in good faith, whether the Foundation could not obtain a more advantageous arrangement with reasonable effort from another person or entity that would not give rise to a conflict of interest. If such an alternative exists, the Board shall not authorize the Foundation to enter into the proposed transaction or arrangement.
If a more advantageous transaction or arrangement is not reasonably possible under the circumstances, the Board shall determine, by a majority vote of the Directors then in office (not counting the votes of the disqualified person or interested director or any conflicted Directors), whether the proposed transaction or arrangement is in the Foundation’s best interests, for its own benefit, and whether the proposed compensation or consideration to be paid/received is fair and reasonable to the Foundation. In conformity with the foregoing determination, the Board shall make its decision as to whether to enter into the proposed transaction or arrangement.
For purposes of this procedure, a “conflicted director” is a Director of the Foundation who: (a) is in an employment relationship subject to the direction or control of the disqualified person or interested director; (b) receives compensation or other payments subject to the approval of the disqualified person or interested director; (c) has a material financial interest that is affected by the transaction proposed to be entered into by the Foundation and the disqualified person or interested director; or (d) had or will have his own transaction with the Foundation approved by the disqualified person or interested director.
Affiliation Conflicts of Interest
1. If an affiliation conflict of interest exists, the interested party may attend and participate in the discussion of the particular matter, but if the interested party is a director, he or she must recuse from voting on such matter.
2. The Board shall, by a majority vote (not counting the vote of the director who is the interested party), (a) determine whether the proposed transaction or arrangement is in the Foundation’s best interest, and (b) if so determined, approve the transaction or arrangement.
Records of Board Meeting
Board meeting minutes shall be prepared to reflect the following:
1. Full disclosure to the Board of the financial interest of the disqualified person or interested director in the transaction or arrangement.
Financial Conflicts of Interest
2. Investigation and report to the Board of the terms of the transaction or arrangement and the alternatives.
3. If the Board authorized the Foundation to enter into the transaction or arrangement, the findings of the Board that:
(a) The Foundation entered into the transaction or arrangement for its own benefit.
(b) The transaction or arrangement was fair and reasonable as to the Foundation at the time it was entered into.
(c) The Board approved the transaction or arrangement in advance with knowledge of the financial interest of the disqualified person or interested Director.
(d) The Board approved the transaction or arrangement by a majority vote (not counting the votes of the disqualified person or interested Director or any conflicted Directors).
(e) The Board considered alternative arrangements and found, in good faith and after reasonable investigation, that the Foundation could not obtain a more advantageous arrangement with reasonable effort from another person or entity that would not give rise to a conflict of interest.
4. The terms of the transaction or arrangement that was approved and the date it was approved.
5. The comparability data obtained and relied upon by the Board.
6. How the comparability data was obtained.
7. If the Board determined that the proposed compensation or consideration was reasonable, even though it fell outside the comparability data range, the minutes shall state the Board’s basis for such determination.
Affiliation Conflicts
8. With respect to documentation regarding an affiliation conflict of interest, Board minutes should reflect the actions of the Board with respect to such conflict of interest.
Both Financial and Affiliation Conflicts
9. The Directors who were present during debate and those who voted.
Documentation shall be prepared before the next Board meeting or 60 days following date of Board approval of the transaction or arrangement, whichever is later. Documentation shall be reviewed by the Board as reasonable, accurate and complete within a reasonable time period thereafter.
If it is not reasonably practicable to obtain the Board’s approval prior to entering into the transaction, a committee authorized by the Board may approve the transaction so long as the foregoing Due Diligence Procedure is followed, but the Board must ratify the transaction at its next meeting. The ratification must be by a majority of the Directors then in office after determining that it was not practicable to obtain the Board’s prior approval and that the committee approved the transaction as above required.
Exhibit B
Conflict of Interest Statement and Disclosure Form
I hereby acknowledge that I have read and understand the Conflict of Interest Policy of the Packard Foundation for Children’s Health and agree to abide by it. I understand that the Foundation is a charitable organization and, in order to maintain its tax exemption, it must engage primarily in activities which accomplish one or more of its tax-exempt purposes.
Financial Conflicts of Interest
I hereby inform the Board of Directors of the Foundation that I and/or any Disqualified Persons by virtue of their relationship to me (as defined in the foregoing Conflict of Interest Policy), including my spouse, and/or my children, have a material financial interest in the following business entities which have or may be seeking a business relationship with the Foundation:
Person:
Business Entity:
Role
Affiliation Conflicts of Interest
I hereby inform the Board of Directors of the Foundation that I and/or any Disqualified Persons by virtue of their relationship to me play a fiduciary (as a director or officer) or a leading role with the following charitable organization(s) which have received support or are seeking support from the Foundation, or might be entering into a transaction with the Foundation. Examples of leading roles include serving as chair of an annual fundraising dinner committee or other committees, or serving as an ambassador for the other charitable organization.
Person:
Organization:
Role:
Signature:
Date:
Name:
Note: Please inform the President & CEO of the Foundation or the Board Chair of any change of status after submission of this form