Khazei OK’d hiring brother at nonprofit

Did not clear payments with board beforehand

By Noah Bierman
Globe Staff / August 22, 2011

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Alan Khazei, who is basing his campaign for US Senate on his experience leading nonprofit organizations, paid his brother nearly $40,000 as a consultant for the charity he ran over a three-year period, an action that appears to run afoul of his nonprofit’s conflict-of-interest policy.

Khazei also paid his brother, Hollywood writer Lance Khazei, $41,250 as a consultant for three months of work on his 2009 Democratic primary campaign for the Senate, in which Alan Khazei placed third.

Khazei said his brother is a talented writer and creative thinker, and that his $50-an-hour cost to the charity, Be the Change, was relatively low in the scheme of a multimillion dollar budget. He was hired by the nonprofit to advise on its Internet strategy, write some of its promotional materials, and help in dealing with celebrities the charity was trying to enlist in promoting itself, Khazei said.

“He’s a professional. His rate as a writer was multiple times that,’’ Khazei said. “We’re very close and he’s very talented.’’

The board did not review his brother’s contract before it was approved, according to Khazei and Kevin Jennings, who replaced Khazei as president and chief executive of Be the Change in late July.

“It was my approval with the senior team,’’ Khazei said. “It was such a small amount, $50 an hour, $2,500 a month.’’

But the nonprofit’s conflict-of-interest policy says if officers have a financial interest “directly or indirectly, through business, investment, or family’’ in a contract, the issue needs to come before the board to determine whether the interest amounts to a conflict of interest. The board is supposed to review the situation outside the presence of the parties that may be in conflict, according to the policy.

If the board finds a conflict, it is supposed to seek alternatives before voting on whether to agree to such an arrangement, according to the policy.

After the Globe’s questions about the policy Thursday, Jennings provided a memo drafted by a lawyer for the nonprofit that day, arguing that the contract with Lance Khazei did not violate the board’s conflict-of-interest policy because Alan Khazei would not have benefited financially from his brother Lance’s income. The memo says the board’s policy, based on an IRS model, does not define “family,’’ but would be more likely to apply to a spouse than a brother because Khazei would not benefit from his brother’s earnings.

Be the Change, a Cambridge-based organization founded by Khazei in 2007, promotes civic engagement and enlists nonprofit groups and others in national policy campaigns.

Khazei’s campaign issued a subsequent statement to the Globe on Friday in which he defended his actions and “the ethical and transparent culture that I worked so hard to establish at Be The Change.’’ Khazei’s Friday statement said the contract was reviewed by the nonprofit’s attorneys and that the board saw it when it appeared on the organization’s tax filings, something that was confirmed by a member of the board’s finance committee. The tax documents were filed with the IRS the year after the contract was signed.

“We complied with the letter and spirit of our internal policies and strictly adhered to all federal and state laws,’’ Khazei wrote. “In hindsight, it would have been better to have the board approve this contract initially.’’

Khazei is among seven Democrats who have declared they are running in next year’s primary for the right to challenge Republican Senator Scott Brown. Khazei leads all Democrats in fund-raising, reporting $920,000 in the most recent filing period. He is far behind Brown, who has reported more than $9.6 million in his account.

Elizabeth Warren, a former adviser to President Obama, is conducting a self-described “listening tour’’ this week and on Thursday opened an exploratory committee, early steps toward formally entering the Democratic primary.

Be the Change paid Alan Khazei $242,000 in salary and bonus in 2009, according to its most recent public tax filing. Khazei also acknowledged earlier this week that he has been receiving a consulting fee of up to $12,000 a month from the nonprofit, under a contract he received after he resigned as president and chief executive in March to become a full-time candidate. That contract, designed around the transition to a new leader, expires in September. Khazei’s salary and consulting contract were approved by the board of directors.

Since taking over for Khazei, Jennings said, he ordered a review of all employees and policies at the nonprofit, “something I had initiated before this issue arose.’’ He would not comment on whether he would have approved the contract for Lance Khazei.

“He had a clear contract and was paid accordingly,’’ Jennings said. “I don’t want to answer hypothetical questions about what I would have done in the past, because I wasn’t here and it’s easy for me to have 20-20 hindsight.’’

Alnoor Ebrahim, a Harvard Business School professor who holds the faculty chair in Governing for Nonprofit Excellence, said it is important for nonprofit organizations to follow strict procedures so the public knows the decision is in the best interest of the broader community.

“The best practice would be to have the board deliberate the issue before the decision is made,’’ he said.

James E. Post, a Boston University management professor who teaches classes on both ethics and nonprofit governance, said the board needs to clear contracts with family members before they are signed so the entire organization has confidence that it is above board.

“Doing it all after the fact and trying to make it look acceptable is troublesome and it just puts an unnecessary cloud over Khazei,’’ he said.

Lance Khazei is a Hollywood veteran who has written for television shows and movies. He said his work for Be the Change was extensive and included media strategy, writing, and assistance in setting up the organization’s Los Angeles office.

Bierman can be reached at Follow him on Twitter @noahbierman.