Tuesday, December 06, 2005

The Albert Ellis Affaire

I got prompted by a friend's post to dig more into what happened between Albert Ellis and the Albert Ellis Institute. Of course (and as usual) rather than siding with one of them I managed to get an opinion of my own *grin*

Let's start with the very basic notions, so to set the record straight:
1) A non-profit is a corporation: just like in any other corporation, board members are liable only if they make a mistake out of neglect or "bad intention". If the mistake was made in good faith and it was a honest mistake, board members can not be liable. This concept is known as limited liability and it is the main reason for folks incorporate. Corporation activities are disciplined by their by-laws;
2) A non-profit corporation has benefits in terms of income taxes and permission to fundraise;
3) Some non-profits are 501(c)3 bodies: that means they have some additional fiscal benefits and donations are tax-exempt. In order to gain (and keep) such status, the 501(c)3 organization can NOT: (a) lobby and (b) the earnings of such organization may not benefit any of its members;
4) Disqualified persons: this terms has nothing to do with the morality of the person that is disqualified, it is just a description of a category of persons that cannot or should not have financial ties with a non-profit corporation (such as a substantial contributor, a foundation manager, and their family members, such as spouses, descendants and their spouses, etc);
5) Board members are volunteers. As such, they might have their transportation expenses repaid and other benefits awarded, but they cannot be paid for their work, no matter how much they donated, fundraised or contributed in any way.

I am positive that, after reading these lines, many of you will understand what I'm about to say.

Apparently, Section 3 of the Albert Ellis Institute by-laws state
"Removal. Any Trustee may be removed at any time for cause by a vote of a majority of the entire Board at any special meeting of the Board called for that purpose, provided that at least one week’s notice of the proposed action shall have been given to the entire Board of Trustees then in office."

It basically means that the Albert Ellis Institute Board is allowed to remove any board member, Albert Ellis included, provided it calls a special meeting for this reason. Apparently, in the many rebuttal from AEI, nobody said the meeting was called for the specific reason of removing Albert Ellis. So, the removal per se may be not legal and Ellis could be reinstated.

The reason for Ellis was supposedly removed was the "excess benefit" transaction due to the fact the AEI paid his medical expenses. If you get a free account to GuideStar and read the AEI 990 form (2003's), you'll see how it states (verbatim):
"the organization paid for medical expenses for Albert Ellis, President. These expenses are expected to be reimbursed subsequent to year end."

Now, this might mean only two things:
(a) the Board knew Ellis had to reimburse the money but didn't tell him;
(b) Ellis knew he had to reimburse those expenses but didn't say he wouldn't, or thought he might talk them out of that.
One thing is certain: at least one of the parts knew he had to reimburse them TWO YEARS AGO (the 990 form dates back to the end of 2003).

With the incoming end of this year and Ellis not returning that money, the folks at the AEI must have freaked. From the IRS, on excess benefit correction (verbatim):
"A disqualified person [which Ellis is, as substantial contributor and foundation manager, as well as his wife, as spouse of a substantial contributor and foundation manager] corrects an excess benefit transaction by undoing the excess benefit to the extent possible, and by taking any additional measures necessary to place the organization in a financial position not worse than that in which it would be if the disqualified person were dealing under the highest fiduciary standards. The organization is not required to rescind the underlying agreement; however, the parties may need to modify an ongoing contract with respect to future payments."

In these conditions, therefore, it makes sense to kick Ellis out of the board, so that he wouldn't be a disqualified person any longer and, in that capacity, he could still have some form of financial support.

Therefore, for all the aforementioned reasons, what happen would probably be:
1) Ellis will be reinstated, because he was fired through a procedure that was not in compliance with the by-laws;
2) Ellis will have to repay the AEI, unless he is willing to see the institute loose its tax-exempt status.

Some more thoughts on the many "rebuttals" I've seen on the web:
a) it makes ZERO sense to compare Ellis' medical expenses to Broder's salary: Ellis is the President and a volunteer, Broder was the ED and an employee!
b) it does make sense to question the practice of appointing a Board Member as the ED of a corporation, because of the conflict of interest of having a double hat.
c) the two board members supposedly on Ellis' side spoke only after the "damage" was done and they were given reassurance that they would incur in no liability for disagreeing, which does not speak for their integrity and consistency.
d) Ellis himself donated a lot to the AEI. But the AEI is no offshore corporation or retirement funds and cannot be expected to jeopardize its tax-exempt status (especially regarding the building it is located into... that would evaporate its revenue in taxes!) just to take care of him.

Remember the three irrational beliefs as Ellis stated them:
*“I absolutely must succeed in work and/or love, else I am pretty worthless!”
*“Other people must treat me kindly and fairly or else they are no damned good!
*“The conditions under which I live must provide practically anything I want, or else the world is a horrible place and I can’t stand it!”

I do hope that this affaire would get settled in a way that can satisfy both AEI (that accomplished so much good) and Ellis (that did so much for so many persons), but I think Ellis should think a little bit more about his irrational beliefs and take one little step back.

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