Governance Lessons From NRA

A New York state judge has ordered the National Rifle Association to implement a suite of corporate governance reforms meant to encourage transparency and enforce ethical conduct, after years of mismanagement by the NRA’s former leaders. It’s fascinating stuff for compliance officers, regardless of what you think about the NRA’s political positions. 

The judge’s ruling, announced late last week, ends a grinding litigation battle between the NRA and New York state attorney general Letitia James. James first sued  the gun-rights group in 2020, accusing former its now-former leaders of violating state charity laws by using the NRA to fund bloated salaries, luxury travel, and other lavish spending; and retaliating against those who questioned their management. After four years of wrangling in court, a jury sided with James at trial last February. 

James then pushed for more governance reforms for the NRA, including the appointment of an outside monitor and shrinking the size of the NRA board (which has 76 members). The judge in the case didn’t go that far, partly because new leaders at the NRA had already made some governance reforms; but his ruling last week did include a long list of measures that make sense for any organization looking to commit itself to high standards of conduct. Among them:

• Reforms to the board’s audit committee, so that committee members are elected by the full board. The judge also barred anyone who served on the audit committee from 2014 through 2022 (when the NRA’s misconduct was running rampant) from serving on the audit committee ever again.
• An annual compliance report, written by the NRA’s chief compliance officer and provided to the board, that documents travel expenses, related-party transactions, and other expenditures that got the NRA into trouble in the first place. 
• A secure board portal, so that all members of the NRA board can freely review the organization’s financial statement, board policies, tax returns, board and committee reports, and other governance documents.
• A new nominating policy that pushes the board’s nominating and governance committee to offer at least 20 new director candidates every year, to assure that the board has a steady supply of fresh blood and perspective.
• The hiring of an outside consultant, who will work with the chief compliance officer to review the NRA’s governance policies and procedures and make recommendations to the board as necessary for improvement. 

And lastly, my personal favorite: employment protections for the chief compliance officer, who must receive a three-year contract that guarantees two years’ severance pay for him if he is ever fired without cause.

All the above reforms sound great in the abstract, but we should take the time to understand why they’re so good — that is, the transparency and governance goals these reforms are intended to support. Those goals are ones that every organization should be trying to achieve, through effective board oversight and a strong compliance function. 

How the NRA Got Here

First let’s review the misconduct that tripped up the NRA in the first place. 

The central characters are Wayne LaPierre, the long-time (and now former) CEO of the group; former CFO Wilson Phillips, and former general counsel John Frazer. All three were accused of financial mismanagement, such as LaPierre billing the NRA more than $11 million for private jet flights and steering $135 million in contracts to a vendor who then treated LaPierre and friends to lavish trips in the Bahamas, Greece, and elsewhere. 

In 2018 the NRA named Oliver North (yes, that Oliver North, of the Iran-Contra scandal in the 1980s) as its new president, a role equivalent to chairman of the board. North soon began inquiring about financial improprieties at the NRA, so LaPierre rallied allies on the board to push North out. North eventually testified against LaPierre, Phillips, and Frazer in the civil trial earlier this year.

So we had poor financial controls, which gave senior executives the opportunity to engage in self-dealing, fraudulent expenses, and favoritism. We also had a structurally weak board, which placed too much power in the hands of a larger-than-life chief executive (a threat we’ve mentioned many times before) — who then used that concentration of power to squander the organization’s resources and stifle any critics who dared to question his authority.

That’s a tale as old as corporate governance itself. Now, with that background in mind, let’s study the NRA’s governance reforms more closely.

The Goal: Effective Board Governance

The NRA’s fundamental problem was its weak board: bloated, entrenched, and beholden to management for information and guidance. The huge size of the NRA board also opened the door to factions and boardroom politics that distracted from everyone trying to help the NRA fulfill its mission. 

Hence we see numerous reforms in last week’s settlement meant to break that logjam. For example, there’s that new director nomination policy, to bring many more fresh voices into the NRA’s governance. That newly invigorated board will then choose a new audit committee itself, rather than rely on a few insiders and NRA management to pack that committee with cronies who won’t take their job seriously. A new “committee of organization” will also consider changes to make the entire board either smaller or more effective.

Don’t forget that secure board portal for easy access to important documentation and reports, either. The point there is to empower board directors, which is something management should support as a matter of course. When you structure your board to bring in good people who care about the mission, and give them the information to take their oversight duties seriously, good things happen.

For other organizations, then, the question is how to take these measures for the NRA and apply them to your own business. How can you assure that the board has a steady stream of fresh perspective? How can you assure that the audit committee functions as a check on management, rather than a rubber stamp for it? What mechanisms should the board have in place to assure that all members have access to the information they need to do their jobs? 

Better Transparency, Too

A related problem was lack of transparency. The NRA management team didn’t draw up reports that would let the full board see the group’s financial transactions clearly and plainly — because if the management team had, then the lavish spending and favoritism in contracts would have stuck out like a sore thumb. They also stifled whistleblowers who wanted to raise concerns.

The judge attacked that issue from several directions. First is that annual compliance report to the full board, which will disclose spending on first-class travel, the number of exceptions granted to the NRA travel policy, and the names of the top five people who receive those exceptions. The compliance report must also include a review of related-party transactions; and a summary of whistleblower reports received and how those reports were handled.

Even better, the final ruling last week contains an example of what that report should look like, if you want to adopt the idea for your own organization.

An annual compliance report is a great idea, but it depends on a strong, empowered chief compliance officer who can compile said report without fear of pressure or retaliation. So I was delighted to see that the judge included employment protection for the NRA’s chief compliance officer. The ruling specifies that the CCO must have a three-year employment contract, and that he gets two years’ salary as severance pay if he’s fired without cause. (The ruling includes a sample employment contract too, if you’d like to copy that and staple it to your boss’s forehead.)

I wholly support more employment protections for CCOs. At the least, CCOs need enough severance to endure potentially long periods of unemployment while they tussle with their former employer over misconduct allegations. I’d also love to see a rule for public companies that a CCO’s departure should trigger an 8-K filing to disclose why, much like we see with other key executives. 

At this moment, the NRA’s chief compliance officer is Robert Mensinger, who has been with the organization since 2023. I’m sure that the NRA board of today supports Mensinger in his mission, but nobody knows what the future holds. The more an organization can provide structural support for its compliance officer, so that he or she has the power to withstand pressure from an unethical CEO or board, the better. 

To be clear, I object to many of the NRA’s political positions, but that makes the real lesson here all the more striking: that good governance is a universal principle, dependent on building durable structures for transparency and vigorous oversight. 

So think about how you, your board, and your management team can embrace that principle, and then take those steps ASAP.