Tuesday, July 15, 2008

Robertson v. Princeton Lead Plaintiff: "Its the [donor trust] economy stupid!"

William Robertson, the lead plaintiff in what has been termed the most import donor intent lawsuit ever to face the nonprofit community has penned an op-ed  in today's Modesto Bee regarding the long term effects of the bear economy on nonprofits.  In the editorial, Robertson notes that nonprofits -- like the rest of the economy -- will recover from cyclical economic downturns.  On the other hand, the loss of donor trust provoked by mismanagement, poor governance and outright fraud may never be recovered:

Several prominent nonprofit organizations in recent years have acted in ways that undermine public confidence. Greed, mismanagement and in some cases outright dishonesty by officials of these organizations have created doubts in the minds of many donors whether charitable giving is the best way to use scarce resources. Eventually this growing unease will exact a price. While the economy will recover, recovering lost trust could prove a far-more difficult matter.  While we are not yet at the crisis stage, recent survey data confirm the depth of the problem. An October 2007 Contribute Magazine/Harris Interactive survey of 3,040 adults showed a disturbing 59 percent more concerned today than they were a decade ago that their charitable donations are not being used effectively. A nearly equal number of respondents - 56 percent - expressed growing concern about the "misuse of funds." Nearly half of the respondents (49 percent) were worried about "unnecessary administrative overhead." And 46 percent said they are increasingly concerned about "fraud or theft of funds."

No doubt correct, even if Robertson uses the rest of the op-ed piece to argue his case against Princeton and a host of other educational institutions:

In higher education alone a long list of schools has been involved in "donor intent" disputes in recent years: Boston University, Harvard, Randolph College, Tulane University, Yale, UCLA, the University of New Mexico, the University of South Dakota, the list goes on.  It's hard to tell what effect these kinds of incidents, and the resulting loss of trust, have had on fundraising. We have no way of knowing how many donors have dropped off the "major donors" lists or how many millions Princeton and other institutions didn't get that they otherwise would have gotten, but those numbers could not be inconsequential.  After the shakeout from all of this, charity's bottom line will change. Income will no longer depend solely on the good deeds nonprofits claim to do, but whether the organizations have earned the public's trust. When they lose that trust, as Princeton is doing, they eventually will pay a significant price, good economy or bad.

The orignial complaint in Robertson v. Princeton, filed July 17, 2002, charges the University-Designated Trustees of the Robertson Foundation – and through them Princeton University – with ignoring the donors’ intent by failing to honor the Robertson Foundation’s mission, by using Robertson Foundation funds without the Family-Designated Trustees’ consent, and by trying to transfer management of Robertson Foundation investments to the Princeton Investment Co. The amended complaint, filed November 12, 2004, charges the University-Designated Trustees of the Robertson Foundation – and through them Princeton University – with wrongfully spending more than $100 million of the Robertson Foundation’s money on programs, projects, salaries and bonuses, buildings, equipment and “overhead” costs that have little or nothing to do with the Robertson Foundation mission, engaging in an elaborate cover-up scheme to hide the improper spending, and misusing other donors’ gifts.  There have been several rulings issued in the still pending case, all of which are available from the plaintiff's website.

A lot has been written about the obligation, legal and practical, to maintain a donor's trust.  What obligations do donors (and their spoiled entitled heirs) have to maintain the trust of the donee?!  Or are nonprofits just to take the money, shut up and do what they are told?  In what admittedly should not be described as a disinterested white paper, Victoria Bjorklund (whose firm is counsel to Princeton University) argues that the plaintiffs' ultimate objective is to regain control of the trust corpus in an effort to create a private foundation whose goals are more consistent with plaintiff's (rather than the university's) academic judgement.  She states rather clearly that the case raises the issue of the extent to which a donor's gift ought to limit a university's academic freedom.

In truth, Plaintiffs’ objective is to convert the Robertson Foundation to a private foundation controlled by their family. The relief sought in their complaint is for the Court to amend  “the Certificate of Incorporation and By-Laws of the Robertson Foundation . . . to make the Robertson Foundation a private foundation with all of its Trustees appointed by the Robertson Family. . . Many of the claims asserted by the Robertson Plaintiffs implicate the doctrines of “academic freedom” and “academic abstention.” Academic freedom, although somewhat vaguely defined in the case law, refers at its most basic level to the First Amendment right of colleges and universities to be free from unwarranted interference from outside parties into academic and educational endeavors. The four “essential freedoms” are “who may teach, what may be taught, how it shall be taught, and who may be admitted to study.”

The Bjorklund paper goes on to assert that Robertson wants to select the faculty, the terms of the faculty appointments, the curriculum, the students, and the Woodrow Wilson School's [that part of Princeton to which the gift was directed] research agenda. 

This is a fascinating case, bound to make important legal headlines.  In the meantime, I'll say this.  If you want to buy and run your own dadgum charity, do it right in the first place.  Start your own private foundation.  Better yet, open your own private school.  You can't invest in an ongoing venture (to use a term from the for-profit worl) and then expect it to bend to your will, the way a T-Boone Pickens shareholder can control a for-profit company.  There is no such thing as a hostile takeover in the nonprofit world.  Is there???



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