Currents

Protection from Legal Storms

Ethical or moral issues can derail advancement

By Lori Burkhart

Protection From Legal Storms

ILLUSTRATION: ©2019 STEPHAN SCHMITZ C/O THEISPOT.COM

Whether it be a small business, intellectual property, or the stud rights to a thoroughbred horse, new and unique ways to give to education have exploded over the years, providing both opportunities and challenges to institutions looking to diversify their financial standings. 

"We're all just kind of running as fast as we can," Jamey Leahey, vice president for legal affairs and gift planning at Kentucky's Centre College, says of the pace and scope of change the field of advancement has witnessed recently. "The ways people are trying to give, the ways they want to be communicated with, have all changed dramatically."

And if institutions don't keep abreast of these changes and trends in law, practice, and industry, they run the risk of damaging relationships with donors, ruining their reputation, and potentially facing legal challenges.

"Functionally, the challenges are growing; it's a harder job on the development side even than it was five years ago," says Michael J. Cooney, a partner at Nixon Peabody LLP, a global law firm with expertise in estate and gift planning. "There are so many places to go awry."

Shifts in demographics, as well as shifts in donor expectations and motivations, have only added to the complexities that today's advancement professionals are juggling. The key to staying on top of the challenges ahead is to be aware of them, especially your school's position around them.

"Value is locked away in so many vehicles today, one needs to be adept in understanding what all those are," Cooney says. "But it's also a matter of understanding what your institution is willing to do."

Honoring Donor Intent

Understanding and crafting clear gift agreement policies is one area that universities can never spend enough time on.

According to Margaret Jarrell-Cole, associate vice president and legal counsel at University of Central Florida Foundation, the most vital issue for donors is their passion or purpose for making the gift, usually prescribed in a gift agreement. "We would never change donors' intent without permission," Jarell-Cole says.

Meeting donor intent sounds easy, but it is often difficult to comply with. Any lawyer can tell you that words are subject to interpretation, and the complex situations surrounding donor intent resulted in it becoming a specialty area of law.

Because it is of utmost importance, donor intent does carry the weight of state law behind it, most recently with adoption of the Uniform Prudent Management of Institutional Funds Act, established in 2006. As of 2012, UPMIFA was the law in 49 states, the District of Columbia, and the U.S. Virgin Islands.

Jarell-Cole has firsthand experience with modifying donor intent in conformance with UPMIFA-an act which provides guidance on investment decisions and endowment expenditures for nonprofit and charitable organizations-with the recent process of opening a new downtown campus involving reorganizing colleges, some of which were being renamed.

The key is discussing changes with the donors. "We went to every donor and talked to them," Jarell-Cole explains. Some benefitted more from the change if the college named after the donor became larger.

Following the law matters.

"Even if UPMIFA allows us to change something, we always start with donor intent," Jarell-Cole says. "If it's generations later and the donor is no longer available, the law tells you to contact the state's attorney general and [the institution] and keep it as close to donor intent as possible. The final option is to take it to court and have a court approve it, with everyone being heard."

Donor intent can prove tricky from a public relations perspective, such as when negative facts come to light about a donor and a university has named a prominent building in his or her honor. Some universities include morals clauses in their donation agreements. If the donor does anything that shines a bad light on the university, it reserves the right to either not go through with the naming or to remove the name.
Kyle Button, associate vice president for development at California State University, San Marcos, gives two examples of men who were convicted of crimes but had prominent university libraries named after them.

Ivan Boesky is best remembered for scandalous insider stock trading that sent him to jail and whose behavior inspired the fictional Wall Street movie character Gordon Gekko. Ken Lay was the former chairman and CEO of Enron who was convicted of fraud and conspiracy in the giant energy company's collapse, but he died before sentencing.

"The courts have said it is best to separate the process of recognition from the process of gift acceptance, so you don't unintentionally establish a quid pro quo that ‘we are giving you this naming because you gave us money for it,'" says Button.

That decoupling of recognition from money must be well defined to the donor. The university system must be clear that donors are giving money to the university to advance the mission of the organization and the work it does, and in recognition of that support, the university then offers to name buildings in their honor.

It highlights the myriad issues that can arise because fundraising and development are built on cultivating relationships that hopefully turn into long-lasting ones, and that process in and of itself can lead to tricky situations.

Personal Bonds and Conflicts of Interest

Ethical dilemmas can often arise because advancement officers establish long-term relationships with donors. They can often become like a member of the family.

An example is when donors start offering gifts to the fundraisers as well as to the institutions. Keith Miles, senior vice president and general counsel at the University of Nebraska Foundation, explains, "this might lead to a situation where a donor says to the officer, ‘you've treated me kindly; I'd like to show my gratitude by offering a gift such as a piece of jewelry.'"

Another potential situation is when a donor invites a gift officer and his or her spouse to attend the donor's birthday trip and offers to pay travel expenses.

Where do you draw the line between what's appropriate and what's not? Miles says, "We've said if it's nominal in value, such as a concert ticket, that's probably okay. A diamond necklace worth several thousand dollars? Probably not."

That is where training with new development officers is required. At the very least, prepare written advice for officers and review gift acceptance policies annually. Circumstance dictates whether to amend polices, such as changes in law and process changes. "Best advice we give them is talk to us, and we can help determine how to respond," Miles says.

But what if there is no written policy? In the absence of guidelines, Button of CSUSM recommends asking about situations where you believe there may be competing values that could cause an ethical dilemma and then documenting what you do.

"You ask about it, make an informed decision, you disclose it to people who would need to know, and then you document what has happened before and after, because having a contemporaneous explanation of why certain things are done can be a real benefit," he says.

That's why defining conflict of interest and the gift acceptance policies is a good place to start to avoid the more common situations where policy and supervisory guidance are needed to avoid bad situations, Button adds.

It's a tricky situation because it's important that relationships between donors and development professionals feel personal. "I do take a particularly hard line," Button says, "because there are issues of legacy, family, sometimes health and welfare. It's an important role to play, but we're being paid to develop those relationships between our institutions and those donors."

Button explains the situation needs to be stopped if it begins to feel too personal. "It gets excessive when the appearance is you are using your position to benefit yourself, rather than your organization, and that is where I think you've crossed a line," Button says.

A Private Matter

Overseeing the privacy and security of information maintained by institutions on alumni, donors, and friends of universities is important and becoming increasingly difficult in the electronic age. In the United States, that is where FERPA comes in.

The Family Educational Rights and Privacy Act is a federal law that protects the privacy of student education records. The law applies to all schools that receive funds under an applicable program of the U.S. Department of Education.

Rosa Unal, associate vice president of information technology and donor compliance services at the Iowa State University Foundation, explains how vital it is to talk about FERPA issues with donors. She uses the example of a donor making a scholarship gift and wanting to know whom the recipient is.

Unal explains to donors that the university awards scholarships according to its practices and agreements. Unal makes sure the donors know that permission must be requested from students to provide any scholarship information to the donor. "Without permission, under FERPA, we cannot provide even that name," she says.

It's not just privacy issues that institutions need to be aware of-there's cybersecurity to think about as well. "We educate our whole staff on the importance of safety hygiene or being very careful of how they use their computers, not introducing viruses, being aware of cyber-spam," she says. Unal urges all organizations to have in place a program of security awareness training; post educational videos, messages, posters; and have IT team members at staff meetings.

The situation is more complicated now for universities that operate in Europe or who have European partnerships. Data protection is even greater in the European Union, where the General Data Protection Regulation, a binding legislative act, became effective May 25, 2018.
In the U.S., it's taken for granted that real estate records, stock investments, professional and personal licenses, and voter registrations are public data. In the European Union such information is personal and the privacy of personal data is a basic human right, which was codified through GDPR.

In the E.U., personal data include information related to a natural person-or so-called data subject-that can be used directly or indirectly to identify the person. Examples of personal data may include: name, mailing address, email address, posts on social networking websites, patient health information, photos, IP addresses, or other identifiers specific to the physical, physiological, genetic, mental, economic, cultural, or social identity of that natural person.

GDPR must be applied in its entirety. Individual countries can decide how they will comply with GDPR, and the regulation also applies to entities that are located outside of Europe. There will be penalties enacted for organizations that breach GDPR compliance, ranging from 4 percent of annual revenues up to €20 million. There is a tiered approach to fines.

If an organization provides goods or services to, or monitors the behavior of E.U. data subjects, it is accountable for complying with GDPR. GDPR applies to every nonprofit processing or holding the personal data about anyone in Europe, regardless of citizen or permanent resident status of an E.U. country. Organizations with whom the nonprofit partners may include GDPR requirements in their contracts.

Unless a data subject has provided informed consent to data processing for one or more purposes, personal data may not be processed unless there is at least one legal basis to do so. Because it is early in the implementation process, informed consent is key, and use of risk management specialists in this area is advised.

Training and Education Are Key

Clearly, the ethical and legal aspects of advancement are complicated, which is why staff training and clear policies are important.

At Iowa State, Unal stresses the need for effective onboarding processes for new development officers. "Train them on reports so they can pull information, and a couple times a year do a presentation at a team retreat to talk about compliance issues, plus new regulations," she says.

Not everything has to be complicated. Some staff training involves the mechanics, such as the process of setting up an endowment fund and getting information for gift agreements, according to the University of Nebraska's Miles. "Again, trying to help them identify cues they need to look for, like when a donor talks about real estate they inherited, come back and ask lawyers if it should be pursued as an opportunity," he says.

A lot of practice will make a difference. Miles emphasizes the need for training with new development officers and reminding them of what to be on the lookout for. When they are unsure how to respond to a donor request, he advises them to come back and talk over the situation, so he can walk through the facts and help determine how to respond appropriately.

"[This involves] coaching them to the point that they'll have antennae out so if these issues come up in conversation, they'll visit us in the office rather than making a quick response that may or may not be the right way to respond," Miles says.

About the Author

Lori A. Burkhart is a freelance writer in Arlington, VA.