My subject today is not nearly as clever as the particular “Ingenious Paradox” which W.S. Gilbert had in mind.
Our legal practice concentrates on negotiating the employment contracts and (where needed) the termination agreements of senior academic executives, College and University Presidents and Heads of Independent Schools. As a result, we find ourselves “on the other side” of Boards of Trustees of not-for-profit institutions.
These boards are very different from the governing bodies of for-profit or commercial entities.
People accept invitations to serve on a not-for-profit board for a variety of reasons, some worthy and some less so: affection for the particular school, College or University (e.g., they went there and had a powerful experience: “That school made me”); alignment with the specific mission of the academic institution; a generalized urge to “give back”; personal prestige; a forum for meeting and interacting with other influential, powerful or wealthy people; the status symbol of being on a charitable board.
As a not-for-profit board member, they devote significant amounts of their personal time (and, sometimes, their resources), particularly the Board Chair and the heads of important financial and search committees. Involvement ranges from modest (attending a few meetings) to quite intense (requiring a deep dive into the finances and other problems of the specific not-for-profit entity).
I served a few years back on the board of my children’s K-9 school, which fortunately had a very fine Board Chair. He knew exactly what was the proper scope of the board’s responsibilities. When a board member questioned whether the school should be offering foreign languages to second grade students, he would quickly halt the discussion by reminding the entire board that “our sole job is to hire, fire and oversee the Head of School, who is being paid to run the institution”.
And here is the anomaly, if not really a paradox: in the non-profit world, an unpaid Board of Trustees controls the fate of the CEO, President or Head, commonly the most highly paid employee of the institution.
This leads to a number of odd situations, many motivated by fundamental human nature, ranging from the personally quirky (an unhappy retired board member who is envious of the President’s job and salary) to a caution of being too generous (fear of raising the President’s salary or deferred compensation package beyond a certain amount).
In recent years, this structure has only become more problematical given the financial perils of many schools. One survey suggested that over 400 colleges (out of the several thousand in this country) are in danger of closing or having to merge with another institution. The news media has been reporting that there are both private lawsuits, and some legal actions by various state attorneys general, against boards of trustees who have, without authority, dipped into donor-restricted funds to keep the doors of their school open.
What, if any, legal liability does the President incur from such activity by the trustees? Would the school’s directors’ and officers’ insurance policy cover such claims?
Here is the bottom line for our clients: what must a prospective President, who has been made an employment offer after a lengthy search process (and who is expected to say “yes or no” fairly promptly), do to protect himself or herself?
In the second part of this blog topic, we will cover the sort of questions which prospective Presidents of Colleges and Universities as well as Heads of Independent Schools should be asking their board contacts before accepting any job offer.
Summer is coming to an end, at least formally.
Lisa, Theresa and I wish our clients and other readers a good and comfortable transition into autumn.
