Contemplating The Claw Back

I frequently write about the need to have a donation acceptance policy. In addition to not having the resources to handle non-cash donations, some donations come with conditions that do not correspond well to organizational missions. Recently many donors have required institutions and buildings be renamed as a condition of their giving.

Sometimes there are problematic issues surrounding the way in which donations are handled or evaluated as well as with the people making the donations.

An article on Non-Profit Quarterly today falls into this latter category and should serve as a cautionary tale for non-profits.

Long story short, two company executives made large donations to Oregon State University and University of Oregon. After an investigation, the Securities and Exchange Commission characterized their business model as a classic Ponzi scheme.

As a result,

…a receiver has been appointed by the federal court to rescue as much of investors’ funds as possible by closing dozens of Aequitas-created subsidiaries and investment funds. And when that happens, there is every possibility that the court will also try to “claw back” some of those donated dollars.

My first reaction upon reading about the claw back was, “they can do that?” Obviously, given a second to think, if you were one of those bilked investors you would certainly respond, “Hell yeah they can!”

Unfortunately in this case, in order for someone to be made whole, someone else has to lose. NPQ reports that University of Oregon has already spent the money. How things might proceed in trying to recover the funds, I am not sure.

There was also a little lesson in the NPQ article about crisis management communications. Author Ruth McCambridge had a little criticism for an Oregon State spokesperson who was trying to downplay the impact of one of the donor’s involvement on the many advisory committees his largess garnered an appointment to. (my emphasis)

He was on the college’s Entrepreneurial Education Advisory Board, the Austin Entrepreneurship Program Advisory Board, and the “Dean’s Circle of Excellence,” which is made up of large donors.

In short, the relationship is pretty intimate, but OSU spokesman Steve Clark says that is essentially no big loss. “A businessperson or business representative on a board like that is one of many voices,” Clark said. “They don’t actually establish a course, a direction or a philosophy for the college—in this case the College of Business—but they provide advice, guidance and support to the dean. Their involvement, or their lack of involvement in the future, would not affect the direction of the college.”

Way to go on making the surviving donors feel special, Steve.

Now if I am being honest, I probably would have said something even worse. Assuaging the concerns of one group of people without insulting another is a tough line to walk.

And lest you think financial malfeasance like this doesn’t occur often, this is the second time this particular bolt of lightning has struck the University of Oregon. Back in the 1990s they ended up returning $850,000 to the court appointed receiver and removed the name of the donor from their law school.

I have to think these people weren’t only donating to large universities. The only consolation a smaller organization might have is that the amount donated to them may not be worth trying to recover. On the other hand, in aggregate even relatively small donations can add up to a significant amount.

While it is probably close to impossible for most non-profit arts organizations to identify donations that may potentially boomerang, it can be useful to consider how you might respond in that situation. Even the question of the timing and effort you might put into returning or retaining the funds one year after vs 5 years after it has been spent can be important to contemplate.

About Joe Patti

I have been writing Butts in the Seats (BitS) on topics of arts and cultural administration since 2004 (yikes!). Given the ever evolving concerns facing the sector, I have yet to exhaust the available subject matter. In addition to BitS, I am a founding contributor to the ArtsHacker (artshacker.com) website where I focus on topics related to boards, law, governance, policy and practice.

I am also an evangelist for the effort to Build Public Will For Arts and Culture being helmed by Arts Midwest and the Metropolitan Group. (http://www.creatingconnection.org/about/)

I am currently the Director of the Grand Opera House in Macon, GA.

Among the things I am most proud are having produced an opera in the Hawaiian language and a dance drama about Hawaii's snow goddess Poli'ahu while working as a Theater Manager in Hawaii. Though there are many more highlights than there is space here to list.

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