September 25, 2017

September 22, 2017

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Unique Compliance Role for Major Donors

The ongoing, and highly relevant, corporate controversy involving the University of Louisville Foundation provides a noteworthy example of how major organizational donors can seek to exercise affirmative/positive influence on an organization’s compliance response to a major controversy. This may be noted by general counsel when called upon to advise organizational clients on the range of third parties that may exercise interest in health system risk-related issues.

The current circumstances surrounding the governance and operations of the University of Louisville Foundation, the large fundraising affiliate of the University of Louisville, is a highly consequential development for nonprofit health systems. An independent forensic audit released on June 9 identified, in substantial detail, information with respect to its “excessive spending practices, unbudgeted expenses, unapproved actions, high executive compensation and unrecorded endowment losses.” According to prior news reports, several major University donors had demanded that such audit be conducted.

The most recent development confirms that the two donor organizations have each committed $1 million to cover most of the cost of the forensic audit of the University of Louisville Foundation, which has reached $2.2 million. This was in fulfilment of their original pledges to help offset the cost of the audit. According to media reports, the goal of the audit—and the intent of the donors’ contributions—was to restore confidence in the Foundation amongst donors.

Donors have historically limited standing rights to challenge or otherwise exercise formal influence over organizational decisions, as well as over the administration of charitable gifts. The audit demands made by these major donors—and their willingness to reimburse the Foundation for the costs of the audits—demonstrates that they are willing to take a strong and highly public position with respect to compliance-based controversies involving nonprofit organizations that are significant beneficiaries of their contributions. The broad-based media coverage of the Foundation controversy may well bring the actions of the two Foundation donors to the attention of other major corporate and individual donors to nonprofit organizations, including health systems.

© 2017 McDermott Will & Emery

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McDermott Will & Emery’s corporate practice represents a wide spectrum of business interests around the world, from global corporations and industry leading companies to privately funded and entrepreneurial driven enterprises, as well as the financial institutions that support them. 

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