Saved by the Bell: Sweet Briar College and the Shift in Nonprofit Governance

Much of the recent news around nonprofit boards relates to a situation with lessons for all of us, so how could we resist reference to the Sweet Briar College saga and how it relates to nonprofit governance?

Despite the board’s decision to close Sweet Briar College, the 100+ year-old, private, women’s liberal arts school in Virginia will remain open at least through the next academic year. As reported in The Wall Street Journal, the Virginia Attorney General announced on June 21 a settlement that followed “hundreds of hours of mediation” among elected officials and courts, an alumnae organization called “Saving Sweet Briar”, and the school itself. (A judge’s approval came the next day.)

Three months after the school’s president cited “insurmountable financial challenges,” this reversal can be credited largely to the backlash by alumnae, who accused the president and board of “act(ing) without transparency.” Saving Sweet Briar raised $12M in pledges to keep their alma mater open.

According to the terms of the settlement, the incumbent president had to be replaced. In addition, at least 13 board members needed to resign and 18 new directors needed to be elected. (As it happened, the entire incumbent board resigned and 20 new directors were elected.)

Now among a shrinking population of women’s liberal arts colleges in the US, Sweet Briar still faces the financial stress of shrinking enrollment and increasing costs. Still, the opportunity to regroup illustrates the deep roots of such institutions.

The new “grace period” gives those with hope that the school can be saved time to explore all options under the direction of an interim president.

According to Nonprofit Quarterly, this case offers “valuable lessons about the changing nature of governance,” as noted by Teresa Tomlinson, the school’s most recent commencement speaker who challenged the board in her remarks (and, notably, has since stepped into the board chair role). She believes boards commonly misunderstand their roles by underestimating how much oversight responsibility and direct accountability they have. She warns that “secrecy and insular decision-making” will not protect boards from angry stakeholders. Instead, it’s best for boards to solicit input and address stakeholder concerns upfront. “It is, after all, called ‘governance’ and not ‘dictates.’”

NPQ further emphasizes that governance does not end in the boardroom. Stakeholders of institutions such as Sweet Briar, Susan G. Komen for the Cure, and others have influenced the reversal of significant board decisions.

At the same time, it’s important to note the Sweet Briar settlement does not suggest the board of directors did something wrong. As noted by the Chronicle of Philanthropy, the Virginia attorney general commended the board’s “principled determination” and “best judgment” in managing the school’s challenges. Despite best efforts, however, a major saga unfolded, reminding nonprofit boards that it’s important to plan for the controversy that can accompany mission.

As in the case of Sweet Briar, critical questions can be related to challenging financial decisions. The Chronicle of Philanthropy identifies the following invaluable lessons for nonprofit boards in making the tough call to “bet the farm” or close it:

Due diligence matters. No matter how cautious a board might be, critical financial decisions will attract scrutiny from regulators, the media, and other stakeholders, so it’s essential to ensure the process for making such decisions is well-structured.

Boards will face the heat. Financial distress, in particular, raises questions about board stewardship, so expect it.

Social media will amplify concerns. The size of an aggrieved constituency matters less than the level of “noise” it can generate on social media, as that will attract journalistic and, ultimately, regulators’ attention.

Regulators won’t sit on the sidelines. Their job is to act to preserve charitable assets before they are jeopardized, so regulators will respond to credible concerns raised by stakeholders.

Understand which laws apply. Part of the Sweet Briar saga revolved around “whether the law of nonprofit corporations, the law of charitable trusts — or both — should apply.” Corporate law is more flexible.

Expect copycats. Saving Sweet Briar’s success might inspire other small constituent groups to challenge charity boards’ decisions.

Document everything carefully. Amidst controversy over the actions of a board, “well-crafted and readily accessible minutes, agendas, resolutions, and other indicia of board diligence (are especially invaluable). The ability to immediately provide regulators with clear and incontrovertible evidence of board business judgment and prudence can often have a moderating effect on the intensity of any review or investigation.”

That last point, in particular, has exciting implications for BoardEffect users. It speaks to the role BE can play in helping board members honor the duty of care, which legally requires them to act toward others and the public with the watchfulness, attention, caution and prudence that a reasonable person in similar circumstances would use, as defined on Law.com. Documenting the decision-making process and being able to easily access those documents is essential for boards, especially in the face of a challenge.

It is worth repeating that the Sweet Briar board was praised for its effort to employ best judgment. Though ultimately ousted, board members were not accused of shirking their legal responsibilities; criticism was focused on their decisions, not the decision-making process they employed (though the transparency of it certainly was questioned). Therein lies protection for nonprofit board members.

A year from now, the new Sweet Briar board could reach the same unpopular conclusion faced with the same financial realities. This board, however, surely recognizes the importance of including stakeholders in the discussion. This board also appreciates its proper role —  as I read somewhere along the way, the Sweet Briar situation reminds nonprofit boards that they are stewards of a mission, not “owners” of an institution.

Sonia J. Stamm – Governance Consultant at BoardEffect