Lessons to Be Learned Regarding FAMU’s Lack of Donor Due Diligence
The Chronicle of Philanthropy is out this morning with some lessons to be learned from the $300 million dollar donation to FAMU that evaporated like it was never even there. Here is an excerpt:
Look for patterns in the donor’s giving history. In the FAMU situation, an internet search would have revealed news reports about a $95 million donation that Gerami promised Coastal Carolina University in July 2020 as an anonymous donor. The gift fell apart several months later, when the university officials’ relationship with Gerami soured and the university ended the agreement. The Sun News, a news outlet in Myrtle Beach, S.C., later uncovered and revealed Gerami’s identity. FAMU’s now-departed head of advancement, Friday Stroud, said in a news report that university officials conducted a thorough vetting of Gerami and knew about the earlier pledge to Coastal Carolina University but did not contact officials to learn more.
Size up the donor’s resources, starting with public data. Gerami’s contract with FAMU called for him to donate 14 million shares of stock, presumably in Batterson Farms, Gerami’s privately held company in Texas. Information on Batterson Farms’ website was scarce. Details about the company’s board members, investors, and business holdings were either password protected or unavailable. (Sections of the site have since been removed). Gerami and university officials did not enlist a third party to analyze Gerami’s valuation of the stock, and it was unclear whether it was worth the $15.85 a share that Gerami claimed, according to coverage by Florida’s Sun News. It also came out that the gift was never reviewed by an audit committee, the Sun News reported.
Keep senior leaders and your board in the loop. Once her team has compiled a donor report, Sankey says, she shares it with the university’s president, its chief financial officer, the chair of the university’s foundation, and the chancellor of the Texas A&M University System, which includes Prairie View. Depending on the size of the gift, Sankey says her team would likely enlist the university’s marketing and communications team to help further vet the donor. She also would alert the legal office of the Texas A&M System and the system’s budget and accounting leaders. “The different levels, the different expertise of these offices can support the overall vetting and the overall receipt of the gift and provide lots of different safeguards,” says Sankey.
Call on legal experts to vet the gift agreement and other documents. Matt Clausen, a lawyer who advises donors, foundations, and others in the nonprofit world, cites a wide range of areas where legal expertise is crucial in drafting a strong gift agreement. For example, he says, if a donor offers stock in a privately held company, lawyers should review that company’s articles of incorporation, bylaws, and the shareholders’ agreement, which typically has provisions about who can be a shareholder. “If the [nonprofit] is going to become a shareholder in this company, they’re going to have to sign on to various agreements, and we’d want to see all of those agreements,” Clausen adds. By contrast, Clausen says, the gift agreement FAMU released to the public doesn’t identify the company whose stock Gerami is donating. “There should be some other document whereby these shares are actually transferred to the university,” Clausen says. “It doesn’t transfer any assets to the FAMU Foundation.”
Never leave board members out of conversations about a potential big gift. Friday Stroud signed a nondisclosure agreement at Gerami’s request during the gift negotiations. The document stipulates that information can’t be shared publicly, but Clausen says nothing in the document suggests the university couldn’t share information about the negotiations internally with its trustees and lawyers. He says a nine-figure gift like the one Gerami promised would have a significant effect on a university’s profile and operations, so there is no reason to keep information from trustees. “The board of directors has fiduciary obligations to manage the organization and should not ever be put in the position of having to hear about a gigantic transaction that they didn’t even have a chance to review or think about,” says Clausen.
Due diligence first; celebrations later. Any attempt by a donor to hide gift negotiations from top officials should be considered suspect, says Indiana University’s Freeman. If a donor balks at sharing details about a potential gift with multiple officials, it is important to explain that it is standard practice and in the best interests of the donor and the organization to have more than one or two sets of eyes and ears in the gift negotiations.
The one thing I would add is “keep pride, arrogance, and covetousness out of it.”
darryll k. jones
darryll k. jones