The New York attorney general has launched an investigation into the management of the endowment of a New York college, Cooper Union. The college was founded by Peter Cooper in 1859 with the stipulation that it be “open and free to all.” Yet last year, the board began charging tuition for the first time in its 155-year history.
In previous posts, I have called upon various state’s AGs to investigate activities at public charities. When the Edsel Ford Museum sold a painting from the house museum and when Lincoln Center paid off the Fischer children to clear the way for a name change to Avery Fischer Hall, I asked when the Michigan and NY AGs would investigate. While I apparently have failed to wake up the Michigan AG, Eric Schneiderman, the AG in New York, has recently taken action in regard to Cooper Union.
In a New York Times article describing the AG’s action, Schneiderman has some interesting quotes relative to the role that the state attorney general plays in the life of a nonprofit public charity. Given that AGs across the nation have been very hands-off when it comes to nonprofits, if this signifies a change, all nonprofit executives should pay attention.
Schneiderman said, “It’s easy to forget, but New York’s charities, collectively, are a big and important part of our state’s economy, and I consider it my responsibility to promote and protect the nonprofit sector.” Not only are nonprofits big business in New York, they account for almost 10 percent of all wages and salaries paid in the U.S., and over 5 percent of the U.S. gross domestic product.
Unfortunately, nonprofits have received little scrutiny from state AGs until the organizations are nearly bankrupt. By that time, it is usually too late. The Times credits Schneiderman for intervening in such a timely manner in this case. (I would still like to know what he thinks about the $15 million paid to the Fischer children.)
Jack B. Siegel, who wrote A Desktop Guide for Nonprofit Directors, Officers and Advisors, believes that Schneiderman deserves credit for acting on the Cooper Union case. Siegel believes that “more states should emulate New York,” and I couldn’t agree more. State attorneys general should oversee nonprofits because these organizations exist only through the benevolence of citizens. Nonprofits do not have shareholders who can enforce appropriate behavior, and it falls upon the state AGs to protect the public good.
Schneiderman does admit, however, that with some 80,000 nonprofits in New York State and the limited resources of the AG’s department, they “can only go after the most egregious examples.” Hopefully, publicly investigating the likes of Cooper Union will encourage the boards of all nonprofits to step up their governance and oversight games.
James Sheehan, the chief the AG’s charities bureau, frankly states, “There’s a culture of politeness and respect, and (the boards) support the chief executive. Most chief executives don’t want board members to ask tough questions. This is especially true when you have a charismatic leader.” Yet one of the basic responsibilities of board members is to ask good questions and expect good answers. Appropriate board oversight is usually exercised by challenging the assumptions of management.
In each state, there is a nonprofit statute for those nonprofits that are organized as corporations, which comprise the vast majority. In New York, this statute provides the attorney general with the ability to impose sweeping remedies. These include putting the organization into receivership, ousting management and forcing dissolution, none of which Sheehan or Schneiderman claim they want to do in the case of Cooper Union. Ideally, they will impose sufficient remedies to assure that Cooper Union improves going forward.
This is an interesting intervention by the New York AG, and with sufficient publicity, it will serve as a wakeup call to other state attorneys general. The Virginia AG is now involved in the Sweet Briar College mess, so perhaps this is the beginning of a change sweeping across the country. The nonprofit industry would be wise to pay attention.