The middle class is shrinking. Those in power have run up enormous debts on public credit while shoveling most of the money into private pockets. The corporations that have benefitted from this borrowing binge, meanwhile, leverage the global trade system to transfer their profits beyond the reach of national governments.

Meanwhile, we have been told lies by Democrats and by Republicans, divided into artificial camps and led into debates that are either irrelevant or so dramatically scripted that we fail to realize every choice leads to the same result: the dismantling of the social framework that defined and sustained the opportunity of the last century. National mobilization of resources has given way to radical individualism under a narrative that, in the wealthiest nation in the world, we must always expect less.

In this tumultuous time, we search for a way forward - a new Square Deal for the American people.

Monday, March 9, 2015

The Right to Close a College

A days ago, I wrote about the case of Sweet Briar, the private liberal arts women's college whose Board of Directors unanimously voted to close it down at the end of this summer.  At this point, Sweet Briar alumnae and their supporters have formed a nonprofit organization, retained a law firm, and gathered pledges totaling about $2.1 million aimed at trying to keep the school from closing.

But money cannot save Sweet Briar.  The Board has already voted, the decision is made, and it cannot be reversed except by the Board itself.

Or can it?  Who has the power to close a college?

I'm not referring to a liquidation scenario.  When a college can no longer pay its bills, a court might readily liquidate its holdings and distribute them to creditors in a process similar to commercial bankruptcy liquidation.  That might include orders to disburse endowment funds and other holdings that are otherwise restricted by conditions of their contribution, and the odds are high that at least some creditors will be left receiving only a portion of what they are owned.  C'est la vie -- and such is the business of lending.

But Sweet Briar has debts of about $25 million and an endowment of at least $85 million.  Rather than requiring allocation of inadequate funds to creditors on the basis of precedence, the closure of Sweet Briar will leave substantial surplus money, most of it contributed by private citizens who specifically left it to guarantee the ongoing operation of the school.  Is it proper for a Board of Directors who were chosen to guarantee the ongoing operation of a school to first decide that they don't think it is possible, and then erect legal barriers to ensure that their decision to close the school cannot be challenged by the very people who entrusted them with power to oversee the use of donated money?

Legally, I don't know.  In 1979, Wilson College attempted to close. Alumni made an effort similar to what is being attempted by Saving Sweet Briar, obtained an injunction that prevented the shutdown, and ultimately made the school viable, adoptings the phoenix as a mascot to symbolize resurrection.  But because Wilson College is in Pennsylvania, its case does not set precedent on which Saving Sweet Briar can rely.

Setting law aside, is it morally proper?  Here, I think the answer is clear-cut: no.

Donors pledge and give money to nonprofit organizations for specific reasons. Like shareholders, they appoint Directors to carry out their wishes, but unlike shareholders, they receive no equity and generally cannot get their money back. The Directors are entrusted with power solely to pursue an articulated mission. A nonprofit organization is owned by its mission, which continues despite changes in leadership and in strategy.  Any Director who loses faith can and should resign, but the only case in which a Board should be empowered to dissolve an organization is that its mission has been accomplished.

President Jones and the Board of Directors of Sweet Briar College doubtless studied the financial projections of their school closely, conducted rigorous analysis, and decided on the basis of good evidence that the long-term outlook for the school was questionable. That they did so is admirable, because that was part of their job.  However, in deciding on that basis and without consultation with alumnae that the school should abandon its mission, they overstepped their mandate.

Severance and other regard for the staff is admirable in its way, but Sweet Briar was not established to ensure the livelihood of its employees.  By working to ensure that the people who funded the school cannot reverse their decision, President Jones and the Directors betrayed the trust placed in them.  They were wrong to do what they did.  What remains now is to see whether they had the legal authority under Virginia law to do it anyway.

3 comments:

  1. I'm pretty certain the answer is going to be a very loud "No," and I can't agree with their claim that they "dotted every i and crossed every t" in a search for viable options to remain open. The millions pledged in less than a week is substantial evidence that the Board did no such thing. I look forward to the legal findings, and to submitting my application to Sweet Briar College in the future - for either a second Bachelors degree, or for entry into a future Graduate program.

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  2. Your words are on point. My mother, sister and I are proud graduates of SBC. We fully support the efforts of the Save Sweet Briar team and are pleased to see how swiftly and professionally all have mobilized. We have been supported by 1000s of women and men. Our fellow graduates are leaders in the corporate world, their communities and at home raising their families. Thank you for your thoughtful article James!

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  3. James, you are spot-on. If members of the Board believed that they could no longer support the College's mission of educating women with the millions of dollars at their disposal, their obligation was to resign, not to attempt to close the college. #savesweetbriar

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