Could Your #Nonprofit be Forced to Return a Donor’s Gift?

Officials at Vanderbilt University got schooled. They learned, the hard way, that nonprofit organizations cannot unilaterally void the terms of a gift agreement without returning the donation.

This is a story that keeps on giving. It provides an important lesson for all nonprofit organizations about the requirement, ethical and legal, to honor donor intent.

The tale begins in 1933 when the Tennessee Chapter of the Daughters of the Confederacy donated $50,000 to the George Peabody College of Teachers to build a dormitory named “Confederate Memorial Hall.”

Confederate Memorial Hall (2007)

Confederate Memorial Hall (2007)

In 1979, Peabody was merged into Vanderbilt becoming the “Peabody College of Education and Human Development at Vanderbilt University.”

After years of discussion, according to Inside Higher Ed, Vanderbilt decided in 2002 to drop the word “Confederate” and rename the building simply “Memorial Hall.” The University took this action without gaining the approval of the Daughters of the Confederacy or returning the gift.

After taking Vanderbilt to court, the Daughters of the Confederacy received a Tennessee Appeals Court ruling in 2005 that ordered the University to either keep the original name of the building or refund the donation … in inflation-adjusted dollars. That $50,000 gift from 1933 is now valued at $1.2 million.

As reported in Inside Higher Ed:

The appeals court unanimously rejected Vanderbilt’s argument that academic freedom gave it the right to change the name. Vanderbilt argued that the Supreme Court has given private colleges considerable latitude in their decisions. But the appeals court said that was irrelevant because the agreement to name the dormitory ‘Confederate Memorial Hall’ was between a donor and a charitable group — and the government never forced the gift to be accepted.”

In its ruling, the Appeals Court stated (emphasis is mine):

We fail to see how the adoption of a rule allowing universities to avoid their contractual and other voluntarily assumed legal obligations whenever, in the university’s opinion, those obligations have begun to impede their academic mission would advance principles of academic freedom. To the contrary, allowing Vanderbilt and other academic institutions to jettison their contractual and other legal obligations so casually would seriously impair their ability to raise money in the future by entering into gift agreements such as the ones at issue here.

It took quite some time but, with money raised from anonymous donors, Vanderbilt paid $1.2 million to the Daughters of the Confederacy and renamed the building this month in accordance with the Court’s judgment.

Unfortunately, this has not brought this story to a happy conclusion. Vanderbilt has damaged its reputation by revealing its willingness to “casually” disregard donor intent.

I stand firmly with the Appeals Court decision. How I feel, or anyone feels, about the old Confederacy or the word “Confederate” on the building is irrelevant in this case. Instead, there are two powerful governing issues involved here:

1.  As the Tennessee Appeals Court found, Vanderbilt assumed Peabody’s legal obligations when it acquired the College. And the gift agreement with the Daughters of the Confederacy remained legally binding.

2.  I want to add that, in addition to the legal principle at stake, there are also vital ethical principles at play. The Association of Fundraising Professionals Code of Ethical Standards states clearly that nonprofit professionals should:

[Standard 14]: ensure that contributions are used in accordance with donors’ intentions.

[Standard 16]: obtain explicit consent by donors before altering the conditions of financial transactions.”

Here are five things you can do to make sure your organization does not similarly embarrass itself while alienating prospects and donors:

1.  Follow the law, including contract law.

2.  Adhere to AFP’s Code of Ethical Standards.

3.  Use written gift agreements with significant donors.

4.  When offering a donor a naming opportunity, place expiration date on the naming. For example, include language in the gift agreement that permits your organization to change the naming after a certain date or allows your organization to remove the naming under certain circumstance (e.g., the donor is later convicted of a felony).

5.  If a conflict arises, talk to the donor or his/her representative to attempt to resolve the issue in a friendly manner satisfactory to all parties, including those served by the recipient organization.

When doing fundraising work, your actions not only impact your organization, they have the potential to affect the entire nonprofit sector. This is something the Court recognized.

You might not agree or like the agreement a predecessor reached with a donor, but you are nevertheless legally and ethically bound to honor the terms of that agreement.

The best you can do for your charity is make sure that you uphold and properly steward prior gift agreements, and that you do everything you can to conclude appropriate gift agreements with your new donors.

For more information about the importance of respecting donor intent, you might want to read one of my most-read posts of all-time: “Can a Nonprofit Return a Donor’s Gift?”

Also, be sure to check-out Don Kramer’s post: “Can We Protect Naming Rights in Perpetuity?” The article contains some interesting insights and suggestions. An attorney, Kramer is a nonprofit law expert and publisher of Nonprofit Issues.

So, how do you think Vanderbilt University should have handled the situation? Moving forward, should Vanderbilt just ignore this recent event or should it do anything special to foster donor trust? Let me know what you think.

That’s what Michael Rosen says… What do you say?

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8 Responses to “Could Your #Nonprofit be Forced to Return a Donor’s Gift?”

  1. I am starting to think that when churches decide to not use naming opportunities with building campaigns, just might be on to something…

    • Jon, thank you for commenting. Philanthropic naming opportunities are starting to look increasingly like corporate naming opportunities for sports stadiums. I’m not convinced that’s a good thing. But, at least, putting a time limit on the naming opportunity can save a lot of grief downstream. Not offering naming opportunities, of course, can avoid problems altogether though it might make fundraising a bit more challenging. Fortunately for churches, they can offer donors something even better than an earthly naming opportunity.

  2. Article is spot on. There has been an increasing attitude among NPO’s that they are entitled to the money that is donated.

    • Steve, thank you for your comment. One of the phrases that I hate the most that is tossed around development offices is “give back.” For example, “The XYZ Company should make a donation to give back.” Or, “As an alumnus of our university, you should donate to give back.” “Give back” just underscores an organization’s entitlement culture.

  3. Quite possibly your best article to date.

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