Who Gets to Monitor a Public University Foundation?

An unusual proposal to address concerns about transparency and oversight at the University at Buffalo Foundation had the mark of a good compromise -- it would have left no one happy.

But the proposal, which called for adding a faculty member, a professional staff member and a student to the foundation’s board, won’t go into effect after the foundation turned it down recently. That leaves critics unsurprised. It also leaves the foundation, a private nonprofit organization with more than $1 billion in assets and a mission to support a public institution -- the State University of New York’s University at Buffalo -- as the likely target of continued calls for increased scrutiny.

The proposal’s death is a small development in a long-running struggle playing out in Buffalo and the SUNY system. It also reflects fights for foundation transparency that take place periodically at different public universities across the country. The foundation setup favored by many institutions, in which a private nonprofit entity manages large amounts of money for operations like endowments, fund-raising and even real estate development, is being tested by those who say greater transparency is needed to prevent the potential for wrongdoing and the abuse of public assets. Critics also say transparency promotes the use of foundation-controlled wealth in ways that reflect the needs of diverse campus constituencies.

Vocal faculty members at Buffalo have been calling for more foundation transparency for years, notably asking that the foundation be subject to New York’s Freedom of Information Law. Foundation officials have maintained that they are generally open with information but that they run a private organization that needs its private status to attract and protect donors. The issue flared up in recent months in a very public way that included a back-and-forth on the editorial pages of a local newspaper.

Then the chairman of the UB Faculty Senate, Philip L. Glick, brought the foundation a plan that served as a compromise between faculty and foundation. Glick, a professor of surgery at the University at Buffalo’s school of medicine, attempted to graft the idea of shared governance onto the debate. His idea was to address concerns by adding faculty, staff and student voices into the foundation’s governance instead of by forcing it to open its books.

“It was basically in the spirit of shared governance -- to try to come up with a compromise to allow more people in the room when decisions were being made,” Glick said. “We could all have walked out of the room and said we agreed with the decisions being made.”

While it’s unusual to use shared governance as a way to try to tackle transparency concerns, there is precedent for faculty representation on foundation boards. In 2015, 21.8 percent of foundation boards had ex officio seats for faculty representatives, according to Association of Governing Boards of Universities and Colleges data. That was down from 22.8 percent in 2011.

Even though university foundations are private, they’re typically expected to communicate clearly with universities, said Merrill P. Schwartz, vice president for AGB Consulting. But that communication doesn’t always mean talking directly to faculty members or students.

“Having good communication between foundations and universities and reporting on how funds are used is important and expected,” Schwartz said. “The communication is usually quite good, but it might not be with a student or faculty member.”

The University at Buffalo Foundation rejected Glick’s idea, however. Foundation Chairman Francis M. Letro said the foundation was sufficiently transparent, Glick said.

The foundation’s executive director, Edward P. Schneider, issued a statement further explaining the decision. The foundation’s bylaws already include shared governance, he said. University at Buffalo President Satish K. Tripathi is a foundation trustee. Several university administrators are also nonvoting members of the foundation board. Jeremy M. Jacobs, who chairs the University at Buffalo Council, which acts as the institution’s oversight and advisory body, is also a trustee emeritus at the foundation.

Adding faculty, staff and students would be unnecessary, Schneider said.

“Involving the foundation in internal university matters concerning the Faculty Senate, professional staff senate, the student body and the university administration would be in conflict with the mission of the foundation,” Schneider’s statement said. “It is not our role, nor should it be our role, to get involved in university matters, especially as it pertains to faculty. That is best left to internal governance at the university.”

One of the most vocal faculty members arguing for more transparency from the foundation was also critical of the proposal. Stephen Halpern is an emeritus professor of political science who is president of the Buffalo chapter of the American Association of University Professors -- a chapter that is not the collective bargaining agent at the university. It’s encouraging that the Faculty Senate was trying to address the issue, Halpern said. But he believes it did not cut to the fundamental question of an organization claiming it is private even as he sees it as operating on behalf of a public university.

“It’s an irrelevant proposal, and the rejection is irrelevant,” Halpern said. “Much more fundamental underlying questions exist.”

The AAUP chapter has been heavily involved in the calls for more transparency at the foundation. In February it posted a document questioning rising foundation assets at a time of falling state support, rising tuition, increasing fees and challenging conditions for professors. The document went on to argue that the foundation operates in the university’s name and should therefore open its books. It raised several questions including what spending plan the foundation follows, how it decides on its priorities and how it assesses its expenditures.

“Secrecy isn’t a necessity,” said the document. “It’s a choice. There is no conflict between an efficiently managed public university foundation and the civic virtue of transparency. Even if transparency reveals no further questions or concerns about the UBF, the increase in public confidence will be worth it.”

That prompted foundation chairman Letro to write an opinion piece in The Buffalo News criticizing the document as “maligning” the foundation. The foundation carries out its work ethically, lawfully and in the best interest of the university and community, it said.

“UBF’s status as a private organization is essential for attracting and safeguarding financial gifts that benefit students, faculty and academic programs,” Letro wrote.

Letro also argued the foundation enables projects that would otherwise be difficult.

“With UBF’s support, UB is able to make a tremendous impact on students, faculty and staff and, in turn, the Buffalo community,” he wrote. “For example: with funding from UBF, the university moved quickly ahead on a new medical school building downtown, saving taxpayers millions in construction costs. Without UBF’s support, the project would have been delayed for years or may never have happened at all.”

The university’s president, Tripathi, has also weighed in on the debate. He wrote publicly about the foundation and its role in April. The foundation must consider donors’ wishes when it comes to disclosure, he wrote.

“It is important to note, however, that the vast majority of resources deposited in the UB Foundation have restrictions placed upon them by donors,” he wrote. “Both UB and the UB Foundation have a shared responsibility to steward these resources in accordance with donor wishes, and therefore are obligated to keep these records private if that is the donor’s intent.”

And Tripathi pointed out that the foundation is regulated by the Internal Revenue Service and the Charities Bureau of the New York State Attorney General’s Office, which publishes its filings online. The organization’s audited financial statements and federal Form 990s are also public.

That level of disclosure is not adequate for Halpern, though. The Form 990s only provide a “skeletal view” of operations, he said. That makes it difficult to see what the foundation pays employees. The foundation has spent millions in recent years on salaries, Halpern said.

“We don’t know who those individuals are,” he said. “We don’t know where they got the money. We don’t know how much money they got. It would appear from the little we do know that a significant number of those individuals are state employees who are, in some cases, already pulling down very substantial state salaries.”

Without more transparency, it’s difficult to have the debate over whether the university is properly dividing spending between scholarships, student support, salaries and other projects, Halpern added.

Critics are not saying that the foundation is making the wrong judgments, said Martha McCluskey, a professor in the university’s School of Law and the secretary/treasurer of the local AAUP chapter. But they are saying it’s important to have more information on how they are made.

The issue of transparency has taken on more and more importance as public funding for universities declines, McCluskey said.

“There’s a sense of being squeezed because of declining public funding,” she said. “Buffalo is incredibly fortunate to have this sizable UB Foundation, and they have a substantial amount of resources. So the question is, what are we getting for that?”

The debate in Buffalo comes as the State University of New York system changed its guidelines on foundations.

Buffalo AAUP members met with SUNY staffers earlier in 2016 to talk about changing guidelines regarding institutions and their foundations. Chancellor Nancy Zimpher had suggested changes after a scandal involving an Upstate Medical University fund and the medical university’s former president, David R. Smith, in 2013, The Buffalo News reported. She had wanted to be able to appoint foundation board members and to have foundations receive written approval for capital funding from the chancellor and campus presidents. But when new guidelines were presented for approval, University at Buffalo critics said they’d lost their teeth.

Revisions to the guidelines, issued this spring, include requiring campus foundations to maintain systems of internal controls related to achieving objectives, financial reporting, safeguarding of assets, compliance with laws and operating efficiently. They also require foundations to maintain policies and procedures to protect whistle-blowers and report potential conflicts of interest to the Office of the University Auditor.

A major issue continues to be whether the University at Buffalo Foundation is subject to New York’s Freedom of Information Law. A 2011 State Supreme Court ruling found that it is not. But other court rulings have said similar foundations at other SUNY institutions are subject to the law. The executive director of the New York State Committee on Open Government has also written advisory opinions indicating foundations at public universities are subject to the law.

While some wait for the issue to be decided in a future court case, the union representing faculty on 29 State University of New York campuses, United University Professions, has pushed for legislation that would make campus foundations open to New York’s Freedom of Information Law.

The union has tried to address foundation concerns by stipulating in its legislative proposals that donor identities would be protected, said Frederick E. Kowal, president of United University Professions. It has also argued transparency could encourage donors.

“I would think information would prove helpful in encouraging donors,” Kowal said. “If I was donating toward a foundation, I would want to know that the money was being used for the purpose of supporting the university’s mission.”

Meanwhile, SUNY Auditor Michael Abbot has said his office is auditing the University at Buffalo Foundation in what has been called the first outside audit of the foundation since the 1960s.