
Averting Charity Fraud: Tips and Actions
12.05.2023 | Linda J. Rosenthal, JD
In the spring of 2015, we followed with keen interest two developing stories about major community institutions that were suddenly threatened with immediate closure: Virginia’s Sweet Briar College and the San Diego Opera. We watched as these institutions’ supporters rallied to oust the leadership that had proposed these unexpected and undesirable courses of action, and and how those dissenters saved the day(s).
There are certain interesting parallels in the two cases as well as some clear distinctions, but observers in the philanthropy community agree that these were fascinating case studies with important lessons for charities and their boards.
Be Wary of Vanity Board and Top-Down Management by Insiders
Both panelists were quick to point out that their impressive-on-paper boards were actually “vanity boards” (also sometimes called “potted plant” boards or “bobble-head” boards). Directors were passive and/or did not understand their fiduciary responsibilities to ask questions and demand information – especially concerning finances which was the purported reason why the insiders insisted there was no choice but to close down operations.
Moreover, insiders (the CEO, board chair, and executive committee) apparently wanted it that way. The insiders’ management style was top-down, secretive, and uncommunicative. This was especially true at the San Diego Opera, where the brilliant and charismatic Ian Campbell directed both the artistic and the organizational aspects of the group. Because of his vision and expertise, board members (and staff) felt that he likely knew best, and were they hesitant to question his decisions, including his “my way or the highway” attitude.
In addition, the organization was structured to perpetuate this closed management group. There was too much formal power vested in the key insiders, supported by management/executive committees with too much authority and discretion.
Reform Governance Documents and Policies
Once the old leadership was ousted at Sweet Briar and at the San Diego Opera, the new board (comprising opponents of the “we have to close down immediately” insider faction) set out to formalize the change from an insider-controlled, top-down management structure to a more open and balanced governance structure. They are rewriting bylaws and policy documents, divesting executive committees of too much concentrated power, and formalizing a plan of more meetings and a better, regular flow of information. They are reformulating mission statements, holding “listening tours” and avoiding a “we know best” management culture.
These new structures include staff and stakeholder input and participation.
Recognize the Value of Stakeholders and Networks
For both Sweet Briar College and the San Diego Opera there were important, natural networks of interesting parties and supporters who were ignored by former management. Even if the financial problems were – indeed – dire, there was little or no outreach to these groups for help. The attitude towards these built-in networks was they are “too much time and trouble.”
But when the dissidents took over the reins of power, in each case they used these networks immediately and effective. For Sweet Briar, there were devoted students, staff, alumni, and members of the local community who spearheaded the drive to “Save Sweet Briar,” and came through with financial and other support. The local and Virginia press at first took the side of the insider group, but were persuaded by these stakeholders to come over to their side. The “Save Sweet Briar” group effectively harnessed the power of social media and energized powerful stakeholders like successful alumnae who were able to come through with needed money.
In San Diego, the allies were the community at large, the press, and the employees and artists who were surprised and outraged at the decision to close down the Opera after fifty years. Social media worked here, as well; a crowdfunding campaign took off quickly and exceeded the original goal.