Shifting foundations – In the wake of a scandal, nonprofits that raise money in LSU’s name come under intense scrutiny.

    In the Fall 2010 issue of LSU Alumni Magazine, then-Alumni Association President and CEO Charlie Roberts penned an editorial entitled “Alumni Association: A Gift to LSU.” A photo of a dapper-looking, tuxedo-clad Roberts accompanies the piece, in which he describes how unique and successful the independent, nonprofit association is and why it is so worthy of alumni support.

    “We receive no financial support from our campus or the state, and no one on our staff is an LSU employee,” Roberts writes. “Indeed, the LSU Alumni Association is an asset provided to the University at no cost.”

    Four years later, in the wake of a lawsuit and sex scandal that forced the 78-year-old Roberts to step down in disgrace from the position he held at the association for 30 years, the editorial seems more than a little ironic. The episode shone a spotlight on the way business is done over at the East Lakeshore Drive headquarters of the Alumni Association. It also brought to light Roberts’ nearly $320,000 annual compensation package and threatened to indelibly tarnish the beloved LSU brand—not just on the flagship campus but around the state.

    The editorial exemplifies more than mere irony, though. It illustrates an attitude of institutional arrogance that has permeated the association and its sister organizations—the LSU Foundation and Tiger Athletic Foundation—since their creation as independent 501(c)(3) organizations nearly three decades ago.

    Because they raise their own money and report to no one but themselves, they have been able to carve out fiefdoms within the political culture of the LSU flagship campus that is, itself, Byzantine by nature. Over the years they have operated unchecked, as though they are above and apart from the university they were created to support.

    The result is a dysfunctional system of institutional advancement and fundraising that, on the outside, seems more about defending turf and building monuments than promoting the educational mission of the university. Until recently, the three organizations resisted sharing data and failed to coordinate the way they call on potential donors.

    The question of how effective the entities are collectively at fundraising is more than academic. In a state where institutions of higher learning are uniquely vulnerable to the vagaries of annual funding by the Legislature, self-generated funds are a crucial cushion. At LSU, that cushion is paper-thin.

    The numbers speak volumes. By almost every metric of giving to higher education, LSU lags behind its peer institutions. Consider:

    • LSU’s total endowment is $425 million—less than that of Ole Miss or the University of Alabama, less than half the total of the University of Arkansas, and a fraction of the fund at the University of Michigan, for example, where donors have provided their alma mater an eye-popping $8.3 billion endowment.

    • LSU’s endowment per student—$13,000—is the second lowest in the U.S. for similarly situated entities.

    • Its rate of alumni giving is just 5.3%, lower than 62% of all U.S. colleges and universities.

    Over the past few years, aware of such troubling statistics, the foundation, association and TAF have begun working together more closely and collaboratively. Since President and Chancellor F. King Alexander came to LSU in 2013, those cooperative efforts have intensified. Alexander has given them little choice.

    Now he is upping the ante. Unlike a succession of predecessors who essentially gave the foundations and association free rein and accepted whatever help they chose to provide, Alexander proposes calling them all to account. He is in the process of creating a new position for a vice president of institutional advancement, who will also serve as CEO of the LSU Foundation and oversee the activities of TAF and the Alumni Association.

    As envisioned, each organization will retain its 501(c)(3) status but work with the others under a single administrator, who will oversee and corral their efforts, coordinate their campaigns and make sure they’re working for the good of the university, not the aggrandizement of their individual organizations.

    Though Alexander’s plan was in the works before the Roberts scandal, the timing and negative publicity surrounding the lawsuit couldn’t have been more advantageous for the launch of his restructuring. Now he has the unquestioned support of the university’s Board of Supervisors as well as the upper hand in the court of public opinion.

    “We have generous donors who are willing to give millions, so it’s critical we have oversight, transparency and integrity,” says Ann Duplessis, who was recently elected chairwoman of the LSU Board of Supervisors. “What King is trying to do is remove the silos that have existed.”

    The architect of the silos that comprise the current institutional advancement structure at LSU is former Chancellor James Wharton, who served at the helm of the university from 1981 to 1988. When Wharton took over as chancellor, LSU had no foundation, no athletic foundation, and its alumni organization was a small, university-run department with a handful of employees who worked out of a house on Highland Road.

    The LSU Foundation, TAF and the Alumni Association were all created around the same time. Wharton established them as private, nonprofit organizations with distinct missions and broad latitude to engage in fundraising and development activities.

    Creating the organizations as independent nonprofits was particularly important, in Wharton’s view, because it gave them the ability to do things that would have been impossible had they legally been under the LSU umbrella.

    “They can conduct business. They can buy. They can sell,” Wharton says of the foundations. “They can build buildings without having to go through public bid laws.”

    There is nothing unusual about this. Most universities have nonprofit foundations that were established as 501(c)(3)s for precisely the same reason. What’s a bit different at LSU is that the foundation does not oversee the activities of the Alumni Association or TAF, and none of the three reports to any administrator within the university.

    The Alumni Association is particularly proud of this distinction and frequently likes to tout itself as one of just 20 self-governing alumni associations out of 2,600 nationwide. Wharton, too, is proud of the track record of the association, which has grown to include 135 chapters, a 128-room hotel and an impressive alumni and conference center.

    “The Alumni Association had no funds when it started,” Wharton says. “It has had to bootstrap its way, and they have been so successful. Their whole mission is service, and that is what they do. They have done their job.”

    While being independent and self-governing may have enabled the association to grow over the years, it also led to a corporate culture that allowed the Roberts scandal to occur.

    In a suit that initially named both Roberts and the Alumni Association, 63-year-old Kay Heath—a former employee of the association and ex-girlfriend of Roberts—alleges that he reneged on a deal he made with her in 2012, promising monthly lifetime payments if she would resign her position at the association, which, at the time, was starting to raise eyebrows.

    In the immediate wake of the filing of the lawsuit—and in a time frame too brief to be credible in the business world—the association conducted an internal audit that found not a whiff of financial impropriety and gave itself a clean bill of health, according to board chairman Gil Rew, who declines to make the audit public. Heath has since dropped her charges against the association, though she continues to sue Roberts, who denies her allegations about the nature of their agreement.

    But Duplessis says the suit has raised questions that need answers, and the sordid affair has damaged credibility that needs to be restored.

    “We have to have a strong level of integrity with the individuals, our processes and our policies,” she says. “We have to have transparency.”

    It is not established—at least not yet—that anything illegal or unethical was going on at the Alumni Association under Roberts. The lawsuit is still wending its way through the court system, and an independent, third-party audit of the association being conducted for the university administration is not yet complete.

    What is clear, at the very least, is that the association didn’t follow best practices when it comes to conducting business. The organization was shaped and defined for 30 years almost solely by a single person: Charlie Roberts. Over the decades, and with support from a faction on the association board, Roberts was allowed to rule autocratically.

    The good ol’ boys network was fueled by Roberts’ access to prized LSU football tickets and to rooms, facilities and services at the Cook Hotel and Conference Center, an on-campus hotel named for major alumni association donor Lod Cook, an LSU alumnus and former chairman of Atlantic Richfield Company.

    Employees, meanwhile, were expected to do Roberts’ bidding. That might include driving him to meetings in other parts of the state or accompanying him a couple of days early on a business trip to Las Vegas.

    More troubling, perhaps, is that his board of directors enabled this behavior. Thirteen of the current board members have served more than a dozen years. Four—all friends of Roberts—have served more than a quarter century each. These same four have repeatedly served on the executive and compensation committees, which make the decisions that matter at the association.

    That’s not illegal, but it’s not how nonprofits should be run, according to Erica Crenshaw, whose firm, Execute Now, specializes in the funding and administration of nonprofit organizations.

    “No one board member should serve longer than two or three terms, with each term lasting no more than three years,” she says. “It should be written in their bylaws.”

    Also questionable was Roberts’ compensation package. It was nearly $320,000 in 2013, where it has hovered for the past few years. In 2009 it exceeded $416,000—not much less than what then-Chancellor Mike Martin was making and considerably more than what any professors, deans or administrators on campus were earning.

    Roberts’ successor, longtime association staffer Cliff Vannoy, defends the compensation. He says the CPA firm Faulk and Winkler did a detailed study of alumni CEO compensation around the country and determined Roberts’ salary was in line with others’.

    “The longevity of his service and the scope of his responsibilities were taken into consideration,” Vannoy says. “The compensation committee reviewed, discussed and made its recommendations to the board of directors for final approval.”

    Not everyone on the board of directors agreed with what the compensation committee was choosing to pay Roberts. One director privately expressed concern that under Internal Revenue Services rules the association board was in serious danger of having to come out-of-pocket to reimburse the association a portion of Roberts’ salary under “excessive compensation” rules.

    One board faction was unhappy with how Roberts was running things and repeatedly attempted to daylight the issue by putting it on the agenda, a former board member says.

    But those directors are no longer on the board, and somehow the salient agenda items were never aired. Those who opposed Roberts and his clique of longtime board buddies were not asked to serve additional terms. In contrast, many who went along are still there. “They’re not bad people, but they’re bad board members,” the former board member says.

    In a letter to the editor of Business Report published Sept. 16, current board chairman Rew denies the board has anything but the best interests of LSU at heart, and he defends the track record of the association.

    “The integrity of my fellow board members is above reproach,” he writes. “Their cumulative years of service and monetary support are extraordinary, for collectively, these ladies and gentlemen and their families have donated more than $10 million to the association and the university.”

    The issues at the Alumni Association are a symptom, not a cause, of a system that isn’t working—or, at least, isn’t working as well as it could be. The LSU Foundation is another organization that shows signs of chronic underperformance.

    Like the association, the LSU Foundation became a private nonprofit in the mid-1980s, and its mission is to serve as the primary fundraising organization for the flagship campus. As of June 30, its endowment was $395 million—more than 90% of the university’s total endowment.

    Last year, it raised $72.6 million, marking its second-most successful fundraising year. A significant portion of that amount includes a majority of the $50 million-plus raised for a new College of Engineering Building. And arguably, the success of that fundraising effort had as much to do with the involvement of key local business leaders as it did the work of the foundation.

    Like the association, the foundation has also suffered occasional bouts of institutional overreach. In 2013 it brought the Board of Supervisors a proposal to build a $20 million headquarters on prime university real estate near Tiger Stadium, with a rooftop terrace and a Hall of Fame for donors.

    After initial approval, the proposal swelled to five floors and $25 million, including an annual charge of $1.3 million for space to be rented to LSU. When Alexander questioned the size of the project and said no to renting space, the foundation scaled back the headquarters to half the size and is in the final stages of raising money for a more modest, $10.5 million building.

    But while the foundation is raising money for its own building, its record in raising dollars for the university pales in comparison to its peers. The University of Michigan’s endowment tops $8.3 billion, while Indiana University’s is $1.7 billion and Ohio State’s is $1.5 billion. Ohio State, in fact, is in the middle of a $2.5 billion campaign that began two years ago. So far, it has raised $2 billion—and its foundation operates from a modest building two miles off campus in leased office space.

    Officials with the LSU Foundation say there are several reasons they lag behind peer institutions, whose numbers, they caution, do not always provide a legitimate apples-to-apples comparison. But they concede they could do better and are focused now on upping their game.

    Part of the problem, according to interim foundation president and CEO G. Lee Griffin, is that Louisiana came late to the fundraising table.

    While private universities have been deeply involved in institutional advancement for a century or more, state universities didn’t start building sophisticated advancement organizations until the 1970s and 1980s, and the LSU Foundation didn’t really get up to speed until the 1990s.

    “Relative to other foundations in the country we are infants,” says Griffin. “We are very, very young. Our first campuswide campaign wasn’t until 2001.”

    A bigger problem, though, has been the lack of coordination among the alumni association, the foundation and TAF. For years, the three groups had separate databases of donors and alumni that they didn’t coordinate or share. They also had their own development teams that frequently worked at cross purposes, calling on the same prospects—sometimes, even, at the same time.

    Griffin remembers it all too well from his days as president and CEO of Bank One of Louisiana (now Chase Bank), which was a big supporter of LSU.

    “I had times when I had five people from LSU coming to see me in a single week,” he says. “Sometimes they’d be in the waiting room together without even knowing it.”

    The years of operating in separate silos has taken its toll, and somehow the basics of university fundraising were ignored. For instance, in the past three years the foundation has been trying to find solid contact information on some 50,000 alumni it has lost in its database of more than 200,000. So far, it has found 31,000.

    The foundation has also recently identified some 28,000 major gift prospects—alumni who are able to donate $25,000 or more to the university. But it only has detailed records on 5,000 of them. It is currently trying to locate the other 23,000.

    “We have identified a great deal of capacity out there,” Griffin says.

    That’s all potentially good news, but how did the data get lost in the first place, and why wasn’t the alumni association helping? What’s the point of an alumni association if there’s not a good database of potential alumni donors?

    Griffin defends the association and says the foundation is the one to blame for letting that kind of data slip through the cracks over the years.

    “That was our job, not theirs,” he says. “The service the alumni association provides is helping to keep the alumni engaged. We have larger advancement services, so when we try to go out and find our alums, we’re doing it for everybody.”

    In the past three years, the groups have begun to work together more closely. Top executives from the association, TAF and the foundation gather regularly now to coordinate efforts with potential large donors, making principal gifts of $1 million or more.

    They coordinate with development officers from the foundation staff who are assigned to the individual colleges. They have also established a prospect protocol, which keeps track of who’s targeting potential donors. Perhaps most importantly, the association and the foundation now share a database, though TAF still maintains its own.

    “Today these three foundations are working like I’ve never seen them before,” Griffin says. “I think it’s true and it’s a valid criticism that the foundations did not work closely enough with each other in the past, but I am satisfied as a donor and an alumnus and sitting here like I do that they work together now. From where it used to be it is night and day.”

    That coordination is about to get even closer. Alexander has had his eye on the multiheaded institutional advancement structure at LSU since becoming president and chancellor in 2013 and has been looking to do something about it. The Roberts imbroglio only confirmed his decision to rein in the three organizations and force them to work as more of a team.

    Alexander is no stranger to strong-willed 501(c)(3) organizations. As president of Cal State Long Beach, he tussled with the board of a nonprofit public radio station that was affiliated with the university and located on its campus. Years earlier, at Murray State in Kentucky he cracked down on the athletic foundation after it began flexing its muscle.

    Though he is diplomatic in his assessment of LSU’s foundations, he says they need to do better.

    “I think I’d like our foundations to work more closely together,” he says. “We’re behind, and we have so much potential. Our graduates’ starting salaries are higher than everybody’s. Our midcareer earners do better than most. We have so much potential, we should not have $13,000 per student in our endowment when Chapel Hill has $104,000 per student. There’s so much room for improvement.”

    Alexander has been working with top foundation executives from several of the large Midwestern state universities that belong to the Big Ten conference, which includes such athletic and fundraising powerhouse schools as Penn State, Ohio State, University of Michigan and Indiana University.

    For a variety of reasons—they have successful athletic programs and lots of research dollars, and they launched institutional advancement programs decades before SEC schools did—these universities have endowments in the billions, not millions, of dollars.

    Their foundation model has evolved over the years, and their successful framework is what Alexander wants to replicate here: Appoint a single person to serve as both a university administrator who oversees all fundraising activity and as the CEO of the foundation. All other foundations—including the alumni association and TAF—will report to him or her.

    But wait a minute. Aren’t these private foundations? How can Alexander—or any LSU chancellor, for that matter—get outside groups to toe the line?

    There is the matter of the Affiliation Agreement between the various foundations and the LSU Board of Supervisors. At any time, the board can—for cause—sever the university’s relationship with these outside groups immediately. And with six months’ notice, it can take the same nuclear option without providing any reason at all.

    What are the practical consequences?

    A fundraising or support group that can no longer use LSU’s name and logo effectively ceases to exist as a viable entity. Also, if the board chooses to exercise the severance option under the Affiliation Agreement, all assets of the affected entity transfer to the university.

    It likely won’t come to that, though. More likely is that the groups will work with Alexander to find a new way forward.

    “If there is a vice president for advancement and he has some jurisdiction where the rubber meets the road, it’s going to be in how they communicate and how that helps fundraising down the road,” says Curt Simik, president emeritus of the Indiana University Foundation, who has been advising Alexander on the issue.

    Simik says working together is really the key for the organizations on the LSU campus. He doesn’t expect it to be easy at first, not after so many years of entrenched independence. But he believes a strong leader can add value to all three foundations and make those with a connection or an affinity for LSU want to give.

    “You’ve got great opportunity down there, and bringing in somebody strong and deep in experience is really the way to go,” he says. “My guess right now is there is money being left on the table. That is not a condemnation of what has been done before, but that’s just to say, let’s tool up because the institution is not going to get more from the state.”

    Editor’s note: As previously disclosed in Business Report and in his column, the publisher of Business Report, Rolfe McCollister Jr., is a member of the LSU Board of Supervisors.

    While the LSU Alumni Association was paying Charlie Roberts a base salary of more than $300,000 and a total compensation package that was substantially greater than that over the past five years, the organization was only raising about $3 million annually in donations.

    2013 Revenues
    Donations $3.2 million
    Hotel $3.2 million
    Merchandise/trips $1.7 million
    Rental/catering $0.7 million
    Investment income $2.3 million
    Other $0.8 million
    TOTAL $11.9 million

    2013 Operating Expenses
    Personnel $3.6 million
    Promotional $3.1 million
    Occupancy $1.8 million
    Depreciation $0.7 million
    General/administrative $0.5 million

    SPENDING TRENDS
    • Operating expenses have grown 4% per year since 2009.
    • Promotional expenses have increased 9% since 2009.
    • Compensation for key employees increased 19% from 2010 to 2012, but when factoring in the number of key employees, average salaries did not increase.