A recent article in the Wall Street Journal focused on the challenges faced by The Old Miss of the North. A great many people thrive on their former affiliation with Harvard. The reputation and name carry a great many through their daily challenges. It is often interesting that attendance at such schools is the only credence an expert witness can bring to the table. See Eliciting Effective Testimony (July 2014); Lyric Choices (July 2023); Magic Words (February 2021).
No, to be credible, one needs to be able to both express opinions and demonstrate the logical path that led from point "A" to that conclusion. Too often, expert witnesses are quick to offer the conclusion and rely on Mom's old saw "because I said so" to support that outcome. When that is not enough, I have often seen the "And what school did you attend?" I am certain that many a judge and jury do accept such illogic on the strength of someone's apparent academic background. However, it is more likely that the quality of the testimony, the evaluation, and the analysis will prevail.
Presently, Harvard is facing challenges in the realm of public perception. The Wall Street article discusses this in some depth. Harvard is an educational institution that is exempt from both state and federal taxation. According to its website, it is a 501(c)(3) corporation. The Board of this corporation is viewed by some as having plenary power, subject to few (if any) checks and balances. In fact, "One faculty member said the corporation answers only to God."
The public perception issue is perhaps centered on plagiarism allegations. However, there have also been some criticisms regarding admissions policies that discriminate based on race. And the reaction of Harvard and its President following the 2023 "attacks on Israel," and Harvard student reaction. Some student organizations have been accused of blaming Israel for those attacks. Some felt that the school President should perhaps take a stand in condemning violence and vitriol.
As an aside, Harvard was founded by the Puritans in the 1600s. It is an institution that has significant religious roots. See Christianity and the American University. That is a "citation," and it is appropriate in instances where the thoughts of others are used. Academics, in particular, are very focused on the idea of citing sources, and particularly in giving appropriate credit in such settings. The President of Harvard has been accused of not being careful in that regard.
Thus, God is an interesting element of the Ivy League. There are God references regarding "Almost all Ivy League institutions." Some may view schools today as less than God-focused. Some conclude that schools have drifted from their roots. See Ivy League Faith (that is another of those "citation" things you may hear about. Academic institutions frown on inadequate citation of the thoughts of others.
Some think that academics should be held to a standard. They note that plagiarism is widely forbidden in American education. The Department of Homeland Security defines and discusses plagiarism. It says "Plagiarism means you take someone else’s work or ideas and pass them off as your own." It suggests that synonyms are "cheating or copying," and explains that schools forbid it "because colleges and universities value honesty and academic integrity from their students." Might one expect such virtue in professors and even university presidents? Might a Board expect it at a university generally?
What does this have to do with workers' compensation? Well, a great many in this community are involved with non-profit corporations. They contribute to and support them. They lead as officers and board members of an array of fine organizations that are part of the very fabric of this community. And, despite the perception of the Harvard faculty member (above), such boards and their members perhaps do not answer exclusively to God.
No, corporate boards answer to authority. One that is pertinent is the Internal Revenue Service. The status as a "non-profit" conveys a great benefit to a corporation, whether charity or educational. The current corporate tax rate is 21% according to 1800Accountant. The state of Massachusetts also has a 6% tax rate. While I am no accountant (should every corporation have an accountant?), those might result in a significant reduction in operating funds if a school or other non-profit were to pay taxes.
The Wall Street Journal says that Harvard has an endowment of $50 billion. At 1%, that might earn $500 million annually. The 21% of that is about $105 million (imagine if it is earning 10% instead; $5 billion in earnings and $1 billion in annual taxes). Simple income tax liability could be a challenge. Any conclusion or definitional change that threatened the tax-preference status might be serious.
Some politicians have proposed further taxation on the "wealthy." One who is coincidentally from Massachusetts has suggested an "ultra millionaire tax" of 3% to perhaps 6%. This is described as "A small tax on the great fortunes of more than $50 million." So, would such taxation similarly affect the "ultra" institutions? Would Harvard pay $1.5 to $3 billion on that endowment? Perhaps not so as a non-profit, but might that change in the scheme as proposed or as ultimately passed?
Any tax-exempt organization answers to the IRS. Thus, at a minimum, there is some accountability for any non-profit. Are there other potential challenges?
Corporations can be sued. The legal system allows people who have standing to file lawsuits and seek damages. The Boston Bar Association Journal published an article explaining that such lawsuits can be "direct or derivative claims." The law of the jurisdiction where the entity is incorporated may be very important in the derivative, and the law of the jurisdiction where damage occurs may also be. So, if you serve on the board of a non-profit incorporated in Tennessee, you likely need to understand your potential liability under Tennessee law (just an example, Harvard is not likely incorporated in Tennessee).
According to Cornell University (another Ivy League university), there is a legal tool called a "derivative suit." It describes it:
"A shareholder (stockholder) derivative suit is a lawsuit brought by a shareholder or group of shareholders on behalf of the corporation against the corporation’s directors, officers, or other third parties who breach their duties."
The Boston Bar article acknowledges that laws differ from state to state (see Tennessee example above), and explains that
"under Massachusetts law a shareholder is required to make demand on directors in every case alleging derivative claims on behalf of a corporation."
Any shareholder might assert claims, derivative claims, on behalf of a corporation for
"Wasting, mismanaging or misappropriating corporate assets, resulting in a general diminution of the value of corporate stock, assets, or cash on hand"
The shareholder might pursue the members of the board for damage that their decisions brought to the corporation. This is why boards rely heavily on their accountants and other experts to ensure they remain "between the lines." This is why every corporation has an accountant. Of course, every corporation also has insurance coverage for such challenges or lawsuits. The US News explains that this is
"errors and omissions (E&O) insurance that protects company executives and board members when they are sued for mismanagement, misrepresentation, or other breaches of duty or regulations."
Anyone serving on a board might be interested in the details of what their corporation's particular policy provides, covers, and excludes. If you serve on a Board, have you inquired about such coverage?
The Boston Bar article explains that to bring a derivative suit under Massachusetts law, the "plaintiff must have been a shareholder (or member or partner)" at the time of any such actionable decision. This is a worry of any "for-profit" corporation. But, there are suggestions out there* that such a lawsuit might be maintained by members of charitable, non-profit, organizations. That could potentially include students and others. Might faculty have similar standing? What others damaged by the (in)action of a board might have standing?
If a non-profit is sued, what are the expenses associated with defending itself? If a shareholder prevails, is there potential to collect damages? Attorney fees? Other expenses?
Can a private board manage without regard to the members? Is it appropriate for a board to self-perpetuate with "current (board) members select(ing) new ones" as the Wall Street Journal describes the Harvard model? In any non-profit, there may be challenges with "insularity," engagement of members, and the challenges of fiduciary duty. Cornell explains that means
"Directors of corporations, in fulfilling their managerial responsibilities, are charged with certain fiduciary duties. The primary duties are the duty of care and the duty of loyalty."
Directors have to act in the best interest of the corporation. That is a "duty of care" that requires directors to be informed. Directors "may not simply accept the information presented," but must be inquisitive, critical, and focused "as to protect the interests of the corporations and its stockholder." It is an immense responsibility. Though service on a non-profit board may never rise to the pressure and challenge illustrated in the Harvard example above, such service will persistently be challenging nonetheless.
As a volunteer serving on a non-profit board, what protections are provided? What access do board members have to the expert opinions of the corporate accountant? What access do members of the organization have to leadership, to candidacy for leadership, and to management of the company? Are questions answered? Does the Board explain its vision, management, and decisions? Are the decisions defensible? Is the leadership sound? Are officers selected for ability and responsibility, or are other agendas prioritized and pursued?
The Harvard example is newsworthy, and "plagiarism" is a headline that might draw significant readers. But, in a broader context, might the members and directors of innumerable non-profits find edification and introspection in the example?
*Kusiak, Sarah R. “Case for A.U. (Accountable Universities): Enforcing University Administrator Fiduciary Duties through Student Derivative Suits.” American University Law Review 56, no. 1 (October 2006): 129-176.; Student Derivative Lawsuits, Adam Kyle Kaufman, The Yale Law Journal, Vol. 115, No. 6 (Apr., 2006), pp. 1471-1479; Brenda Boykin, The Nonprofit Corporation in North Carolina: Recognizing a Right to Member Derivative Suits, 63 N.C. L. Rev. 999 (1985).
