AGB Workshop for University and
College Foundation Legal Counsel
New Models of Foundation
Governance
Thomas K. Hyatt, Esq.
Washington, DC
October 5, 2016
Primary Benefits of Institutionally Related
Foundations (IRFs)
• Meaningful opportunities to engage influential board leaders
• A vehicle to secure and fulfill the trust of donors
• Flexibility in expenditures and management of funds
• Separation of privately contributed resources from state funds
• Ability to act on opportunities
• Facilitation of institutional objectives that would be impossible,
impractical, or simply inefficient for state agents such as real estate
acquisition and development, debt financed projects, entrepreneurial
ventures and partnerships
• Possible protections of donor privacy
• Fundraising leadership (leadership gifts, prospect identification,
cultivation, and solicitation, campaign leadership)
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Primary Benefits of Institutionally Related
Foundations (IRFs)
• Building relationships with regional business leaders and donor
prospects
• Engagement of volunteers with specialized expertise (investment
management, real property, etc.)
• Stewardship of major donors
• Informal advisory board for institution administrators
• Serving as advocates on behalf of the institution
• Continuity during leadership transitions
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Factors Shaping Work of IRF Boards
• Increasing need for private support
• Centralization of fundraising
• Ensuring accountability and good stewardship
• Need for entrepreneurial support
• Complexity of asset management
• Philanthropic leadership
• Advocacy
• The Alacrity Imperative
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Current Structures and Operations for IRFs
• Individual Institution Foundations
• System Foundations
• Multiple Foundations
• Some institutions have multiple foundations affiliated with specific campuses or
units. Institutions may also have other auxiliary organizations, often called
"foundations," that fulfill specialized functions such as supporting the
commercialization of research or holding and managing patents, real estate, or
other assets.
• Overall, 31 % of foundations reported multiple foundations affiliated with the
primary institution (average is 3.7)
• About 46% of the wealthiest foundations (> $1B) reported that the university or
system was supported by other affiliated foundations.
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Current Structures and Operations for IRFs
• Staffs ranging from no full-time staff to hundreds of employees
• Operations ranging from gift repository/asset manager to oversight of
comprehensive development programs, support or operation of alumni
associations, and entrepreneurial ventures
• IRFs may be independently staffed, self-financed, and operate with high
degree of autonomy, or may be wholly dependent on institutional funding
and personnel, or somewhere in between
• Almost half of IRFs are interdependent with institutions
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Current Structures and Operations for IRFs
• IRF chief executive often also serves as chief advancement officer for
the institution
• Development functions may be distributed across the foundation, units of
the institution, and other affiliates
• In size and composition, IRF boards resemble the governing boards of
independent colleges and universities with an average of 32 voting
members
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2016 AGB Survey: Attributes of IRFs
• Foundation's Role in Fundraising
• 34% are almost wholly responsible for direction/execution of
fundraising
• 19% direct/coordinate fundraising with support from institution/system
staff
• 38% have the institution/system staff directing/coordinating fundraising
with support from foundation staff/volunteers
• 7% have little or no role in fundraising
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2016 AGB Survey: Attributes of IRFs
• Ex-officio Foundation Board Members (voting or non-voting)
• 77% Foundation CEO
• 22% Foundation CFO
• 89% Institution CEO
• 37% Institution CFO
• 17% Institution Chief Advancement Officer
• 22% Institution Chief Academic Officer
• 46% Institution Governing Board Member
• 9% Alumni Director
• 63% Alumni Association representative
• 19% Athletics Association representative
• 22% Faculty Representative
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2016 AGB Survey: Attributes of IRFs
• Functions Performed by Foundation Board Members
•
•
•
•
•
•
•
92% advise the foundation CEO and other senior staff
65% advise institution's president and other campus leaders
41% advise alumni association leadership for purpose of fundraising
98% recruit prospective board members
87% cultivate or solicit major gift prospects
90% provide campaign leadership
58% contact the state legislature on behalf of the institution
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Core Responsibilities of IRF Boards
• Ensure that the work of the foundation is aligned with the strategic
priorities of the institution
• Work with the chief executive on the long term strategic plan and
participate in, approve, and monitor progress of the foundation's plans
• Engage directly in fundraising, and provide diligent stewardship of
philanthropic contributions
• Maintain fiscal integrity of the foundation, preserve and protect its assets,
and provide financial oversight
• Advocate for the institution in keeping with its public purpose and the
state's public agenda
• Support the foundation chief executive and provide oversight as
appropriate
• Conduct the board's business in an exemplary fashion and periodically
assess board performance
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Foundation-Institution Relationship
• Dependent: The foundation effectively functions as a unit of the primary
institution, which provide office space, staff, and other support.
• Interdependent: The foundation receives some free in-kind benefits,
such as office space or the services of the university employees.
• Independent: The foundation operates with a high level of autonomy
and reimburses the university for the use of any institutional resources.
• Approximately 45% of foundations characterize themselves as
interdependent. About 20% characterize themselves as dependent, and
about 34% characterize themselves as independent. Not surprisingly,
foundations with larger endowments are far more likely to operate
independently of their affiliated college or university. Indeed, almost twothirds of independent foundations had endowments over $500 million,
and more than 74 percent of dependent foundations had endowments of
less than $50 million.
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The Value of Being a Private Nonprofit
• Freedom from open meetings law requirements (Sunshine Act)
• Freedom from open records law
• Protection of donor identity and address
• Protection of identification of amounts given by named donors
• Protection of internal foundation records and confidential business information
• Freedom from state audits
• Freedom from state procurement law
• Freedom from state confiscation of funds
• Clarity regarding tax treatment of gifts
• IRS rules vs. public rules
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The Value of Being a Private Nonprofit
• What constitutes a public body ?
• FOIA definitions
• Other statutory definitions
• AG opinions
• What factors are considered in finding that an IRF is a public body?
• Board overlap with institution
• Authority of institution president over foundation
• Authority of institution board over foundation
• Degree of financial and in-kind support from institution
• Who employs foundation staff
• Who is the foundation's lawyer
• Degree of separation
• External messaging
• Terms of MOU to provide a governmental function on behalf of institution
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Characteristics of Effective Foundation-Institution
Partnerships
• Clarity and consensus about the role of the foundation
• Integrated planning and alignment of strategic priorities
• Trust, candor, and regular communication
• Formal and transparent business processes
• Flexibility
• Mutual understanding of respective roles of the boards
• Respect for independence of the foundation
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IRF Corporate Vehicle Options
• Private nonprofit membership corporation-501(c)(3)
• Private nonprofit non-membership corporation
• Subsidiary of Institution or Institution Affiliate
• Affiliate of Institution or Institution Affiliate
• IRF as parent organization
• IRF subsidiaries
• Tax-exempt
• Taxable
• IRF joint ventures
• IRF collaborations
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A New Model for the
ASU Foundation
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Our Mission
Our Original Mission Provides the Margin of Excellence
Philanthropy is essential to ASU’s success. By 2020, it will contribute
over $100 million annually to ASU. It however cannot replace state
appropriations. Philanthropy does not and should not be used to keep
the doors open.
Philanthropy is and will continue to be the engine by which we
expand the reputation of programs, attract and retain the best and
brightest faculty, and support the next generation of students.
Fundraising alone cannot address the financial strain of state
divestment. To replace state appropriations, we would need an
unrestricted endowment in excess of $6 billion.
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ASU Needs a New Framework
Need to segregate philanthropy from other foundation
activities. Donors and the public do not appreciate nor
understand these additional functions.
Need to develop new revenue streams through a more
robust organizational and governance framework. Board
members need to provide strategic guidance and fiduciary
oversight for these new functions.
Need to create a flexible private partner to explore new,
innovative approaches to higher education.
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Parallels: Google and Alphabet
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ASUF: Current Structure
ASU Foundation Already Does More than Solicit Private Support
Development Service
Agreement
Board
of
Direct
ors
AzTE, LLC
AZ
VENTUR
ES,
INC.
ASUF,
LLC
(Fulton
Center)
ASUF
BRICKYA
RD,
LLC
ASUF
DC,
LLC
SkySong 1 & 2
Board
of
Direct
ors
Board
of
Direct
ors
ASURE
Commonly
Controlled
501(c)(3)
ASU
Foundation
ASUF
SCOTTSD
ALE,
LLC
SkySong 3
ASUF
DUPONT,
LLC
ASUF
REALTY,
LLC
SkySong
Residential 1
UNIVERSI
TY
REALTY,
LLC
SkySong
Shopping
Board
of
Direct
ors
Research
Collaboratory
Commonly
Controlled
501(c)(3)
RCASU
MEXICO,
LLC
RCASU
CHINA,
LLC
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Need to Segregate Philanthropy
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ASU Enterprise Partners Model
ASU
Enterprise
Partners
ASU Foundation
Shared Services
Investment
Services
Legal Services
Financial
Services
University Realty
Fulton
Center
Information
Services
Brickyard
Human
Resources
ASUF DC, LLC
Communicatio
ns
ASU Research
Enterprise
SkySong 3
ASUF
Scottsdale, LLC
Mirabella @
ASU
AzTE
Research
Collaboratory at ASU
SkySong
1&2
SkySong
4
AZ
Ventures,
Inc.
RCASU
China, LLC
RCASU
Mexico, LLC
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Implementing the Board’s Mandate
CONFIDENTIAL
For Discussion
Purposes
1. Assembled team of nonprofit experts at K&L
Gates, Dentons and an Arizona law firm
specializing in nonprofit law;
2. Formed Enterprise Partners;
3. Obtained tax exemption for Enterprise Partners;
4. Created harmonized organizational documents
for each entity based on national best practices,
while staying true to concepts that had worked
for ASUF (e.g., max size of board, quorum
requirements, no proxy etc.);
5. Prepared new committee charters;
6. Worked with counsel to move tax-exempt bonds
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ASU Enterprise Partners Framework
• The Enterprise Partners entity will act like a holding
organization with minimal branding and limited public
visibility.
• Enterprise Partners – like the Foundation - will continue
to maintain “independence” from ASU so as to not be
treated as a public sector entity.
• Enterprise Partners can create additional entities for the
purpose of developing new revenue streams.
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Financial Framework
• Each sub entity operates as a cost center:
– Procures support services: (HR, finance, IT, etc.)
from the Enterprise Partners parent entity.
– Generates revenue and, in some cases, is provided
a support services contract by ASU (e.g., fund
raising, technology transfer). ASU develops a
master agreement with the Enterprise Partners
parent entity with specific sub agreements for
services with the sub entities as needed.
• Excess “revenue” flows to ASU.
• A reserve fund is held at the Enterprise Partners parent
entity to address any short term shortfalls in sources of
funding for the sub entities.
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Proposed Governance Model
Board
Board
Board
ASU
Foundation
ASUF
Dupo
nt
Nominating
Committee
Development
Committee
AzTE
Univ Tech
Partners
RH
Technolo
gies
ISW
Technolo
gies
AZ
Ventures
Investment
Committee
ASU Enterprise Partners
University
Realty
ASUF,
LLC
ASUF
DC
ASUF
Scottsd
ale
SkySon
g I, II,
III, IV,
VI
Audit
Committee
Board
Board
ASUF
Brickya
rd
McDow
ell
Wareho
use
Mirabel
la at
Tempe
Executive
Committee
ASURE
RCASU Hong
Kong
RCASU
Beijing
Mexican AC
Board
RCASU
RCASU China
Teo Holdings
Globl Univ
Assoc I
Globl Univ
Asso II
Germany
Holdings
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Flexible Enterprise Options
ASU Enterprise Partners 501(c)(3)
Board of Directors
Nonprofit 501(c)(3)
(Examples: ASU Foundation
and ASURE)
Commonly controlled through
shared board membership
with the Enterprise. Director
appointments by the
Enterprise board of directors.
Sole Member LLC
(Examples: AzTE and
University Realty)
The Enterprise is the sole
member of the subordinate
LLC.
The LLC is effectively nonprofit
by the nature of its
relationship with the parent
501(c)(3) – The Enterprise
Partners entity.
A Sole member LLC may or
may not have an independent
board.
For-Profit
Structured like any other
investment
Organizations effectively
become member units
through controlling interest in
the company (51-100%)
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Questions and Comments
Thomas K. Hyatt, Esq,
Dentons US LLP
1900 K Street, NW
Washington, DC 20006
USA
[email protected]
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