2023 Board Resources

CONFLICT OF INTEREST SCENARIOS TONY MAIDA, MCDERMOTT WILL & EMERY

Hypo 1: Board Conflicts – Duty of Care and Loyalty 1

Jim Ramone served as both the President of Nashville University, a non-profit, private university, and CEO of the Nashville University Foundation, which controls the school’s endowment and receives all donations to the University. Mr. Ramone also served as a board member with voting rights on the Foundation board and the permanent chair of the Foundation board’s Nominating Committee. A disgruntled former employee filed a complaint with the Tennessee Attorney General alleging that Mr. Ramone paid himself and certain members of his staff amounts well in excess of fair market value and engaged in business transactions without University or Foundation board approval. The complaint further alleged that: • Foundation board members failed to properly oversee Foundation spending; • Foundation officers exceeded their authority and failed to provide the board of directors with sufficient information to make informed decisions, presenting insufficient or misleading information; 2 • Foundation officers took action beyond what the board approved and acted without board knowledge or approval. For example, the Foundation loaned a subsidiary $10 million in endowment funds for a grant without approval from its board of directors; • Foundation officers paid out compensation beyond amounts its board of directors approved and that the additional amounts paid were not transparent; and • Foundation’s board of directors failed to oversee the finances of the foundation, approving property acquisitions without identifying a source of funding and continually spending at rates above its endowment spending policy. The Foundation engaged a respected valuation firm to review the executive compensation. The valuation firm concluded that the compensation of Mr. Ramone and four of his top aides exceeded fair market value by a total of $3.9 million over the 2010-2016 period. This valuation took into account both the University and Foundation executive position duties and the relative size and standing of the University. The valuation firm set fair market value at the 50 th percentile because the University itself ranked significantly below the median in three major categories: academic ranking (16 th percentile), endowment (37 th percentile), and enrollment (16 th percentile). However, the compensation exceeded the 90 th percentile by almost $1 million over the 2010-2016 period. The Foundation made the study public following a meeting in which the nonprofit organization’s board voted to amend Ramone-era disclosures to the IRS that claimed the compensation was reasonable, and to pursue Mr. Ramone and the other aides to recover the “excess benefits.” The Foundation board chair said the Foundation has alerted the IRS that it will be amending previous years’ disclosures to reflect the excess compensation. 1 http://www.wdrb.com/story/38300816/study-university-of-louisville-foundation-overpaid-ramsey-aides-by-39 million 2 Alvarez & Marsal Disputes and Investigations, LLC, Procedures & Findings Report, June 8, 2017 https://www.dropbox.com/s/48kkkd2hb8yk5qi/Final-AM-Report-6.8.17.pdf?dl=0 [hereinafter Alvarez and Marsal Report].