Navigating a Dual Relationship at the Public Interest Policy Center-- Case Study
Navigating a Dual Relationship at the Public Interest Policy Center
With only a single item on the agenda and to the consternation of the chair, the board meeting was starting to deteriorate into a free-for-all of shouting, recriminations, accusations, and name calling.
Denise Willow, the besieged executive director of the Public Interest Policy Center, was the general target of the verbal arrows slung by individual board members who felt betrayed upon learning even more salacious details of Denise’s behavior relating to the William A. Ivystone Foundation, the Center’s newest and at the moment, largest funder. She did have some defenders among her board, mostly among the handful of female members who were more sympathetic about Denise’s assertion that there was a de facto double standard that applied to men and women in her position.
Certainly, no one on the board had ever complained when Denise had used her charm and more than ample physical attractiveness to schmooze up potential donors and entice them into supporting the Center. However, there had to be some reasonable limits to how far a staff member could appropriately play that game without risking serious damage to the Center’s respected reputation. It was clear to everyone in the room, including Denise, that someone needed to put on the brakes on this runaway train—thus the call by the chair of the board of the Center for this emergency board meeting to decide what steps to take. None of the apparent options was attractive. We are in damage control mode here, thought David Payton, Esq., the chair.
The meeting was in its third hour of contentious wrangling. Denise had been granted all the time she asked for to relate her side of the story, providing even more details about her relationship with William Ivystone, the Foundation President, than some board members present felt were necessary. She explained to the board that she recognized the seriousness of the situation, and the board deserved to know what had happened, as she sat next to the chair at the long, polished oak table in the conference room of Payton & Payton, P.C.
Several board members had calmly asserted that Denise clearly had crossed the line of what was acceptable and should be fired. Others had done so without being calm. And some other board members were willing to overlook this major indiscretion, recognizing that Denise had otherwise been a model manager and leader, and she had acknowledged her failures in dealing with this situation, showed remorse, and was willing to make things right and move on with that potentially Herculean task.
Her recent travails accommodating this particular major donor had begun innocently, and then had incrementally snowballed into a surreal soap opera that threatened the integrity of the Center and perhaps its continued existence as an independent public policy think tank. Some on the board, despite conceding that she had committed a major faux pas, felt uncomfortable firing the Harvard Law School graduate, and both the first African American and first woman executive director in the Center’s seventy-year history.
Denise’s hiring had been no accident, coming within a few months after the local daily newspaper had concluded a five-part investigation into the diversity, or lack thereof, of some of the most prominent nonprofit organizations in the area. The lack of diversity of the Public Interest Policy Center was particularly egregious, considering its mission to advocate on behalf of the disenfranchised and victims of discrimination, including women and minorities.
Almost the entire board of the Center had consisted of white males. The Center’s professional staff of four had consisted entirely of white males, and the low-salaried support staff were virtually all female. Everyone affiliated with the organization was embarrassed by the disclosures, particularly since the Center made a major focus of its efforts addressing public policy issues relating to the poor, the sick, women, and minorities. The word “hypocritical” had been used in the newspaper editorial following up on its investigative exposé. The state’s wire services had picked up the story and disseminated it to the rest of the state.
Spurred to act quickly by some key stakeholders outside of the organization, the board had made a major effort to recruit qualified minority candidates for the executive director’s position. That position had become open after the Center’s long-time executive director had been recruited as an Assistant Secretary in the Department of Health and Human Services by the Obama Administration. The board had also recognized that it needed itself to become more diverse, and had recruited three new board members—a white female, an Hispanic male, and an African-American female.
Well, that diversity goal certainly wasn’t achieved in full just yet, Denise thought wryly, looking at the group around the table that was serving as the inquisition. Of the 16 present, 12 were white males, three were white women, and one was the African-American female. The average age of the board members was perhaps 65, more than twice Denise’s age.
Denise felt that those judging her now around the room were unable to empathize with the situation in which she had found herself. She conceded that she had chiefly herself to blame for these circumstances. But she felt that she was the scapegoat for the shortcomings of the board. After all, it was the board that had failed to follow the very parts of the organization’s strategic plan to stop the hemorrhage of unnecessary expenditures. That plan, with substantial input from Denise, had proposed creative ways to increase the income of the respected state-based public policy think tank so it would not have to rely on the continued largesse of any single source of funding.
The timing of her current troubled relationship with the board couldn’t have been worse. The Ivystone Foundation had appeared out of nowhere almost exactly one year ago. Its President, a knight in shining armor, had offered his substantial resources to the fair maiden to keep the Center afloat during trying economic times. She had certainly done nothing illegal. In her mind, she was the victim of this sordid situation, and it was quite possible that she would suffer the consequences of being victimized while the perpetrator would not only escape with impunity but be able to continue as a stalker and sexual predator until someone took a public stand. Not likely that her spineless board of mostly old white men would do any such thing, she judged, as it had a lot to lose.
“Did you sleep with Ivystone?” Manfred Wishnick asked, more of an interrogation than a question, his penetrating icy stare indicating to Denise that he wouldn’t believe her answer no matter how she answered. He was a 70-ish board member, the chair of the Resources Committee, who she suspected would not hesitate to offer a motion to summarily fire her if she had nodded her head affirmatively. Mr. Wishnick had been livid when learning that Denise had applied for a grant from the Foundation without first consulting the board. He had been adamant that the board of directors should be consulted about all potential major grants as part of its governance responsibilities, and that the executive director did not have carte blanche authority to submit grant proposals to funders without prior approval by the Resources Committee. The checks and balances inherent in board review were necessary, he asserted, to assure that the terms of the grant didn’t violate any board policy, and that any project funded by the grant was consistent with the organization’s mission and values. Not everyone on the board, however, shared that view.
“That question is out of order,” ruled David Payton, the chair of the board, who had had a good relationship with Denise, at least up until it had leaked out several months ago that there was something going on between her and the Ivystone Foundation President that was more than a professional relationship. Since that time, Denise perceived a more frosty relationship from him that at times bordered on hostility. She knew that if she totally lost his support, she and the Center would part, perhaps today. If it did come to that, it might be difficult to even get a good recommendation to use for her job hunting, let alone the severance pay she would need to pay the bills in the interim. She also knew that if she were fired for misconduct, she would not be eligible for unemployment compensation.
“I think it is quite relevant to our discussion,” responded Wishnick, heatedly. “If she is sleeping with a funder, that is a major conflict of interest and colors how she deals with the demands this funder is placing on our organization.”
“No, I’m not sleeping with him, and did not sleep with him,” she answered truthfully, without waiting for her chair to respond to Wishnick. But it was quite true that they had engaged in almost every kind of inappropriate behavior short of that threshold during the first six months she and the President of the William A. Ivystone Foundation had known each other, and she certainly wasn’t planning on sharing any of the sordid details. What had begun as “harmless” flirting had slowly escalated into something more until it had reached a threshold that had made Denise not only uncomfortable but fearful about her personal security. Ivystone had turned into a stalker, once Denise had made it clear that any personal relationship they had was over.
As the board continued its venomous debate, Denise reflected back on how she got here.
When she had first met Ivystone at a public policy conference, sitting next to him quite by accident (or so she thought at the time), she had found him quite attractive and engaging. He was wearing an obviously expensive, custom-tailored suit with an ostentatiously large diamond encrusted wedding band. He had a warm smile and a laugh that had captivated her. She found him, at least initially, to be charming. Denise found the attention he was giving her to be flattering, and they had had a stimulating, spirited conversation about the luncheon speaker’s views on “The Future of the Nonprofit Sector.”
He had also been a good listener.
Denise had shared with him her frustration with the financial distress of the Center caused by the withdrawal of support of two key individual funders and the decline of individual memberships brought on by the worsening economy. He had been sympathetic, and mentioned that he might be able to help in some way. They had exchanged business cards. She hadn’t known at the time that he was the scion and sole heir of a steel industry magnate who had entrusted his son with managing the philanthropic trust fund the elder Ivystone had established more than 30 years previously, now with assets approaching $160 million. He hadn’t mentioned at the time that he was affiliated with any foundation. His card simply had his name and a home telephone number. When she got home, she had Googled him and found immediately that he was the President of a major family foundation. This fact had piqued her interest in following up with him soon for one purpose or another. For a fleeting moment, she imagined herself as Mrs. Ivystone, living a lavish lifestyle of summer homes in the Hamptons, the Caribbean, and London, eating at the best restaurants, flying into New York on a private jet simply to see the latest Broadway Show, and perhaps controlling millions of dollars to dole out to various philanthropic causes. That fantasy didn’t last very long once Denise recognized that Ivystone had very little else going for him other than good looks, money to burn, and charm. And one obvious complication—he was married to a socialite from another prominent family. Her Google search had also yielded a substantial trove of less flattering hard information as well as gossip, including media accounts of convictions for illegal drug possession and a statutory rape charge that had been dropped after the victim had refused to testify.
Denise had called him first. Over lunch, at a secluded table in a fancy French restaurant, he had offered to provide the Center with Foundation funds. There was no hint of any quid pro quo beyond commissioning the Center to simply expand its mission of developing public policy papers.
The initial $5,000 contract he had offered required the Center to provide the Foundation with ten White Papers on public policy issues, along with a political analysis. The issues were clearly within the range of interests of the Center, which might have welcomed doing the papers without any compensation at all had they come from a board member, staff member, or member of the State Legislature. Denise considered this grant to be a windfall, and the Center certainly needed the money. She did not consult with the board before signing the contract.
But then, the relationship with Ivystone started to change into a Fatal Attraction-like nightmare involving the intertwining of two individuals and two organizations with polar opposite agendas.
Denise had had no warning that the first, subtle requests to compromise the Center’s integrity would escalate into demands that would place the organization in turmoil and threaten its existence. A combination of a poor economy and the loss of several funders had eroded Center revenues. Without his Foundation’s money, Denise realized that the Center would be in danger of not making payroll for the first time in its history. Several other policy think tanks in the state capital, both liberal and conservative, had recently folded, victim of some of the factors that were threatening the fiscal health of the Center.
During those first six months after the initial contract, she had negotiated a new series of contracts with the Foundation to prepare various policy papers. Each contract was for a higher amount of funding, certainly welcome to the Center, which was starved for revenues. Yet with each new contract, more lucrative than the one before, the deliverables were policy papers with a focus farther away from the Center’s interests of generating public policy recommendations geared to protecting the interests of those with little voice in the State Capitol. What Ivystone was asking for at first, and later demanding to a greater extent, was material that could advance the Ivystone Steel business interests, often directly in conflict with the interests of the disenfranchised the Center was committed to serve, pursuant to its charter and mission statement.
Ivystone’s insatiable demands on the organization had escalated with each contract. He had first requested, then demanded, that drafts of each policy paper be submitted to him for review. Denise had complied because of what she felt was a blossoming personal friendship. At first, these drafts came back with only minimal editing. More recently, they had been returned with substantive edits that conflicted with the supporting data and the Center’s ideological slant. Denise had felt violated.
Several times, Ivystone had “suggested” that Denise consider hiring various Ivystone cousins for clerical positions. Considering that the Foundation was providing substantial funding, she had complied. At the time, it had seemed a good idea, and she saw it as a way to justify the continued increases in financial support of the Foundation. Now she regretted surrendering to this infiltration of her organization with sycophants without any real talent or motivation to advance the mission of the Center, and who were clearly more loyal to her organization’s benefactor than to her and the Center.
Denise also had shepherded through board approval Ivystone’s suggestion that the Center honor Senator John Wingnut, a.k.a. “Senator Steel,” as its Legislator of the Year, the first Republican state legislator to be so honored in the 20 years the Center had bestowed such an award. During his entire 30-year Senate career, Sen. Wingnut had voted against almost every position advocated by the Center. However, Wingnut was a staunch opponent of the death penalty, not because it was administered unfairly and disproportionately carried out against those who couldn’t afford decent legal representation (as the Center had pointed out in various policy papers over the years), but rather because it simply cost the state too much in legal fees to carry out an execution from its initial court decision through all of the appeals process. Denise had rationalized to her board that having Senator Wingnut as a friend of the Center might pay some dividends down the road. Comments from some board members such as “you sleep with dogs you wake up with fleas” still echoed in her head, and more than a few dues-paying Center members had protested the award by refusing to renew their $35 memberships. The grants from Ivystone dwarfed the loss of a few thousand dollars in membership fees. However, Denise mourned the loss of these loyal supporters whose trust had been violated and who were now actively disparaging her organization.
So far, the board had deflected by postponements Ivystone’s request to add three of his nominees to the Center’s board by explaining the objectives to increase board diversity. Ivystone had accepted the delay in responding to that request, but he was clearly miffed by the constant rebuff of his effort to expand his influence over the Center’s governance.
However, his persistent and relentless efforts to slowly invade and conquer the Center were the least of Ivystone’s actions that caused Denise substantial personal grief.
Once Denise discovered his past indiscretions—at least those that were transparent through a routine Internet search, she did not find him to be as attractive as she had during their initial times together. She was becoming more adroit at deflecting his almost constant invitations to be alone with him, but felt the relentless pressure. When he called her at home in the evenings, which was often, she always found an excuse to politely terminate the conversation as soon as she could. She briefly considered calling the police when she found him following her one day. But she did not want to alienate him totally, as the contracts to the Center were a lifeline to get it across the bridge to healthier financial times. He had hinted that increasing the annual grants provided by the Foundation from $200,000 to $500,000 would not be unreasonable if the Center’s work continued to please him.
Denise had engaged in an elaborate kabuki dance of resistance to the Foundation President’s advances. He was constantly plying her with elaborate and expensive gifts, accompanied by incessant entreaties to fly away with him on his private plane to “discuss the Center’s future grants.” His real intentions were transparent. The only thing that held her back was a feeling of discomfort with getting involved with someone who could hold so much sway over her professional life. And, of course, putting aside the fact that he was married, there were rumors about him that his intentions with respect to those of the opposite sex were, to use a euphemism, less than honorable. When she had recently found evidence that other female staff members of organizations receiving grants from the Foundation were also receiving the same level of attention from its President, she had abruptly stopped seeing him for any reason and informed her board chair about the situation.
As she sat through this board meeting, Denise felt like her head was in a vise. More accurately, it was her organization that was being squeezed. At the time she participated with her board chair in hammering out a formal memorandum of understanding with the Foundation to provide $200,000 annually in funding in exchange for preparing a new series of public policy white papers, the arrangement had sounded almost too good to be true. Now Denise regretted the day she had even heard of the Foundation or its President, who had been making both her personal and professional life miserable.
William A. Ivystone, IV, a. k. a. “Four,” as the Foundation’s President was called behind his back by his friends and enemies alike (and certainly he had less flattering names ascribed to him by his enemies), acted as if he was royalty, and everyone else, particularly the beneficiaries of the Foundation’s millions of grant dollars, was a peon. Those who weren’t deemed to be loyal subjects were banished from his Kingdom. Although the chief staff person for the Foundation, he also completely controlled his board of directors, mostly thirty-something blood relatives of William Ivystone, without having a vote himself, or any need to have one.
Those few in the Ivystone clan who had shown any real acumen or talent for business were funneled up the corporate ladder running businesses spun off by the senior Ivystone. The underachievers and slackers, and there were many, were relegated to serving on the philanthropic board, with their modest salary supplemented by the proceeds from the trust fund the elder Ivystone had established for each of his young nieces, nephews, and cousins at birth.
Four had consolidated his power by finding a way to remove those on the board who wouldn’t give him a free rein to both manage and govern the Foundation. He ran into little resistance from the board, many of whom were grateful for the $25,000 annual salaries they received for doing absolutely no tasks other than attending the four board meetings each year and perfunctorily voting in favor of making the grants on the list provided to them by their King, William the 4th. Achieving a quorum at these meetings was never in doubt. The saturnalia that followed each board meeting, held in a private suite at the Ritz Carlton, made it worthy to show up. No one on the board cared to inquire whether the cocaine that was available at these parties came from the Foundation’s substantial entertainment budget or from the monthly payments from Four’s personal trust fund.
It has been said many times that power corrupts and absolute power corrupts absolutely. In all Foundation matters, Four held absolute power and wielded it with impunity. He was a legend for using the resources of the Foundation to advance not only his professional, but also his personal agenda. He acted as if the money doled out by the Foundation was his own, a criticism often leveled at even the most reputable and professional foundation CEOs. He was also alleged to consider female individuals within the organizations benefiting from the Foundation’s largesse to be members of his personal harem. It was understood that payments had been made by the Foundation to maintain the silence of several staff members of grantee organizations and others with respect to Four’s often inappropriate behavior.
It was also well known throughout the foundation community that Four adroitly steered Foundation grants to his personal friends, and to those with whom he either had personal relationships or to those he desired to pursue for such a purpose.
The day in and day out demands of the Foundation on not only her time but on the soul of the Center had affected Denise not only emotionally, but physically, as well. At her latest meeting with Four, she had felt breathing problems severe enough that an ambulance had to be called. Although a heart attack had not been diagnosed, the cardiologist had found enough abnormalities to admit her for observation. Her blood pressure was high, and the symptoms, which were attributable to a panic attack, had made her realize that she couldn’t continue with this relationship, personal or professional.
But cutting the cord and ending the relationship was not quite so simple. Ivystone could, with one stroke of the pen, threaten to end her means of livelihood, as well as the good work the Center did for the poor, needy, ill, aged, and others who had minimal voice on public policy issues at the state level.
Finding a comparable job was out of the question, with unemployment at its highest level in more than a quarter century and growing every day.
She had made the decision to beg and grovel at this board meeting to keep her job, and agree to do whatever it took to return to the time when she had never heard of William Ivystone or his Foundation, even if she had to take a substantial pay cut.
The board continued its bickering, and Denise thought back to things she had learned about the foundation sector in general and the Ivystone Foundation in particular during her ordeal.
The abuses Denise saw within the Ivystone Foundation were far from being an anomaly. Of course, most of the thousands of private foundations authorized under Section 509 of the Internal Revenue Code followed the rules. But there were constant calls for reforming those rules, which many observers, including those within the foundations themselves, conceded did not serve the public interest.
For example, the IRS requires foundations to give out a minimal amount in grants in order to maintain their tax-exempt status, currently just 5% of their net investment returns, a scandalously low amount. What is not generally understood is that these foundations are permitted to include all administrative and operating costs, which may include salaries and fees paid to the foundations’ trustees, within that threshold. So in practice, many foundations are able to shelter enormous wealth from taxes, with only minimal amounts of that wealth being allocated for charitable purposes. There are few effective oversight mechanisms to assure that the philanthropy that is intended to benefit the public is not diverted to the personal benefit of those who serve on the foundation boards.
But as Denise came to understand firsthand, being the object of Ivystone’s attention was not his only objective. It was not inconceivable that his intention was to convert the Center into a de facto wholly-owned subsidiary of the steel industry’s propaganda machine, and thus show to his father that he was capable of taking over the entire family business when the time came for Dad to retire.
Denise, with some relief, heard indications that the meeting was reaching a conclusion and her ordeal would soon be over.
“Well, we have some options here, but none of them are attractive,” summarized the board chair. “First, we can cut our losses, do the honorable thing, and sever all contact we have with the Foundation. Going with this option will obviously be traumatic and painfully expensive. We would all have to work together to find a new source of funding to replace this loss of income. We will have to have a major restructuring of our staff to accommodate the cuts to balance a budget.” He looked around the room, and half of those present were nodding their heads, and the other half were showing signs of distress about this option.
“A second option might be to salvage the relationship with the Foundation for future contributions by making it clear that the Center must maintain its independence and intellectual integrity, but make sure, by board resolution, that Denise is to have no further direct contact with Mr. Ivystone.”
“Denise?” David Payne recognized the CEO.
“First, let me repeat to the board that I am truly sorry for how this turned out. The lesson we should all learn is to check out our prospective donors and grantees thoroughly. And I will do whatever it takes to make things right again. If the board wants me to resign, I will. But I know I can lead this organization back to where it needs and deserves to be, and I hope to regain your trust by working as hard as I can to get us out of this mess.”
“Thank you, Denise. Is there a motion on the floor?”
Discussion Questions:
1. How legitimate is Mr. Wishnick’s viewpoint that the board should have authority to review all grant proposals beforehand to assure they are consistent with the organization’s mission and values? What are the pros and cons of this policy?
2. Why is it important that nonprofit boards have a diverse membership? What are some of the advantages and disadvantages of having such a board?
3. How much of the blame for this situation is attributable to Denise? What could she have done to avoid the situation she now finds herself in?
4. Should the board fire Denise? If not, what other discipline, if any, would be appropriate? What should the board do to resolve the problems caused by this funder?
5. How much should the fact that Denise is a woman and minority factor into the board’s decision concerning this case?
6. Why do public policy makers and the public, as well, accept the status quo with respect to the legal minimum of how much charity foundations are required to do to maintain their tax-exemptions?
Note: This case originally appeared in “The Nonprofit Management Casebook: Scenes From the Frontlines.”