In a nearly unanimous vote, the University of Louisville Board of Trustees passed a resolution on Friday stating the university may sue its own UofL Foundation — the nonprofit that manages its endowment — if that organization does not comply with requests to turn over financial records.
Voting for the resolution were 14 trustees, with only Ron Butt voting no, calling this move “divisive” and saying they could have pursued other options besides a lawsuit. Trustee Bob Hughes, who also serves as board chairman of the UofL Foundation, abstained from the vote until he could hear from its board.
This move comes after two major donors to the university announced they would withhold future contributions to the UofL Foundation unless an independent forensic auditing firm chosen by the university was hired to examine the foundation’s financial records, and the foundation turned over financial documents sought by Board of Trustees Chairman Larry Benz through the Kentucky Open Records Act.
The resolution states that “significant questions have arisen with respect to the use of funds held for the benefit of the University by the Foundation,” which “has not been forthcoming with respect to requested information concerning the use and application” of such funds. Due to those beliefs, it further states that legal action by the university against its own foundation might be required and resolves that Benz “may initiate” such legal action as chair of the trustees.
With fellow trustees and Acting UofL President Neville Pinto by his side, Benz told reporters after the board meeting that the trustees nearly unanimously agreed that potential litigation against the foundation “may be necessary if they are not compelled to the pathway of complete, restored confidence of the community and our stakeholders.”
In addition to the concerns of the James Graham Brown Foundation, Benz said the university has received 60 to 70 phone calls from individuals and foundation donors large and small over the past 10 days, “and their message has been convincing and consistent: Clean up the Foundation. It is an eyesore for the community, and frankly, these donors are telling us they will not contribute until they get complete transparency and confidence restored in the university’s charitable asset, the University of Louisville Foundation.”
Benz outlined that a pathway to restored confidence for the foundation includes the hiring of an independent forensic specialty accounting firm chosen by the university; complying with the examination currently being conducted by state Auditor Mike Harmon; filling long-overdue vacancies and expired terms on its board; and turning over all financial records he requested of it through the Open Records Act — including details of a $38 million loan from the university to the foundation that was not approved by either board.
“That pathway towards restored confidence for our community is critical at this most vulnerable time for the reputation of our university, which quite frankly has been damaged severely because of the secrecy and the veil of secrecy and the shenanigans… that have gone on at the University of Louisville Foundation,” said Benz. “Those days end today. Those days end in the next few days, when we can get together with the foundation, knowing fully that I have the board’s support and the president’s support to in fact file litigation if they don’t comply with the pathway towards restored confidence.”
Pinto called the discussion at the meeting “incredibly productive and fruitful,” adding that he is “very optimistic that the Board of Trustees, working with the University of Louisville Foundation board, will achieve the objectives that Chairman Benz outlined. And I feel confident in the path we’re taking.”
Benz said he hopes the boards of the university and foundation are able to have a joint meeting in the next five days in order to work out the concerns the trustees expressed. Pinto said that joint meeting is a step in the right direction, and while they don’t want to be in the position of suing UofL’s own foundation, “we also look at the outcome that we would like to see from this. It is clear for us internally and for the community at large that there has to be more accountability, both at the university and the foundation. And we’re going to make sure that we get to that point.”
Asked how UofL reached this point, Benz pointed to a “culture of secrecy” that grew at the foundation.
“I believe that the foundation at some point created a culture of secrecy and lack of transparency,” said Benz. “I believe the foundation at some point forgot its mission, that it is a charitable asset to the academic mission of the university. And instead got caught up in the allure of real estate, in the allure of other investments, all to the detriment of the endowment, which now looks to be about the same size that it was in 2006.”
Shorty before the meeting, Hughes — a trustee and chair of the foundation board — released a letter to both boards saying he approves of an accounting firm being hired to review the foundation and its related entities, but proposed “that the firm be selected, and its work directed” by a committee of the foundation’s own board. Hughes also said he would comply with Benz’s request for records, but cautioned that it was so broad that the foundation would have to hire four more staffers and its records would total over 1 million pages.
After the meeting, Hughes said he would not support a forensic audit of the foundation because it was not involved in crime or fraud. Benz responded that such a specialty firm is warranted in order “to navigate this complex weave that the foundation has created over the last several years,” and this is exactly what the university’s major donors requested.
Also referring to a lack of transparency, Benz asked, “Why are they so scared of a forensic audit? Why are they so scared to turn over records?”
Hughes said the threat of a lawsuit against the foundation is “unfortunate, and I don’t think that’s necessary. That’s a waste of university funds, foundation funds, and I think reasonable people sitting around a table can come up with reasonable answers without benefit of a lawsuit.”
The board of the foundation has scheduled its annual meeting for next Friday, Sept. 16. The executive committee of the foundation cancelled its Labor Day meeting at the last minute, after Benz and Pinto expressed concern that James Ramsey — former university president who continues to lead the UofL Foundation — would be given a severance package in return for his resignation, without proper approval of the full board.
Hughes would not give any details on what that committee would have approved this week, but said the full foundation board would have had a chance to approve it. He told IL that a severance package for Ramsey “could have been part of it,” but did not reveal an exact figure.
“I think (the amount of Ramsey’s severance) is up to the full board,” said Hughes. “It could be anything. That’s not for me to decide. There would be a range of figures on that severance package. And there’s value in treating someone fairly. But at the same time, too, we’re sensitive to the funding situation at the university, the state budget cuts and all those things.”
When voting against the resolution, Trustee Ron Butt noted that he would offer his resignation from the board to Gov. Matt Bevin by the end of the day. He later said the two boards should get together and negotiate in solidarity, “rather than being divisive, much like a child filing a lawsuit against their parent.”
“I cannot continue to operate in such a dysfunctional, accusatory… I mean, the environment is toxic,” said Butt, who was the last Republican trustee on the board that was abolished by Bevin’s executive order in June, before being reinstated by the temporary injunction of Franklin Circuit Judge Phillip Shepherd. “And Chairman Benz promotes it. So I would encourage Gov. Bevin to take whatever action he needs to take to get this board functional so the university can move forward and not basically attack itself.”
Asked about Butt’s accusations, Benz countered that “we had a near-unanimous vote for it. I don’t know his definition of divisive… Today was a great example of how thoughtful deliberation, professional courtesy and respect will get you to a near-unanimous vote.”