What NOT To Do When It’s Time For Your Organization to Wind-down

You read about organizations making uh-oh’s all the time. Expected and impossible to avoid. Sometimes they’re relatively minor uh-ohs, other’s are uh-oh’s so big it makes you want to run and hide. This recent uh-oh I read about is one that not only made me want to hide, but look for my passport.

The Facts

Sweet Briar College decided it wasn’t able to sustain operations and should close. From what I’ve read so far, it seemed to have more than its fair share of debt and continuing to shell out money probably wouldn’t have helped with that.

So What’s the Problem

Fair enough, deciding to shut-down operations and dissolve isn’t itself a controversial decision. Not legally anyway. Of course, this is assuming an organization isn’t in its position because it squandered away money or choose to have board retreats in Aruba. But if you wake up one day and find an organization can no longer sustain profitability, it makes complete sense to contemplate and ultimately choose closing.

The problem is, Sweet Briar College accepted gifts (some pretty large gifts) shortly before shuttering its doors. In exchange for making donations, donors appear to have been under the impression it would be enough to keep the lights on and operations going. But not only did the organization shut down, it shut down a week after the last donations were made *runs and hides again*.

 

What Next?

It’ll be interesting to see how this all plays out. There’s a couple of things at play here. Of course, there’s the decision to shut down and whether it was an informed decision. More importantly, there’s the decision to accept a gift when (I presume) the school knew good and well it would be shutting down soon. Here is where that thing called trust comes into play, and failling to be upfront could possibly result in some fraud charges.

And aside from, “What would you do for a Klondike bar” the other age old question is how can organization’s use donations when it needs money to wind down operations. Can it use money orginally donated for carrying out the mission? What about donor restricted or donor advised funds?

It’s a tough situation, directors have a duty to ensure all debts are paid off with any outstanding money or other assets (property, equipment, proceeds from sales, etc). If the organization had disposable income and choose to dissolve without taking care of its debts some States might hold them personally liable. But, on the otherhand paying off debts isn’t as sexy as getting kittens off the street. No one wants to pay for winding down, when it may be exactly what an organization needs to do.

What’s This Gotta Do With Me?

In terms of takeaways the biggest one I hope organizations see is how easy it is to lose public trust. The school might have gone through all the right logistical and legal steps before taking donations. And the decision to wind down might have been the wisest one. But because it doesn’t seem to have been very transparent with its intentions it’s been featured all over the internet as having done something shifty. Sometimes we have to take a moment to think through the “could’s” vs. the “should’s.” Having a legal green-light to do something, doesn’t necessary mean you should. Organizations must make decisions under an awareness that public trust at stake. And do its best to not only balance this trust with its legal obligations, but to effectively solicit feedback and communicate.

Also, focus on your soliciting game plan if you don’t already. It helps to make it clear in marketing, fundraising schpeels, calls for action and any other messaging where you solicit that in the event the purpose of a campaign can’t be met donations will be redirected for use within the organization for the purposes of furthering it and its mission. This is at the Board’s discretion. You might also have a contact for potential donors in case they have questions.

Lastly, I won’t get too much into the decision to shut-down and dissolve since there hasn’t been much written on it. What I will say is it’s always important organizations let its stakeholders (creditors, donors, funders, etc.) know what’s happening. Do a temperature check and see what stakeholders have to say. For example, dissolution isn’t the only option. There’s merger, change of control, changing into a new entity form….and where an organization has a large amount of gifts or bequests these other options may be worth taking a serious look at. For example, depending on the amount of gifts and what the gift’s conditions are; whether there a ton of restricted gifts, gifts that revert back to the donor or endowments you may want to give complete dissolution another thought. We can’t say this for sure yet, but had the school solicited opinions it may have found someone interested in buying it out. Or taking over aspects of its programs.

Anywho, we’ll keep up with this as it develops.