Accounting for Law

Set policies to avoid public spats and keep donations flowing

Hospitals and foundations should set out clear policies and expectations early on to avoid potentially devastating public disagreements over donor funds, says Toronto health lawyer Kathy O’Brien.

“Usually hospitals and their fundraising foundations are very aligned in their purposes,” O’Brien, a partner with DDO Health Law, tells A hospital often communicates its specific needs — for an MRI or other equipment, for example — and the foundation, a separate corporate entity, goes on to fulfill its fundraising duties, she says.

“The benefit of having this separate entity is it protects donor funds from the government trying to claw the money back. But it sets up risk and potential for conflict when the hospital lacks control,” O’Brien says.

“When I get involved, it’s usually because that alignment in purpose has somehow become dysfunctional.”

But both hospitals and charitable foundations can take a few simple steps to avoid disagreements long before they happen, says O’Brien, who says she is passionate about avoiding such disputes that can ultimately stop donors from writing cheques.

There are usually two circumstances that lead to tensions between the parties, she says.

Firstly, O’Brien says she sees a misalignment between short and long-term goals. For example, the hospital may press the foundation to fund short-term needs, such as new equipment, while the foundation aims for the longer-term goal of funding a new building.

Secondly, she sees relationships strained when new personalities join either organization.

“All of a sudden you’ve got a new senior manager at the foundation or new board chair, and they come with different expectations of what the relationship should be. That can really start to derail things,” O’Brien says.

She makes three simple recommendations: communication, education and setting expectations.

“Communication is clearly the most important thing,” O’Brien says. One of the best ways of strengthening communication between the hospital and foundation is to have cross-appointments on each board. In particular, she says the hospital should have a position on the foundation board.

“It’s wise to set up the governance structure so you always have the input of the hospital,” she says. Regular meetings between senior managers and board chairs is also recommended because “it’s all about trust,” she says.

Education can be done through a joint board retreat. The hospital and foundation board members are in the same room, and O’Brien can take the group through an articulation of roles and duties.

“It’s a reminder that you’re here to support the hospital, and that you have legal duties and obligations. When these discussions take place in a calm and non-adversarial manner, I have found that to be very successful.”

Finally, in terms of setting expectations, O’Brien says a legal agreement or memorandum of understanding between the hospital and foundation is helpful. It can set out the process for how the hospital can ask for money, including a requirement to make the request in writing and include a business case, as well as how and when the foundation will respond. It may also outline certain matters that require hospital approval, such as unacceptable gifts or naming rights.

“It’s really just thinking ahead and setting expectations when everyone is calm and getting along,” she says. “Then if you have a change in personality, if you get a new board chair or CEO, they may have different ideas, but the legal document will prevail.”

Disagreements can be a “disaster” to a fundraising campaign, she adds.

“I’ve seen hospitals and foundations get into public fights, even litigation, and nothing is going to stop people from writing a cheque as much as seeing a dispute on the front page of the local paper,” O’Brien says. “It does not engender confidence in the organization.”

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