Guarding Your Back
In-house legal experts can help you solve problems and avoid unnecessary risks while you advance toward your goals. Try some teamwork that takes advantage of this ready advice.
By David Williams II
At Vanderbilt University, Nashville, for instance, we used to have an annual disagreement about how to fill out the university’s Form 990. Before the recent revisions to the form by the Internal Revenue Service, our business office’s position was: “Anything related to a senior officer’s compensation, such as a housing allowance or retirement plan, has to be reported in this particular area. That is how we comply with the IRS rules.” But those of us in the general counsel’s office would counter with: “Yes, we have to put that information on the 990, but not necessarily in the compensation area. We could use a footnote or report it in another area.”
This difference of opinion stemmed from the subtle difference between business officers trained in tax accounting and lawyers schooled in tax law. The business office focuses on compliance and reporting (how do we do this correctly?), while the general counsel’s office engages in interpretation (what does this really mean?).
Even before the IRS resolved the 990 issue for all of us, the business office and our counsel’s office at Vanderbilt had reached an agreement—in part, by jointly tapping the expertise of our audit firm’s tax office. That exercise helped us define one requirement for a successful relationship between a business officer and legal counsel: that each respects the other’s training, experience, and expertise, and trusts the other’s ability to do the job effectively.
How to Communicate Concerns
|Getting Better All the Time|
These five tips can help business officers forge a stronger relationship with their institution’s lawyers.
1. Acknowledge your staff’s need for legal training. Most people do not realize that they need legal advice until a situation has deteriorated. This puts legal counsel in a reactive mode. Inviting counsel to provide training and information on preventive law, however, better prepares staff to recognize potential legal issues and to call for assistance to minimize—or possibly prevent—a problem or crisis.
2. Keep your legal counsel in the loop. To provide the most timely and helpful advice, your legal counsel needs to stay up-to-date on all major activities concerning the business office, even those that are not purely legal in nature. As the situation changes, the legal advice might need to change as well.
3. Tell the whole story. If you do not provide counsel with all the details, the legal advice you receive might be flawed and address only part of an issue. Sharing all the details—even those you may not think pertinent—gives counsel the big picture and may lead to a wider variety of solutions or suggestions.
4. Avoid the blame game. When something goes wrong, resist the temptation to use your legal counsel as a scapegoat. After all, assigning blame does not change the outcome. If legal counsel has made a mistake, engaging in public put-downs will only create conflict and mistrust in the future. Instead, share your concerns during a private discussion with counsel.
5. Consult counsel on nonlegal matters. Although legal counsel primarily renders legal advice, he or she can provide business advice as well, upon request. Think of your institution’s lawyers as more than legal technicians; they can also provide an additional perspective or recommendation before you finalize a deal or implement a solution.
To build and maintain that mutual trust and respect, both parties must freely exchange ideas about how best to solve a problem. This open communication translates into raising issues or concerns early, completely, and candidly.
Early briefing. The sooner you provide the general counsel’s office with the details of a project, contract, or activity you are considering, the better legal advice we can provide. If you wait until after a deal is done, however, we lawyers may have to figure out how to undo or change something.
Think of a university with international operations, on behalf of which a professor has given money to a government official in another country “because that’s how they do it there.” Regardless of the other nation’s practices, buying off a government official violates U.S. federal law. Had the general counsel’s office become engaged in the situation on the front end, the lawyers could have figured out other options; instead, they now have the much more complicated task of dealing with an illegal transaction that does not reflect well on the university.
You may not need legal advice every time you contact the general counsel’s office, and we may not need to provide any legal advice at that moment. But, if we know what is happening in your office—with contracts, suppliers, vendors, consultants, tax law requirements, and so forth—we can do the research and be better prepared when you do need assistance to close a deal or move forward with an initiative.
Complete details. As much as lawyers appreciate hearing about a situation still in development, we would be better off if you bring us in late and tell us everything rather than call on us early and omit half the story. Always err on the side of putting everything on the table, then let the other side determine whether the information is important or not.
Say you plan to hire a search firm to fill a high-level position in the business office. If the counsel’s office knows this plan, an attorney can sit down with the search firm before any interviews take place and review the various forms that need to be completed for affirmative action reporting to the federal government. It takes us much longer to track down the needed information after the search firm has completed its work.
Giving your lawyers a heads-up on your activities also helps with scheduling. If, for instance, you plan to send out a request for proposal for a new software solution, share your timetable. Our office will tell you the point in the process at which we need to become involved and schedule our time accordingly. Then, when you are ready to have a contract drafted a few months later, our lawyers will be ready, too.
Candid interaction. Remember, the attorney-client privilege extends to any conversations the business office has with the general counsel’s office. As long as you maintain that privilege, you can feel comfortable sharing your thoughts and information.
This candor, however, does not extend to either party harping on previous mistakes made by the other—a surefire way to close the window on trust and respect. In the interest of moving forward, what happened last week or last year needs to remain in the past.
Four areas in particular merit close collaboration between an institution’s business officer and legal counsel.
|On My Honor|
Pamela Bernard, vice president and general counsel at Duke University, Durham, North Carolina, developed the following “Oath of the Effective Counsel” to articulate the goals toward which a university lawyer should strive.
As the effective legal counsel, I promise to:
If you developed a corresponding oath for university business officers, what points would it include? Perhaps comparing the two oaths would provide you and your institution’s counsel a starting point for bridging the gaps and developing a closer working relationship.
Hiring and firing high-level employees. Perhaps the biggest problems in this area arise over proposed letters of hire, which counsel should always review to ensure they take an appropriate form and accurately articulate the terms of an offer. At one institution, for example, an employee was hired and dismissed shortly thereafter. However, the institution still had to pay damages to the employee, all because of a proposed agreement scribbled on a napkin. It was determined in the employee’s favor that the terms on the napkin constituted a contract, even though the institution had never spelled out those terms in a formal piece of correspondence.
Employee terminations generally lead to unhappiness, and such discontent often leads to a legal issue. So, if you plan to fire someone, including tenured faculty, let your lawyers know ahead of time. They may be able to minimize the possibility that the terminated employee will seek legal recourse.
Many times, an unhappy employee files a lawsuit when the educational institution does not follow all the steps in its formal grievance process but opts for an informal resolution instead. Although it may be quicker, circumventing established procedures can provide the basis for a lawsuit in the long run—unless legal counsel is contacted to assist with informal resolutions outside of available grievance and disciplinary processes.
Major projects. While they are business deals, any major projects involving public or private ventures and financing call for the involvement of legal counsel in negotiating and drafting contracts. In addition, counsel can help you work out the details of novel approaches or deals, all of which are protected by attorney-client privilege.
If, for example, you plan to use tax-exempt bonds for a public-private venture, your institution might inadvertently trigger the bonds to become taxable if you do not adhere to all the regulations in the Internal Revenue Code. Keep in mind also that some of those regulations remain open to interpretation, which is what a lawyer’s job is all about.
Matters involving the governing board. Many times, the chief business officer and the chief legal officer find themselves in the same position of sharing sensitive information with the board and senior administrators. In circumstances that depend upon each officer’s independence and objectivity—such as the institutional audit—working together is not simply an advantage but a necessity. Similarly, the area of conflict of interest, and how to define and implement related policies at the board level, is an important issue that takes the talent of both offices.
Tax-exempt organization compliance. In this area, the business officer and legal counsel must work together to determine, define, and deal with risks associated with highly compensated employees, Forms 990 and 990-T development, political activities on campus, and determination of business and nonbusiness expenditures.
With the continued focus of Congress and the IRS on tax-exemption issues in general—and executive compensation in particular—close collaboration between the two offices is essential to understanding both the law and the business position of intermediate sanctions related to corporate-type compensation packages. Only if legal counsel and the business officer are on the same page can they ensure that compensation committee meetings are documented, that independent data are used to support compensation decisions, and that the institution consulted third parties when appropriate—all of which provide added protection to the board.
From No to Go
Business officers commonly perceive lawyers as the people who simply say no. That perception probably stems from the fact that lawyers are trained to deal with the negative—to anticipate all of the things that could go wrong with an employee, a project, or a financing deal.
However, that does not mean we lawyers will always yell, “Stop!” In fact, our job is to help you get from Point A to Point Z while protecting you and the institution along the way. Your approach may work well, but perhaps we can identify other approaches that would work just a bit better.
Here is what else you should expect from us:
- More listening than talking. Lawyers have a tendency to run on at the mouth, but we should hear you out first before engaging in lengthy conversation.
- An open mind. Sometimes lawyers reach a legal conclusion without understanding how all the facts fit into the situation. If you feel as if legal counsel is headed in that direction, emphasize that you need to explain all of the relevant details.
- Confidentiality. The information that a business officer provides to legal counsel should not be repeated to others—unless you choose to share that information.
- Recommendations. Legal counsel can recommend a course of action but cannot tell a business officer what to do. We provide legal advice, which you have the option of using (or not).
Both the chief business officer and the chief legal officer, along with their staffs, must understand that we are not the campus superstars. The faculty and students hold that status; we merely provide needed and important support work. Together, with little fanfare, we make our institutions run—so we might as well work together.
DAVID WILLIAMS II is vice chancellor for university affairs and athletics, general counsel, and university secretary, Vanderbilt University, Nashville.
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