On May 4, when Florida A&M University announced it received a donation of stock valued at roughly $240 million from 30-year-old hemp entrepreneur Gregory Gerami, the news elicited excitement throughout the philanthropy world. FAMU is among the country’s historically Black colleges and universities, institutions that have been chronically underfunded since their founding and almost never get nine-figure gifts.
Celebration turned to dismay within days, however, when crucial aspects of the donation came under fire. FAMU alumni, trustees, and philanthropy-watchers around the country raised questions about the actual value of the stock, as well as uncertainties about what exactly was being transferred. Other concerns included limited vetting of the donor by the university’s president, Larry Robinson, and its then-head of advancement, Shawnta Friday Stroud, as well as the nature of early negotiations and the decision to announce the gift during graduation ceremonies.
FAMU hired an independent law firm to begin an investigation, which is now being overseen by the governing board for all of Florida’s state universities. Officials at the university declined the Chronicle’s request for comment for this story.
The fallout from the incident has been swift. Robinson and Friday Stroud were skewered by FAMU alumni and others. Friday Stroud resigned her post as vice president for university advancement and executive director of the FAMU Foundation; Robinson was forced to call an emergency board meeting. There he acknowledged mistakes in the gift negotiations and the announcement, conceding that he “wanted it to be real and ignored the warning signs along the way.”
What lessons can nonprofit leaders and major gift fundraisers draw from this debacle? The sheer size of the FAMU controversy puts it in a rare category. But in the past 15 years, abrupt changes in donors’ finances or priorities have led to the unwinding of other big gifts. The unpredictable nature of these relationships underscores the importance of establishing strong risk-management systems.
“Be skeptical before you’re celebratory,” says Tyrone Freeman, a scholar at Indiana University’s Lilly Family School of Philanthropy who studies philanthropy in communities of color. “It’s important for the organization to stand firm on what their processes are from a due-diligence standpoint to protect their interest and their mission.”
Six guiding principles have emerged from the unhappy outcome of FAMU’s interactions with Gerami. They are drawn from conversations with scholars, development officers, and consultants. Their counsel spans due diligence, open communications, and the importance of expert advice.
Look for patterns in the donor’s giving history. In the FAMU situation, an internet search would have revealed news reports about a $95 million donation that Gerami promised Coastal Carolina University in July 2020 as an anonymous donor. The gift fell apart several months later, when the university officials’ relationship with Gerami soured and the university ended the agreement. The Sun News, a news outlet in Myrtle Beach, S.C., later uncovered and revealed Gerami’s identity.
FAMU’s now-departed head of advancement, Friday Stroud, said in a news report that university officials conducted a thorough vetting of Gerami and knew about the earlier pledge to Coastal Carolina University but did not contact officials to learn more.
Size up the donor’s resources, starting with public data. Gerami’s contract with FAMU called for him to donate 14 million shares of stock, presumably in Batterson Farms, Gerami’s privately held company in Texas. Information on Batterson Farms’ website was scarce. Details about the company’s board members, investors, and business holdings were either password protected or unavailable. (Sections of the site have since been removed.)
Gerami and university officials did not enlist a third party to analyze Gerami’s valuation of the stock, and it was unclear whether it was worth the $15.85 a share that Gerami claimed, according to coverage by Florida’s Sun News. It also came out that the gift was never reviewed by an audit committee, the Sun News reported.
By contrast, at Prairie View A&M University, also an HBCU, chief development officer Andrea Sankey says that when working with an unfamiliar donor, her office identifies properties and businesses the donor may own, and might also hire a consulting firm to dig deeper.
Keep senior leaders and your board in the loop. Once her team has compiled a donor report, Sankey says, she shares it with the university’s president, its chief financial officer, the chair of the university’s foundation, and the chancellor of the Texas A&M University System, which includes Prairie View. Depending on the size of the gift, Sankey says her team would likely enlist the university’s marketing and communications team to help further vet the donor. She also would alert the legal office of the Texas A&M System and the system’s budget and accounting leaders.
“The different levels, the different expertise of these offices can support the overall vetting and the overall receipt of the gift and provide lots of different safeguards,” says Sankey.
The FAMU Foundation’s Board of Directors didn’t know about the gift until Gerami stood onstage during the university’s commencement ceremony and said the money was “in the bank.” Neither Robinson nor Friday Stroud alerted the FAMU Foundation’s Board of Directors about the gift during the months of preliminary discussions and negotiations, according to what emerged in the emergency board meeting.
Call on legal experts to vet the gift agreement and other documents. Matt Clausen, a lawyer who advises donors, foundations, and others in the nonprofit world, cites a wide range of areas where legal expertise is crucial in drafting a strong gift agreement. For example, he says, if a donor offers stock in a privately held company, lawyers should review that company’s articles of incorporation, bylaws, and the shareholders’ agreement, which typically has provisions about who can be a shareholder.
“If the [nonprofit] is going to become a shareholder in this company, they’re going to have to sign on to various agreements, and we’d want to see all of those agreements,” Clausen adds.
By contrast, Clausen says, the gift agreement FAMU released to the public doesn’t identify the company whose stock Gerami is donating.
“There should be some other document whereby these shares are actually transferred to the university,” Clausen says. “It doesn’t transfer any assets to the FAMU Foundation.”
Never leave board members out of conversations about a potential big gift. Friday Stroud signed a nondisclosure agreement at Gerami’s request during the gift negotiations. The document stipulates that information can’t be shared publicly, but Clausen says nothing in the document suggests the university couldn’t share information about the negotiations internally with its trustees and lawyers. He says a nine-figure gift like the one Gerami promised would have a significant effect on a university’s profile and operations, so there is no reason to keep information from trustees.
“The board of directors has fiduciary obligations to manage the organization and should not ever be put in the position of having to hear about a gigantic transaction that they didn’t even have a chance to review or think about,” says Clausen.
Clausen says NDA agreements are not unusual during big-gift negotiations, but he was surprised to see a paragraph in FAMU’s NDA that says the university is not allowed to disclose information about Batterson Farms or contact the company, its affiliates, or members of Gerami’s family; or give documents, files, or electronic communications to “outside parties.”
Due diligence first; celebrations later. Any attempt by a donor to hide gift negotiations from top officials should be considered suspect, says Indiana University’s Freeman. If a donor balks at sharing details about a potential gift with multiple officials, it is important to explain that it is standard practice and in the best interests of the donor and the organization to have more than one or two sets of eyes and ears in the gift negotiations.
And if potential donors object?
“You really have to ask yourself why, because we have a mission to protect here, and it’s important to be skeptical before you’re celebratory,” says Freeman. “Policies and procedures put a framework in place, but it’s important for the organization to stand firm on what their processes are from a due-diligence standpoint to protect their interests and their mission.”
Freeman says in this era of big giving, the relational aspect of fundraising is especially important, because these types of nine-figure donations typically happen after a years-long donor-nonprofit relationship. So when big gifts come out of nowhere, it is wise to get to know the donor and their motivations for supporting a particular organization or cause.
“In the course of developing a relationship, you can get to know the person, you can visit their company, you can put to bed any questions that might come up,” says Freeman. “There’s different ways over time for a relationship to evolve and develop, and when things happen quickly, or there are red flags, you have to push back. You can’t ignore them.”
Reporting for this article was underwritten by a Lilly Endowment grant to enhance public understanding of philanthropy. The Chronicle is solely responsible for the content. See more about the Chronicle, the grant, how our foundation-supported journalism works, and our gift-acceptance policy.