Conflicts of Interest and Transactions With Interested Persons Policy
Consistent with the Internal Revenue Service ("IRS") regulations and guidelines on Intermediate Sanctions and Excise Taxes on Excess Benefit Transactions, Washington and Lee University ("University" or "W&L"), a charitable, educational institution, desires to maintain the highest standards of accountability and transparency in governing University operations. Therefore, trustees and officers of the University, as well as other individuals in certain positions of influence (collectively referred to as "Interested Persons," and further defined in Section B), must discharge their duties and manage the affairs of the University in its best interests and observe duties of care and loyalty to W&L. Interested Persons must be fully informed about and closely monitor transactions and arrangements in which any person who is in a position to exercise substantial influence over the University's affairs may have a personal economic or other interest.
This policy is designed to protect the University's interests when it considers entering into a transaction, arrangement, or association that might provide a personal economic or other benefit to any Interested Person or Interested Entity (as defined below) at the expense of the University's best interests (financial or otherwise). Compliance with the procedures listed herein (Section II.B) is further intended to allow W&L to rely upon the rebuttable presumption that its transactions and relationships with Interested Persons and Interested Entities are not excess benefit transactions as defined by the Internal Revenue Code, 26 U.S.C. § 53.4958-6(c).
This policy applies to all trustees, officers, senior administrators, and finance personnel of Washington and Lee University, as well as their family members and all other Interested Persons (as defined in this policy). All employees are also subject to the Conflict of Interest Policy as stated in the University's employee handbook.
I. Background and Definitions
A. Conflict of Interest
An actual conflict of interest exists where an individual takes part in a decision in which he or she is unlikely to remain impartial or maintain objectivity in choosing between the interests of the University and his/her own economic or other interests. A potential conflict of interest exists when an individual's interests might make such impartiality or objectivity difficult or appear to be difficult.
A conflict of interest may occur when the University is considering a transaction, arrangement, or association: 1) which may provide a benefit (economic or otherwise) to an Interested Person or Interested Entity (as defined below), whether directly or indirectly; or 2) in which an Interested Person has accepted, directly or indirectly, payments, loans, services, entertainment, travel, or gifts of any more than nominal value from any individual or business doing or seeking to do business with the University. An example of a conflict of interest is an excess benefit transaction, which occurs when an interested person or entity, as a result of a transaction or arrangement, receives an economic benefit (whether direct or indirect) in excess of the consideration received by the University in exchange. Economic benefit includes all fees for providing goods or services and other forms of compensation (e.g., gifts, "perks," salary, bonuses, deferred compensation, and insurance benefits), but does not include reimbursement of trustees for reasonable expenses incurred in attending Board meetings. Indirect economic benefits include benefits provided through an entity controlled by the University.
An actual, potential, or apparent conflict of interest does not preclude the University from entering into a transaction, arrangement, or association. Upon disclosure of an actual, potential, or apparent conflict of interest, the appropriate committee of the Board of Trustees will determine whether the transaction is fair to the University and whether it will result in any excess personal economic benefit to the Interested Person (see detailed procedures, including a link to the disclosure form, in Section II). Consistent with federal and Virginia law, any possible conflict of interest is best addressed through full disclosure of any such interest, together with non-involvement by the Interested Person in any vote on the matter (for more details, see Section D).
B. Interested Person
An Interested Person is any person who is or was in a position to exercise substantial influence over the business affairs of W&L at any time during a five-year period preceding the date of the transaction, including (note: some titles may appear on this list more than once):
- All members of the Board of Trustees;
- All officers of the University (President, Treasurer, and Secretary);
- All senior administrators (Provost, Vice-President for Finance and Administration, Vice-President for Advancement, Vice-President for Student Affairs and Dean of Students, General Counsel, Senior Assistant to the President);
- All finance personnel;1
- "Key employees" and the next five most highly-compensated employees of the University, as reported on the University's IRS filings;2
- Members of the President's Council;3
- Substantial contributors to the University; and
- Members of the family of any of the above mentioned persons.
C. Interested Entity
An Interested Entity is an entity that does or may do business with the University and either: 1) in which an Interested Person holds a position as trustee, director, officer, or otherwise exercises managerial authority; 2) in which an Interested Person has a substantial economic interest (i.e., greater than ten percent ownership interest); or 3) that has provided, directly or indirectly, payments, loans, services, entertainment, travel, or gifts of any more than nominal value to any Interested Person.
II. Procedures for Situations Involving an Actual or Potential Conflict of Interest
A. Disclosure Form
All Interested Persons (with the exception of substantial contributors and/or family members of any Interested Person) must submit a completed disclosure form (available at: http://www.wlu.edu/document/conflictdisclosure) on or about August 1 of each year or upon employment or commencement of trustee service (as applicable). Each such individual has a continuing duty to update the disclosure form to their direct supervisor (if applicable) and the General Counsel when an actual or potential conflict of interest (or the appearance of a conflict of interest) arises at any other time(s) during the year. All other Interested Persons must disclose an actual or potential conflict of interest to the Office of General Counsel upon becoming aware of such conflict of interest.
B. Approval of Transactions
Any transaction between an Interested Person/Entity and the University must be reported to the Office of General Counsel, who shall advise the Chair of the Trusteeship Committee of the Board of Trustees (if the Interested Person is a trustee or trustee emeritus) or the Chair of the Audit Committee (for all transactions involving an Interested Person other than a trustee or trustee emeritus) on a timely basis. The Board Committee on Trusteeship or the Audit Committee shall make the determination, on a case-by-case basis, depending on the facts and circumstances (using procedures as set forth below), as to whether each transaction, arrangement, or association will be prohibited because of an actual conflict of interest that cannot be adequately managed.
The supervisor of the department handling the transaction shall review all consideration and benefits to be exchanged between or among the Interested Person/Entity and W&L. The supervisor shall document the information relied upon and make a written recommendation to the Controller.
The Controller shall then:
- Review the supervisor's recommendation and supporting documentation, and any other relevant information about the transaction;
- Make a written finding as to whether W&L is paying fair market value for the goods, property, or services; and
- Send that finding and the supervisor's supporting documentation to the Chair of the Committee on Trusteeship or the Chair of the Audit Committee, as appropriate.
The Committee shall then make an independent determination of: 1) the fair market value of the goods, property, or services provided to the University and whether an excess benefit exists; or 2) whether the arrangement or association otherwise creates a conflict of interest that cannot be adequately managed. The Committee may designate a member who shall review the supporting data or details regarding the transaction and report his/her opinion back to the Committee. During its review of the transaction, the Committee shall comply with IRS guidelines to create a rebuttable presumption of no excess benefit, to the extent practicable (see Section II.C). If an excess benefit or other unmanageable conflict of interest is found, then the transaction is prohibited; if not found, then the Board will vote in accordance with the procedure set forth in Section II.D.
To the extent it is not practicable for the Committee to approve the transaction in advance, it shall review the transaction at its next meeting using the procedures above. Under these circumstances, W&L shall use reasonable efforts to have reviewed the transaction internally in advance and have made an initial finding that the transaction does not constitute an excess benefit transaction or other unmanageable conflict of interest.
C. Rebuttable Presumption
Transactions covered hereunder are presumed to be at fair market value and not an excess benefit if:
- The terms of the transaction were approved in advance by the Board Committee on Trusteeship or the Audit Committee;
- The Board Committee on Trusteeship or Audit Committee relied upon appropriate comparable data in making its determination; and
- The Board Committee on Trusteeship or Audit Committee documented the basis for its determination concurrently with making the determination.
D. Board Voting Procedure
The Rector or the Chair of the Trusteeship Committee will disclose to the Board any Interested Person with an actual, apparent, or potential conflict of interest on any matter coming to a vote of the full Board or any of its committees prior to such vote. The Interested Person may not participate in consideration of the transaction or arrangement, may not vote on the transaction or arrangement, and should not be present for the consideration of or vote on the transaction or arrangement unless the Board or committee considering it request information from the Interested Person. However, the Interested Person may be counted in determining the presence of a quorum. In addition to any Interested Person with an actual, apparent, or potential conflict of interest, no Board or committee member may vote on the transaction or arrangement if he or she:
1. Is employed subject to the direction or control of the Interested Person involved in the transaction or arrangement under consideration;
2. Receives compensation or other payments subject to the approval by that Interested Person; or
3. Is a joint owner of a business with the Interested Person.
The minutes of the meeting should reflect that a disclosure was made, as well as the abstention from voting.
III. Enforcement of This Policy
If a trustee, officer, or administrator reasonably believes that a trustee, officer or other Interested Person has failed to disclose an actual or potential conflict of interest, he or she must inform the Board Committee on Trusteeship, the Audit Committee, the General Counsel, or the President of the basis for the belief, and the University will afford the Interested Person in question an opportunity to explain the alleged failure to disclose. If, after hearing the response and making such further investigation as may be warranted in the circumstances, the Board determines that a conflict of interest exists that has not been properly disclosed or managed, it may take appropriate corrective action, including rescission of the transaction or arrangement.
A. Correcting Excess Benefits
If the Board Committee on Trusteeship or Audit Committee finds an excess benefit transaction, the University shall use best efforts to cause it to be corrected consistent with applicable IRS regulations. An Interested Person corrects an excess benefit transaction by undoing the benefit to the extent possible and by taking additional measures necessary to place the University in a financial position not worse than that in which it would be if the Interested Person were dealing under the highest fiduciary standards. The University is not required to rescind the underlying agreement, but the parties may need to modify an ongoing contract with respect to future payments.
B. Taxes and Penalties
If an excess benefit has been found and has not been corrected, the Interested Person, the University employee who approved the transaction, and/or the University may be subject to excise taxes.
1Finance Personnel include: the Treasurer / Vice-President for Finance and Administration, Controller, any Associate/Assistant Treasurers or Controllers, Director of Budgets, and staff accountants.
2 A key employee meets all of three tests: (1) compensation of more than $150,000 from the employer and all related organizations in the calendar year ending within the fiscal year; (2) one of the employer's 20 most highly compensated employees; and (3) meets one of three "responsibility tests." The responsibility test is met if the employee (a) had organization-wide responsibilities, powers, or influence similar to that of an officer, or (b) managed a segment of the employer that represents 10% or more of its activities, assets, income, or expenses, or (c) had or shared control over 10% or more of the employer's capital expenditures, operating budget, or employee compensation. W&L treats senior staff who report to the President as meeting the responsibility test. The "next five most highly-compensated employees" are the five most highly compensated employees other than trustees, officers, and "key employees."
3As of May 2011, the President's Council consists of the following members: President, Provost, Executive Director of Human Resources, Executive Director of Facilities and Capital Planning, Associate Treasurer and Controller, Vice President for University Advancement, Senior Assistant to the President, Assistant Provost and Director of Institutional Effectiveness, Dean of the College, Executive Director of Alumni Affairs, Secretary of the University / Senior Assistant to the President, Executive Director of Communications and Public Affairs, Director of Athletics, Vice President for Admissions and Financial Aid, Treasurer / Vice President for Finance and Administration, Executive Director for University Development, Dean of the Williams School, Chief Technology Officer, General Counsel, Dean of the Law School, Associate Provost, and the Vice President for Student Affairs and Dean of Students. The exact membership, as well as the titles of the members, is subject to change.
May 21, 2011 -- Revised to consolidate three former policies/procedures: 1) Conflict of Interest (Trustees); 2) Conflict of Interest (Officers, Senior Administrators, and Finance Personnel); and 3) Procedures for Reviewing Transactions With Interested Persons; as well as the conflict of interest disclosure form.
October 27, 2012 -- Revised definition of "conflict of interest" at Section I.A (paragraph 2) and "interested entity" at Section I.C in order to clarify that the payment of gifts or perks above nominal value by anyone doing or seeking to do business with the university may create a conflict of interest.
February 25, 2016 -- Changed the title of Dean of Admissions and Financial Aid to Vice President for Admissions and Financial Aid at footnote 3.