In a communication with alumni earlier this summer, Chairman of the Board Ed Haldeman expressed his personal opinion that Dartmouth’s alumni are “confused” about the 1891 Agreement that gave alumni the right to elect half of the Dartmouth Board of Trustees. He made two basic arguments: first, that there was, in fact, no “agreement,” and second, that to the extent that there was an agreement it did not provide for alumni to elect half the Board going forward, but only to elect the next five members of the Board.
In a column published in The Dartmouth entitled “Honoring the 1891 Agreement” I expressed my own opinion: “And, in fact, it is an agreement, it does contain ‘the concept of parity,’ and it does promise alumni the right to elect half of the Board.”
In a recent essay, Trustee Emeritus Kate Stith-Cabranes’73 provides her own commentary. If I read her essay correctly, she does not disagree with my conclusions regarding Chairman Haldeman’s second argument—-whether, if there was an agreement, it provided for the alumni to elect half of the non-ex officio members of the Board, or whether it was understood that right extended beyond the election of the first Alumni Trustees to empower the alumni to choose their “successors” as well. I will assume, therefore, that if it is accepted that the Agreement provided for ongoing parity between the number of Charter and Alumni Trustees and that Professor Stith-Cabranes’s argument is limited to the question of whether the Board has a legal obligation to honor those promises.
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As Professor Stith-Cabranes seems aware, her “response” is actually a comment on an argument that I never made in my essay—-whether the 1891 Agreement was also a legally-binding “contract.” I did not characterize or refer to the 1891 Agreement as a “contract” but as an “agreement.” The difference between an “agreement” and a “contract” is important. According to the Restatement (2d) of Contracts Section 3, “an agreement is a manifestation of mutual assent on the part of two or more persons.” An “agreement” may or may not also be a legally-enforceable contract, and in fact, “agreement” is often used interchangeably with the idea of a “promise.” Professor Stith-Cabranes, therefore, misrepresents my position in a legally-relevant way.
My use of the term “agreement” thus was deliberate, even if Professor Stith-Cabranes confuses the two and has caused others to believe that I was making a legal argument as well. In fact, I didn’t make any legal arguments in my column—I simply followed Chairman Haldeman’s precedent and expressed my personal opinion on the meaning of the 1891 Agreement and moral and fiduciary duties that I believe it entails, wholly independent of the question as to the legal status of the agreement.
As far as I’m concerned, that is sufficient. In exercising my fiduciary duties as a Trustee, I believe that the Board should honor the promises made in the 1891 Agreement and recognize the benefits that have been reaped from this century-long governance partnership. Others, such as Professor Stith-Cabranes, apparently believe that the Board’s fiduciary duties are coterminous only with the minimal obligations imposed by law. If so, then it is crucial that the Board accurately understand the legal mandates of the 1891 Agreement. Public discussion during the past week and even some emails that I have received, indicate that many consider Professor Stith-Cabranes’s analysis to be sound. And even though I purposely eschewed a legal argument in my first column, her mischaracterization of my argument has led many to believe that I made such an argument.
As a sitting Trustee, I am constrained from publicly expressing any legal conclusions about 1891 Agreement. Moreover, in this situation there are many unresolved factual questions that make it extremely difficult to predict whether a court would impose legal liability for a breach of the agreement. But one doesn’t need an extensive factual record to identify the errors in Professor Stith-Cabranes’s legal argument or to recognize that any litigation that might result would be expensive, fractious, protracted, and counterproductive.
Professor Stith-Cabranes offers several arguments to support her conclusion that the 1891 Agreement was not a “contract.” But each of her arguments is based on either a simple misunderstanding of the applicable law, a misunderstanding of the relevant legal argument, or a misunderstanding of the relevant historical facts. Thus, although I am constrained from expressing my opinion publicly as to whether the 1891 Agreement is a “contract,” Professor Stith-Cabranes manifestly has failed to demonstrate that it is not a contract. Consider each argument in turn.
First, she states that for there to be a contract, a court must be able “to determine whether a party is in breach and, if so, the amount of damages.” This is simply an incorrect statement of law—as Section 1 of the Restatement (2d) of Contracts states that a contract is “a promise … for the breach of which the law gives a remedy or the performance of which the law in some way recognizes as a duty.” Damages, of course, are not the only “remedies” available for a breach of contract or an anticipated breach of contract; injunctive relief and specific performance are available as well. Indeed, it seems obvious that if current matters were to come to a head, injunctive relief would be precisely the type of remedy that likely would be sought.
Second, Professor Stith-Cabranes argues that the Board cannot delegate the power to elect or nominate Trustees to a third party. Professor Stith-Cabranes notes that the “Trustees have ultimate authority and responsibility for selecting their successors. No resolution of the Board can deprive them of this power and responsibility.” This is a truism.
But it also is irrelevant to a discussion of the 1891 Agreement, which has nothing to do with the Charter or the “ultimate authority and responsibility” of the Trustees to select their successors. The 1891 Agreement does nothing to deprive the Board of its ultimate responsibility to elect Trustees, but merely Association of Alumni to nominate trustees specifies the limited conditions under which the Board is may reject those nominees.
Would it be permissible for the Board to adopt a bylaw that effectively reproduced the terms of the 1891 Agreement—i.e., to allow the Board to retain a formal power of election, but to delegate to the Association of Alumni the exclusive power of nominating a “suitable person” for one-half of the Trustee seats, to commit the Board to the election of the AoA’s choice, and finally, to commit to not amending this bylaw without the agreement of the elected leadership of the AoA? Of course it would. Such a bylaw would not violate the College charter, would violate no state or federal law, would be perfectly consistent with the Board’s fiduciary duties, and, indeed, Professor Stith-Cabranes provides no reason whatsoever to suspect that it would be invalid. And although a board generally retains the right to amend corporate bylaws, the board can also voluntarily limit its rights to amend in whole or in part by those same bylaws or by custom or course of conduct. Indeed, even written bylaws can be informally modified or amended by custom or a course of conduct. See Franklin v. SKF USA Inc., 126 F. Supp. 2d 911 (E.D. Pa. 2000). The Board’s power to modify its bylaws is especially limited in situations where cognizable third-party interests are implicated. In fact, under New Hampshire corporate law, a corporation can even adopt bylaws that entirely divest the board of authority to amend its bylaws and repose that authority exclusively in the shareholders.
Dartmouth’s Board has no formal bylaws. But in place of bylaws, the Board is governed by its various minutes and resolutions—such as the 1891 resolutions—which have the same legal status as bylaws. So, in fact, the Board’s 1891 resolutions, which Professor Stith-Cabranes so facilely dismisses, are according to the Board’s own rules the functional and legal equivalent of bylaws. Thus, the resolutions would be subject to the same analysis just described for formal bylaws. Professor Stith-Cabranes notes that the Board typically can repeal or amend its prior resolutions with impunity. That is correct—as a general rule.
But the reason why this is correct as a general rule is because the overwhelming number of Board resolutions and practices do not implicate the cognizable interests of third parties. The general rule does not apply, however, when a proposed amendment implicates the rights of third parties. Where that is the case, the Board’s general power of amendment is tightly restricted by law. This is especially so in a situation such as the current one, in which the facts suggest that there not only has been over a century of unbroken acquiescence by the Board in the obligations of the 1891 Agreement, but also a practice grounded in an identifiable written agreement, implicitly ratified on several occasions when the Board has expanded its size, and in which the board has not merely passively acquiesced but affirmatively held out to alumni in order to encourage their good-faith reliance.
Nor is it illogical to enable a third-party, such as the alumni, to nominate trustees. The College Charter itself delegates to the people of New Hampshire the power to elect the state Governor as an ex officio member of the Board. Despite concerns expressed by some that the process by which this particular ex officio Trustee is elected have become too “expensive” and “divisive,” to date the Governance Committee has refrained from lecturing the people of New Hampshire on the supposed deficiencies of their democratically-chosen electoral processes. Instead, the Governance Committee has reserved its criticisms for the processes democratically chosen—and reaffirmed by a clear majority last fall—for for electing Alumni Trustees.
Professor Stith-Cabranes’s belief that the 1891 Agreement contradicts the Charter thus rests on a fundamental misunderstanding of the actual terms and effect of the 1891 Agreement, exacerbated by a fundamental misunderstanding of the legal status of the resolutions adopted therein and the Board’s authority to change them. Thus, her argument provides no basis for doubting the efficacy of the 1891 Agreement as it actually exists and has been implemented over time.
Third, Professor Stith-Cabranes notes that the Board has been expanded twice since the 1891 Agreement without seeking the approval of the Association of Alumni. But, as I noted in my original column, neither of these expansions fundamentally threatened the principle of parity between Alumni and Charter Trustees. In fact, by ratifying the principle of parity, these expansions confirm the traditional understanding of the 1891 Agreement as providing for parity.
Fourth, Professor Stith-Cabranes argues that there could be no valid reliance interest by some or all alumni based on the 1891 Agreement. She first argues that there could be no reliance on the 1891 Agreement specifically because it superseded a prior plan for alumni election of Trustees that had been adopted in 1876. She then goes on to argue that there never could be a valid reliance interest on any Board resolution more generally, citing as an example the decision of the Board to adopt a new resolution to become coeducational, thereby reversing a previous board resolution, which might be thought to defeat the reliance interest of some alumni. Although she seems to actually have the applicable law correct here, on this issue her conclusions appear to be based on a faulty or incomplete understanding of the historical facts.
In 1876 the Trustees, through President Smith, proposed a plan for “Alumni Suffrage,” which was jointly adopted by both the Board and the Association of Alumni. The 1876 plan provided for an attenuated form of alumni election of three trustees, but immediately evolved into de facto direct suffrage. This plan was superseded by the 1891 Agreement. She takes this course of action as evidencing that the Board has the power to transcend its own resolutions with impunity and without regard to any reliance interests of third parties that may have accrued, a principle which purportedly applies to the 1891 Agreement as well.
But this inference is incorrect. Paragraph II.1st. of the 1876 plan specifically provided, “This arrangement may be terminated by vote of either the Association or the Board, if at any future time it shall be deemed desirable by either.” Thus, the express language of the 1876 plan would defeat any claim of reliance when that plan was superseded by the 1891 Agreement.
The 1891 Agreement, by contrast, is silent on the matter of termination and reserves no power of unilateral termination by either party. In contrast to the 1876 plan, this silence indicates that the 1891 Agreement was intended to be binding on both parties could be superseded only by the joint agreement of both parties. In fact, Paragraph 3 of the jointly-adopted resolutions that comprise the 1891 Agreement expressly provides, “That this plan of nomination shall be taken and held to supersede the plan heretofore adopted in 1876.” Thus, this historical episode actually demonstrates that the Board and alumni of the time believed that the 1891 Agreement could be superseded or amended only by joint agreement—thereby proving the exact opposite of Professor Stith-Cabranes’s proffered inference. This implication is reinforced by the fact that even though either party could have terminated the 1876 plan unilaterally, they instead chose to modify the plan through their mutual agreement reached after joint negotiations (an alternative also provided for under Paragraph II.2d. of the 1876 plan).
Thus, just as the language and structure of the 1876 plan makes clear that both parties reserved a unilateral power of termination, thereby invalidating any reliance claim, the language and structure of 1891 Agreement is equally clear that it was to be perpetual and binding on both parties unless the Board and the Association of Alumni decided by mutual agreement to transcend the 1891 Agreement with a new agreement. That the Board has for over a century held itself out as acting in compliance with the 1891 Agreement and has induced good-faith reliance by Dartmouth’s alumni on its actions further reinforces this understanding. If Professor Stith-Cabranes has actually read the 1876 plan, it is not clear why she ignores this crucial difference in the plain language of the two documents.
The 1891 Agreement, unlike the 1876 plan, thus permits amendment only by the joint agreement of both parties. Today’s Association of Alumni has stated quite clearly that it will oppose any oppose any attempts to “violate, restrict, abridge, or dilute” the rights of alumni reached in the 1891 Agreement. Unlike the collaborative process that resulted in the 1891 Agreement and the joint decision to supersede the earlier pact, however, the Board this time has implied that it believes that it has the power to act unilaterally and impose by fiat any decisions that it reaches.
Professor Stith-Cabranes also argues that the fact that the Board can unilaterally modify College policy decisions without implicating alumni reliance somehow demonstrates that the Board can unilaterally modify the 1891 Agreement as well. But this too is irrelevant. As just noted, the significance of the 1891 Agreement was that it was a joint agreement between the Association of Alumni and the Trustees to address a particular point—the issue of the composition of the Board. That the Trustees had the power to subsequently change substantive policies not only is consistent with the 1891 Agreement, it is precisely the point of the 1891 Agreement. It is precisely because these decisions are made by the Board that the alumni demanded representation on the Board; in fact, the alumni wanted new blood on the Board precisely to amend and modernize the unduly conservative policies of the feckless Bartlett administration.
Contrary to Professor Stith-Cabranes’s insinuation, the 1891 Agreement, the election of Trustees, and principle of parity were all adopted precisely so that the Trustees could make substantive reforms to the College, such as modernizing the curriculum in the 1890s or enacting coeducation eighty years later.
Moreover, no one doubts that an alumnus could preserve his or her reliance interest in the adoption or retention of a particular policy by entering into a binding contract with the College making a gift contingent on use for only limited purposes (say, student financial aid) or on compliance with some substantive policy demand—such as adopting (or rejecting coeducation), eliminating (or retaining) the Indian symbol, or spending the money only on a particular academic enterprise or on the athletic department. But the 1891 Agreement has nothing to do with the adoption of specific substantive policies; it simply addresses the alumni’s role in College governance.
And governance is peculiarly bound up with monetary donations in a way that particular discrete issues at the College are not, as both a matter of logic and of Dartmouth’s actual history. Since the American Revolution we have all understood the slogan of “No taxation without representation” which has been reissued in the contemporary Dartmouth context as “No donations without representation.” Dartmouth’s revolutionaries of 1891 did not demand the immediate adoption of substantive policies or the addition of particular individuals to the board, but instead simply demanded more democratic governance of the College before they would seek increased financial support for the College.
Fifth, Professor Stith-Cabranes argues that there is no evidence of valid consideration after 1869 that might support a contract. She notes that in 1869 alumni leaders apparently offered a quid pro quo, offering to “institute a campaign to raise $200,000” if they were given representation on the Board, and the Board rejected this offer. It appears that she implicitly acknowledges that these promises of efforts to try to raise money would constitute valid consideration for a bargain (otherwise professional fund-raisers or lobbyists would not be entitled to any payment at all for their efforts unless they were actually successful). She then claims that “nothing in the later history of Dartmouth suggests such a quid pro quo regarding alumni nomination of Trustees.”
But the rejection of this initial offer in 1869 by the Board was merely the beginning, not the end of the story. Professor Stith-Cabranes’s sweeping conclusion that “nothing in the later history of Dartmouth suggests such a quid pro quo” apparently relies solely on Leon Burr Richardson’s History of Dartmouth College and perhaps other unmentioned secondary sources. Unlike Professor Stith-Cabranes, however, AoA Second Vice-President Professor Frank Gado ’58 has examined the dozens of boxes of primary materials and correspondence in Rauner Library related to these matters and concludes that Professor Stith-Cabranes’s conclusion is premature. Gado finds that, in fact, from 1869 on the questions of financial support and alumni representation on the Board were intimately tied together and that the connection was well-understood implicitly by both sides. The alumni consistently demanded direct representation on the Board and the Board steadfastly refused to yield to alumni more than an advisory role in College governance.
In 1876, of course, the Board finally yielded an attenuated form of alumni suffrage, but this did little to quell alumni demands for more seats on the Board and more direct control over their election (which presumably explains why the Association, as well as the Trustees, insisted on a right of termination in the 1876 agreement). In 1887 and then in 1890 the Board reached out to alumni leaders with requests for financial support. In both cases, the Association of Alumni subsequently and proximately responded with demands for direct election of alumni representation to the Board before they would undertake to raise funds for the College. Each round of negotiations was initiated by the Board due to its chronic need for increased financial support. This to-and-fro process culminated in the 1891 Agreement.
As in 1869, if alumni leaders promised to take acts or permit acts to be taken to raise funds on behalf of the College that they otherwise would not have, this certainly could provide valid consideration to support a contract (a point that Professor Stith-Cabranes seems to concede). Did alumni leaders implicitly promise in 1891 to exert efforts, not to oppose efforts, or to “institute a campaign” to raise funds in exchange for alumni representation on the Board? The question here is a factual one. Perhaps Professor Stith-Cabranes is correct that after over twenty years of abeyance and staunch resistance to allowing the alumni to directly elect half of the Board, one day the Board simply woke up and decided to give the alumni the right to select half of the Board while asking and expecting nothing in return from alumni. And this even though the entire impetus for initiating such talks had been the repeated requests of Board for greater assistance in securing financial support and the alumni had previously offered such assistance in exchange for Board representation.
But this scenario is not very plausible. Nor is it consistent with the actual historical record. That such an exchange may have been implicit rather than explicit in 1891, of course, is irrelevant as a legal matter.
The historical record thus seems clear that from 1869 on the concepts of alumni representation and alumni support were intimately intertwined, as Professor Gado concludes from his exhaustive study. What then is the basis of Stith-Cabranes’s claim that there is “nothing” in the historical record on point? We don’t know, because she makes no mention of these historical events, nor does she indicate that she is even aware of them. Nor does she provide any explanation for her unlikely story that in 1891 the Board for some unspecified reason suddenly refused longstanding alumni offers of financial support and assistance in securing financial support, even after virtually begging the alumni for such assistance for decades.
Thus it is not clear whether her categorical statement that there is “nothing” in the historical record to suggest such a bargain is based on an assessment of this history or simple ignorance of it. Because some of these historical events are not discussed in Richardson’s history but seemingly would require physical inspection of the primary sources in Rauner Library, it is not clear whether Professor Stith-Cabranes is even aware of their existence. But these discussions surely would be relevant to a legal examination of the question and seemingly would require extensive factual development in Court to be resolved. If she has not examined this historical record, then her categorical statement that there is “nothing” in the historical record on point is plainly unjustified. On the other hand, if she has examined these historical materials and is aware of these activities, then her dismissal that there is “nothing” in the historical record on point seems equally unjustified. Clarification of the basis of her factual assertion seems appropriate. Regardless, this would likely require a fact-intensive inquiry by a Court to resolve.
With respect to each of these arguments, therefore, Professor Stith-Cabranes misstates the actual law, misunderstands the inferences to be drawn from certain historical events, or fails to recognize that resolution of the matter will require complex and extended factual analysis. Whether the 1891 Agreement is a contract binding at law is a legal question that is much more complex and fact-intensive than Professor Stith-Cabranes appears to recognize. I stress again that I am expressing no legal opinion on any of these issues. I also am expressing no opinion on whether the College should undertake such litigation or whether it would prevail if it did. It is obvious, however, that a decision to renege on the 1891 Agreement likely would embroil the College in protracted, expensive, fractious, and risky litigation with no obvious benefit to Dartmouth.
But even assuming the College would prevail at the end of any such litigation, I have a more fundamental disagreement with Professor Stith-Cabranes. In the end, her argument boils down to the proposition that even if the Board entered into an agreement with the Association of Alumni in 1891 promising alumni the right to elect half the Board and to provide a meaningful role in College governance, if a Court holds that agreement not to be a legally-binding contract then the Board has no further moral or other obligations to the alumni.
On this point, I respectfully disagree.
As I stated in my original column, “The Board should honor the spirit and wisdom of this partnership and appreciate the benefits it has produced, rather than treating alumni as adversarial parties to an arms-length contractual negotiation governed by only the minimum of what may be legally mandated. To change this tradition would be to change Dartmouth itself.”
Regardless of the legal technicalities involved, it is absolutely clear that in 1891 Dartmouth’s Board promised Dartmouth’s alumni the right to elect half of the Board of Trustees and that this pact has served the College well for over a century. As noted at the outset, even Professor Stith-Cabranes seems to admit that the Board promised parity in the 1891 Agreement, arguing only that Board retained the right to renege on that promise whenever it feels like it.
I have taught Corporations Law for many years and I am not aware of any doctrine that mandates that my fiduciary duties as a Trustee require me to be bound only by the bare minimum required by law. Other current and former Trustees such as Professor Stith-Cabranes apparently disagree, and believe that Dartmouth’s Board should be constrained by only the bare technical minimum that may be required by contract law. If Board were to adopt this radical doctrine that its fiduciary duties are defined coterminously with the minimum duties imposed by law, then Dartmouth will have to reevaluate its policies in many areas where it imposes obligations on itself that exceed the bare minimum required by law. For instance, the College’s commitment to environmentally-friendly policies far exceeds the absolute minimum required by law, a decision that the College justifies on moral and ethical grounds. And just last year the Board voted on to expand its nondiscrimination policy to go beyond that minimally required by law, voluntarily exposing the College to legal liability. If Professor Stith-Cabranes is correct, then these policies and many others are plainly illegal and in violation of the Trustees’ fiduciary duties to the College.
I disagree with this view and I believe that the Board’s promise—legal wrangling aside—is one that the Board is honor-bound to keep and that keeping this promise would in no way violate my fiduciary duties to the College.
This principle applies to any action that would clearly violate the 1891 Agreement, such as ending the tradition of parity or tampering with the alumni’s power to control their own elections. But it would also apply to any actions that would violate the governance partnership that it creates between alumni and the Board, such as by adopting a two-tiered Board with a small executive committee of loyalists hand-picked by the College president and a larger group of largely powerless “overseers.” Such a scheme would violate the intent of the 1891 Agreement by effectively empowering the College president to control the Board, thereby emasculating the alumni’s independent voice in College governance intended by the 1891 Agreement. The Association of Alumni wisely rejected exactly such a toothless scheme repeatedly during the nineteenth century, noting in the Minutes of the 1891 AoA meeting, “[A] mere advisory board with no rights, or the mere privilege of occasionally making a nomination of a possible trustee, would be too uncertain, contingent and remote a right, to excite and keep up that clear, constant, active interest of the Alumni, which is needed, and which it was the duty of your Committee to secure, if possible.”
Dartmouth’s alumni have honored their end of this bargain in good-faith for over a century through their generosity and legendary loyalty-—without ever asking whether this was all legally compelled. I believe that the Board similarly should live up to its end of the bargain. In exercising our fiduciary duties, I believe that the Board should honor the promises made in the 1891 Agreement and recognize that the governance partnership it creates has served Dartmouth well for over a century and continues to serve us well today. Others, such as Professor Stith-Cabranes, apparently believe that the Board’s fiduciary duties are coterminous with the minimal obligations imposed by law. If so, then it is crucial that the Board accurately understand the legal mandates of the 1891 Agreement and to recognize the implications of such a radical doctrine. Failure to do so could cause the Board to take a disastrous misstep that could embroil the College in expensive and fractious litigation.
The views expressed herein are mine alone and do not necessarily reflect the views of Dartmouth College or the Board of Trustees.