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For colleges, fraternity woes can cost big bucks

It's been a bad month for the nation's university Greek fraternity system. The last few weeks saw allegations of racist slurs at a University of Oklahoma fraternity, suspension of a Penn State frat over a secret Facebook page with posted photos of nude women, and racist and sexist email from a University of Maryland fraternity member.

Whether the issue is sexual harassment and assault, racism, hazing and bullying, or even accidents from drinking, such incidents raise numerous moral, ethical and social issues for the public. Universities and colleges have an additional aspect they must consider: business.

These higher-education corporations try to balance educational demands, liability, reputation and regulatory compliance. The mix governs how they respond as well as try to anticipate problems with populations dominated by people in, or just past, adolescence. Even if students are legally adults, they're still not yet at the most responsible stage of development.

Penn State fraternity suspended for nude pictures on Facebook 00:28

Campus problems aren't new

The result is relatively continuous dangerous or questionable behavior, rather than a rash of problems that have sprung from nowhere. "I don't think the numbers [of sexual misconduct cases on campuses] have increased," Leta Finch, practice leader for higher education at Aon Risk Solutions, told CBS MoneyWatch. "I think reporting has increased, and that's a result of awareness." Regulatory requirements have made education about the topic and official reporting mandatory.

To see how these serious problems aren't a recent development, just look at hazing, often associated with fraternities but also found in athletic teams and even school bands. According to Finch, usually one student on some campus in the U.S. dies each year from hazing. "It's tragic," she said.

For administrators and university lawyers, the problems have implications for the business aside from the moral or ethical ones. A school has to worry about potential liability and damage to its reputation and that of its employees. That's because any lawsuit will want to include the institution, given that it will have the deepest pockets for a judgment or settlement.

Former OU SAE fraternity house chef speaks out on racist video chant 00:41

Questions of liability are complex and governed by two basic questions. One is whether the officials knew, or should have known, of any ongoing practices or behavior that could have warned of potential problems. The other is if the school did anything to prevent a problem or to deal with it after it became obvious.

If the answer to the first question is yes and the second is no, someone may "have a good lawsuit," according to Page Pate of Atlanta's Pate Law Firm. "From a liability standpoint, if the university becomes aware of any conduct like this, they have to take action."

Penn State's experience with the alleged sexual assaults by former assistant football coach Jerry Sandusky is a perfect example. Reportedly, the institution had many complaints but did nothing. Ultimately, not only was there a massive scandal and lawsuits, but Penn State President Graham Spanier had to resign, and athletic director Tim Curley and legendary head football coach Joe Paterno were fired.

Fault is complicated

However simple the questions may seem, answering them is complicated. A fraternity that owns its own building off-campus can offer more legal distance to the school than one on-campus or on grounds monitored by university security or police. But the school still might have a fraternity council or advisors that suggest some degree of oversight and, therefore, responsibility.

Michigan fraternity, sorority trashes ski resort 00:33

"You look at the micro of any particular situation, and it's very hard to think of a situation in which a good lawyer can't find a hook to name the university," said John Myers, chair of the higher education group at Philadelphia law firm Montgomery McCracken Walker & Rhoads.

The potential liability is one reason that university officials will react -- and possibly overreact -- to events. For example, the University of Oklahoma expelled two students identified in the video of racist chanting and shut down the local Sigma Alpha Epsilon fraternity chapter.

The action is an example of the peculiar combination of business and political pressures that come to bear on how schools react, said Stephen Trachtenberg, a partner of the law firm Rimon and president emeritus of George Washington University.

University of Oklahoma president David Boren "is thinking like a politician, and he has to position himself to the left of any potential critics, so he expels the students," Trachtenberg said. "He wants to anticipate his critics and protect himself." Boren covered his actions by saying the students and fraternity could make use of an appeals process. "Meanwhile, he takes dramatic action and so anticipates people saying the university isn't acting and [that] he's not doing what he should be doing."

If an appeal happens and is successful? "He now says, 'I have to do what the court tells me,'" said Trachtenberg.

As some have suggested, the University of Oklahoma could be accused of violating students' First Amendment free speech rights because it's a public institution. Should the students choose to sue the school and prevail, culminating in a judgment against the university, "that's a cost of doing business," Trachtenberg said. "It's not going to be a budget-breaking number, and it will be imposed on him [by a court]," allowing Boren to deflect criticism.

And yet, with the recent run of high-profile cases and long-standing history of periodic problems, some question whether the Greek system of fraternities and sororities has outlived its usefulness. Williams College in Massachusetts abolished them back in the 1960s.

Why keep frats?

"Why are we in the business of Greek life?" said Scott Schneider, head of the higher education practice group at law firm Fisher & Phillips and a former associate general counsel at Tulane University in New Orleans. "I'm asking myself two questions: Can I control this, as an institution, and, if I can't, why are we involved in this process?"

Aside from answers of tradition and the positive roles that fraternities and sororities can play in the lives of college students, there's another consideration: money. These organizations provide housing that the school would otherwise be required to supply. "That relieves them of [some] capital expenses," Trachtenberg said.

And then there's fundraising. "Fraternity and sorority members tend, interestingly enough, to be far more generous to their alma maters," he said. And so, in yet another way, dealing with these groups is another necessary cost of doing business for colleges and universities.

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