Giving the Right Way

More than $28 billion is given to higher education each year, and some of that is diverted to purposes the donors never intended, says Fred Fransen, executive director of the Center for Excellence in Higher Education (CEHE). Interviewed during a meeting of the Heritage Resource Bank in Atlanta, Fransen offered potential donors advice on how to avoid misuse of their money.

His Indianapolis-based organization focuses on donor intent as part of a broad goal of improving higher education. “Assuring that donors’ interests and values are carried out is a way of assuring excellence,” he said.

Donors’ wishes are frustrated in three major ways, according to Fransen:

1) A college or university accepts a gift although it is unable or unwilling to carry out the intentions of the donor. A famous example occurred in 1991, when Lee Bass, a Yale alumnus and wealthy Texan, gave $20 million to Yale to fund a program in Western civilization. Because of faculty resistance, such a program simply could not be put into effect. To the university’s credit, says Fransen, it gave the money back.

A less famous, but perhaps more typical, example was Mattie Kelly’s 1992 gift of her 13-acre waterfront homestead to Okaloosa-Walton Community College in Destin, Florida. Kelly expected the land to be the home of a cultural and environmental institute. Instead, the college sold the land to a housing developer.

2) A restricted gift accumulates so much money that it can no longer be used solely for the specified purpose, and the university wants to use it for something else.

Donors are sometimes partly to blame because they have focused the funds too narrowly. One illustration is the Harvard economics prize created by the will of David A. Wells, an economist who died in 1898.

The prize was for an annual $500 student prize, but the endowment on which it was based quickly became too large to pay for just a student prize. Harvard went to court to change the rules; today, the Wells funds support an endowed professorship as well as the prize.

3) A gift supports an entity within the university; the university decides to eliminate it.

For decades, students, alumni, and other listeners had supported radio station WCAL at St. Olaf College in Minnesota. Early on, in fact, it had been “rescued” by the financial support of the St. Olaf class of 1924. Recently, St. Olaf decided that the radio station should be sold to increase the college’s endowment, and in 2004 Minnesota Public Radio bought it for $10.5 million. A coalition of station supporters contended that the school didn’t have the right to sell it. The matter is still in the courts.

A broader example is the post-Katrina decision by Tulane University to eliminate its women’s affiliate, Newcomb College, and take over Newcomb’s endowment. Heirs of Josephine Louise Newcomb, who donated $3 million to the women’s college more than 100 years ago, are suing Tulane.

The most celebrated “donor intent” case currently in the courts is undoubtedly the Robertson vs. Princeton lawsuit, involving a fund of $900 million that has grown from a gift made to Princeton in 1961 by Charles and Marie Robertson.

The conflict, Fransen said, reflects all the above issues. The Robertson heirs argue that Princeton never intended to use the gift for the intended purpose (preparing students for international service in the federal government), the money has grown beyond the ability of the university to use it for the restricted purposes, and the university wants to merge the funds into the Princeton endowment. That case is in the courts.

So what should donors do to prevent such conflicts? Fransen offers four recommendations.

1) Make the agreement between the donor and the institution as clear as possible. This doesn’t necessarily mean that the donor has to pile up more restrictions; it may mean specifying the conditions under which the funds can revert to general university purposes.

2) Do not let gifts accumulate to the point where they can no longer be used solely for the stated purpose. As that point nears, it should be university policy to go back to the donor (or heirs) and resolve the problem, possibly by creating a new set of guidelines or shifting the excess funds to related programs.

3) Do not give universities (or other organizations) perpetual control of your funds. Fransen recommends short- to medium-term gifts, which might be as short as three or as long as forty years. To illustrate the forty-year gift, Fransen says that a donor might want to support a particular faculty member through his or her career; the erroneous step would be to create an endowed chair.

A donor should not try to fund a mission over too long a time because someone else with different values is likely to wrest control. If the project or idea is a good one, others will come along to support it, or something like it, in the future.

4) Provide for independent oversight of a university-managed project or program by setting up a separate advisory structure. In other words, from the beginning, stay involved.

Fransen is careful to say that donors, not just universities, make mistakes. Clearly, however, the onus is on the donor to do everything possible to make sure that his or her gift doesn’t run into the obstacles indicated here. CEHE, which is working with donors on gifts totaling more than $100 million, is a resource to help donors do that.