An Unsettling Conclusion

Robertson v. Princeton, a closely watched donor-intent court case, was settled last week. The settlement, with no clear winners, sends a message to major donors: watch out when you give your money to a college or university.

For the rest of us, it has an important message as well.

That message is—how shall I say it?—that prestigious colleges today are not like loving puppies that will roll over when you reward them. They are more like the 800-pound gorilla that sleeps wherever he wants. Thus, in dealing with them, we should not count on beneficent motives but, rather, expect their resources to be expended to pursue the self-interested goals of the institution’s leadership.

The basic issue in the case was whether the $35 million donated to Princeton by Charles and Marie Robertson in 1961 (said to be the biggest donation to higher education at the time) had been used as the donors intended. Or was Princeton diverting the funds to other purposes?

And if so, did Princeton have the right to do so as part of its institutional academic freedom?

What made the case so visible (in spite of some arcane aspects) was the fact that the initial gift had grown to nearly $900 million at the peak of the market. If the Robertson family had won a total victory, that money might have reverted to their control.

But such an outcome was far from certain. It took six years of legal activity even to reach the point of trial, scheduled to start in January. (Someone on the Robertson side said Princeton had “briefed them to death”). The Robertsons had spent $40 million.

In the settlement, Princeton agreed to pay those fees. In addition, Princeton will provide the family with $50 million (plus interest, but not starting until 2012) to launch a new foundation to pursue the Robertsons’ goals of educating graduate students for U. S. government service, especially in international affairs (the purpose of the original gift). Princeton keeps the bulk of the funds, however.

Fred Fransen, head of Donor Advising, Research and Education Services, a firm that advises philanthropic donors, says that he is sorry the case didn’t go to trial. It might have delineated the rights of donors and placed some limitations on the discretion of universities.

In addition, he suggests, it would have exposed Princeton’s practices, some of which could have been embarrassing.

Not only were there charges of inappropriate expenditures (see George Leef’s 2006 article) but in the mid-1990s a review by Paul Volcker concluded that the graduate school had become mostly an adjunct to other Princeton departments. And, said Volcker, its program was “little directed toward the management of government as opposed to vague public policy.”

But Princeton defends its stewardship of the Woodrow Wilson graduate program on the grounds that the world is changing. The Robertson family’s insistence that the school just prepare graduate students for government service was too narrow. In a statement defending its management, Princeton stated that the United States requires “effective leadership not only within the government, but in the many organizations that collaborate with the government in carrying out its objectives.”

If the case had gone to trial, the final decision (costing an additional $40 million, according to Princeton’s estimates) might have had only limited impact beyond the lessons of the settlement. The Robertson Foundation was organized as a particular kind of IRS-approved foundation (a Type 1 supporting foundation), a structure that gave Princeton effective control.

Future donors to universities will undoubtedly avoid that structure. More broadly, the settlement suggests that if a donor’s vision does not have support among a significant segment of the faculty, it may well be doomed. Some would-be donors may be deterred from giving at all.

Shirley Tilghman, president of Princeton, gave a hint of the hardball nature of the Robertson case in an interview with the New York Times. She commented that the foundation that the Robertsons had used to pay the legal fees was low on funds. The family, she said, “had essentially spent out the Banbury Fund, and were looking forward to a six- to nine-month trial which they’d have to pay for out of their own pockets.” She added, “I think there is a clear cause and effect there.”

In other words, the cost of the trial had stopped the Robertsons, not a recognition that they would lose on the merits—just a lack of cash. That did not seem to bother President Tilghman.

It is often easy to think of universities as somehow different from profit-making businesses, motivated by lofty goals rather than grubbing for money. But are they? Given Princeton’s enormous resources, it could probably outlast any legal challenges, even by heirs to the Atlantic & Pacific Tea Company, which the Robertsons are. The case should remind us that those who run universities are as self-interested as anyone else and that universities are very big businesses indeed.