Philanthropists | Philanthropy

New Unrest on Campus as Donors Rebel

WALL STREET JOURNAL   |  April 23, 2009 by John Hechinger

Financially strapped colleges are angering their benefactors by selling school radio stations, auctioning Georgia O’Keeffe paintings and dipping into endowments for purposes their donors may not have intended.

In one previously undisclosed fight, Trinity College in Connecticut is facing government scrutiny for its plan to spend part of a $9 million endowment from Wall Street investing legend Shelby Cullom Davis.

Trinity’s Davis professor of business, Gerald Gunderson, says he believed the plan, which would have funded scholarships for international students, violated the wishes of the late Mr. Davis. He alerted the Connecticut attorney general’s office. Then, Mr. Gunderson said in notes submitted to the agency, Trinity’s president summoned him to the school’s cavernous Gothic conference room, where he called the professor a “scoundrel” and threatened not to reappoint him.

Trinity said some of Mr. Davis’s family approved of the plan but it is now coming up with a new one, and declined to discuss the meeting.

Battles such as the one at Trinity show why the nation’s universities may have trouble finding the cash for urgent needs in a deep recession. As schools struggle more than they have in decades to fund their core operations, many are looking to a rich pool of so-called restricted gifts—held in endowments whose donors often provide firm instructions on how their money should be spent.

In New Orleans, a lingering court battle pits Tulane University, which dissolved its all-female Newcomb College in 2006, against a descendent of Newcomb’s founder. St. Olaf College in Minnesota continues to fight a legal challenge by angry donors to WCAL, the college radio station the school sold five years ago.

Plans to sell artwork have also sparked conflict. Nashville’s Fisk University is in litigation over its plans to sell paintings given by Ms. O’Keeffe. In January, Brandeis University in Waltham, Mass., announced it would close its Rose Art Museum and sell its 7,000-piece collection, which includes paintings by Jasper Johns, Andy Warhol and Roy Lichtenstein, to pay faculty salaries and other expenses. The Rose family, which gave money to establish the museum, is upset by what it calls the potential “plundering” of the $350 million collection. Brandeis now says it plans to sell “a limited number” of pieces, if any, and expects to keep the museum open as a “teaching and exhibition gallery.”

Such disputes were easier to avoid during the economic boom. A rising stock market and deep-pocketed donors helped boost college endowments to $413 billion in the fiscal year that ended last June. Last year alone, donors to higher education gave a record $31.6 billion, according to the nonprofit Council for Aid to Education. Restricted gifts can account for as much as three-quarters of a university’s endowment. Schools rely on tuition, unrestricted gifts and often state and federal money to keep running.

Now the pie is shrinking. Colleges posted average investment losses of 23% from July 1 to Nov. 30, and markets have fallen more since. Administrators are bracing for the sharpest drop in giving since 1975, when contributions fell 3.6%, the biggest drop in half a century. Already, institutions are laying off employees, calling off tenure searches and scrapping construction plans.

“Schools are scrambling to find assets they can turn into cash,” says Frederic Fransen, an Indiana adviser to big donors who helps them structure gift terms to maximize control. “If you’ve given something that the university doesn’t believe is part of its core mission, those are the first things to go.”

Tension over the responsibility to honor “donor intent” has always been a thorn in the side of college presidents. While schools appreciate the generosity, narrow restrictions on gifts made decades ago can tie their hands when times are tight. Amid the recession, many schools, including Harvard University, the nation’s wealthiest, are making appeals for gifts they can deploy where they see the greatest need, especially toward financial aid. Molly Corbett Broad, president of the American Council on Education, which represents more than 1,600 colleges, says she expects more schools to seek leeway from donors of restricted gifts.

Politically conservative donors say they are also growing more concerned about their perception of colleges’ liberal drift, and are seeking stricter upfront restrictions on donations. In recent years, 20 states and the District of Columbia have changed their laws to make it easier for donors to enforce restrictions when gifts are made in the form of a charitable trust.

“There’s much greater interest among donors in enforcing gifts than there ever was,” says Marion Fremont-Smith, a senior research fellow at Harvard’s Hauser Center for Nonprofit Organizations.

Donors have also been emboldened by the high-profile lawsuit filed by members of the Robertson family against Princeton University, says Anne D. Neal, president of the nonprofit American Council of Trustees and Alumni. In 1961, eager to train graduate students for government service, the original donors gave money that grew into a $700 million fund at the Woodrow Wilson School of Public and International Affairs. The current generation of the family challenged the school’s use of the money. Princeton said it had been faithful to the gift’s intent but agreed last year to pay $100 million to settle the case.

The clash over the Davis gift has simmered on Trinity’s quiet campus of 2,200 students. Founded in 1823, the liberal-arts college has Episcopalian roots, as evident in its Gothic architecture patterned after British universities.

In 1976, the school accepted a $750,000 gift from Mr. Davis, founder of a New York money-management firm who made a $900 million fortune investing in insurance stocks. Mr. Davis was a major benefactor to Wellesley College, Columbia University, Tufts University and his own alma mater, Princeton. But he had a personal connection to Trinity: His son-in-law was a graduate of the school and its campus overlooks downtown Hartford, an insurance hub.

In 1981, Trinity President Theodore D. Lockwood wrote to Mr. Davis that the fund, by then $1.6 million, was big enough to be tapped to create a Shelby Cullom Davis Professorship of American Business and Economic Enterprise. The letter listed several related activities, such as campus visits from business leaders. Mr. Lockwood also sought flexibility to use the money as the school saw fit “as conditions evolved and opportunities arose.”

In a return letter, Mr. Davis approved the professorship and activities Mr. Lockwood specified. But he rejected any other leeway. “It is my wish that the funds and income from the Endowment be used for the various purposes you have described…and for no other purposes.”

Trinity tapped Mr. Gunderson, an economic historian who shared Mr. Davis’s conservative political philosophy, to be the Davis professor.

The Davis fund grew beyond the needs of meeting Mr. Gunderson’s $155,000-a-year salary. By 2007, it reached $13.5 million, or 3% of Trinity’s total endowment, and generated more than $500,000 a year in income. After recent market declines, the fund is now estimated at $9 million.

Mr. Gunderson, 68 years old, says he complained for years that the school was starving the program and had rejected his frequent requests to add another full-time professor and a business-executive-in-residence program. The letter from Mr. Lockwood provides for the creation of a single professorship, but it doesn’t explicitly rule out adding another.

Mr. Gunderson says he suspects that liberal academics at Trinity have blocked these plans and have little interest in Mr. Davis’s vision. Mr. Gunderson, who is treasurer of the free-market nonprofit Yankee Institute, says some professors opposed his position in the 1970s in an economics department whose courses often stressed the downside of capitalism. He notes that the school, like many others, has programs in Progressive American Social Movements and Women, Gender and Sexuality.

“They are undercutting not just my program,” he says. “They are undercutting my view of the world, too.”

Ronald Joyce, Trinity’s vice president for advancement, says the school is open to all political views and that it believes the terms of the original gift prevent adding another professor. “We’re complying with the letter and the intent of Mr. Davis’s ambitions,” he says.

Last April, Trinity’s current president, James F. Jones Jr., sent Mr. Gunderson an email saying he had been looking for ways to use the “enormous” Davis fund to “benefit the College in ways different from merely watching the endowment continue to balloon because of the original strictures.” Mr. Jones said he had approached some Davis family members about using the money for financial aid for foreign students through another program the family had helped fund.

Mr. Gunderson replied that the college had entered into a binding contract with Shelby Cullom Davis, not his family. “Simply wishing things were different or saying that someone thinks it is a good idea is not sufficient and will not stand a legal challenge,” he wrote.

Following that exchange, Kathryn W. Davis, the donor’s 102-year-old widow, signed a document endorsing the use of her husband’s gift for the scholarships. But in an interview, she said the school hadn’t explained the restrictions her husband had outlined in his 1981 letter to the school, and said the endowment “should be used as my husband wished.”

The couple’s son, Shelby M.C. Davis, and grandson, Christopher C. Davis, both successful money managers, signed off on the fund’s use for scholarships.

Diana Davis Spencer, the donor’s daughter, says she only recently heard about the plan from Mr. Gunderson and is angry that Trinity didn’t contact her. Ms. Spencer, whose own philanthropy focuses on entrepreneurship, says her father would have opposed any change to the endowment’s mission. The university is “morally incorrect” and its plan “undermines donors’ confidence,” she says.

Trinity’s Mr. Joyce says the school believed key members of the family had been briefed.

After the April email exchange, Mr. Gunderson’s lawyer contacted the Connecticut attorney general’s office, which began its review. In the fall, Mr. Gunderson looked through financial data that the school had filed with the attorney general and noticed that about $200,000 of endowment money had been used to fund an internship program for college students over the past five years.

Mr. Gunderson says he was concerned in part because the school, facing a budget crunch, had tapped other restricted endowment money in 2004 but returned it after a faculty revolt. Trinity confirms this episode.

Mr. Joyce said Trinity this month reimbursed the Davis endowment for $191,337 spent on the internship program, though he said the original agreement still permits the school to spend a small amount annually on the initiative.

On Oct. 20, Mr. Jones, Trinity’s president, called the professor to the conference-room meeting. According to Mr. Gunderson’s notes, submitted to the attorney general, Mr. Jones called the professor “a liar and a bully,” threatened not to reappoint him and told him not speak to any other administrators. The notes said the president insisted on approving future spending from the Davis fund “down to a box of paperclips.”

Mr. Joyce, who said Mr. Jones wouldn’t be available for comment, declined to discuss the meeting. Mr. Joyce says he would be “very surprised” if Mr. Gunderson’s contract weren’t renewed when it comes up in July 2010.

In a February letter, the attorney general’s office told Trinity it could find no evidence that Mr. Davis intended the college or his family to have discretion to direct income from the endowment to purposes “other than the study and promotion of the economic theories of the free enterprise system.”

Mr. Joyce says Trinity scuttled its scholarship plan. The school intends to submit a new proposal to the attorney general and the Davis family on how it would spend excess Davis funds.

The attorney general, Richard Blumenthal, says he will consider the proposal. But he cautioned that colleges, despite financial pressures, can’t stray from donors’ intent: “There’s a vastly increasing temptation for schools to fill gaps or even launch new initiatives using money that was meant for another purpose.”


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