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College gifts now coming with strings attached

By Seth Lubove and Oliver Staley,

John Allison, former chairman of bank holding company BB&T, admires author Ayn Rand so much that he devised a strategy to spread her laissez-faire principles on U.S. campuses. Allison, working through the BB&T Charitable Foundation, gives schools grants of as much as $2 million if they agree to create a course on capitalism and make Rand’s masterwork, “Atlas Shrugged,” required reading.

Allison’s crusade to counter what he considers the anti-capitalist orthodoxy at universities has produced results — and controversy. About 60 schools, including at least four campuses of the University of North Carolina, began teaching Rand’s book after getting the foundation money. Faculty at several schools that have accepted Allison’s terms are protesting, saying donors shouldn’t have the power to set the curriculum to pursue their political agendas.

“We have sought out professors who wanted to teach these ideas,” said Allison, now a professor at Wake Forest University’s business school in Winston-Salem, N.C. “It’s really a battle of ideas. If the ideas that made America great aren’t heard, then their influence will be destroyed.”

Allison, 62, is one of a number of wealthy philanthropists who are making bold demands on schools as a condition of giving, said Jack Siegel, a lawyer whose Chicago-based Charity Governance Consulting works with colleges and nonprofit groups.

Seeking to leave their imprint on things from the direction of scientific research to the performance of sports teams, these benefactors are stirring conflicts when their causes don’t fit with the priorities of administrators and faculty.

The strings attached to the gifts present university presidents with tough choices: Even though schools suffering from diminished endowments and government funding cuts following the recession need the money, administrators are sometimes forced to reject the offers to avoid a dust-up on campus.

“I have known some gifts in which the university just could not agree to the terms,” Ohio State University President E. Gordon Gee said. “If there are too many strings attached, you have done yourself a disservice. If someone gave me $100 million to start a school of massage at Ohio State University, I’d have to say, ‘Sorry, it’s just not in our strategic plan.’ ”

Donors as far back as John Harvard, the first benefactor of what was renamed Harvard College after his death in 1638, have gotten their names enshrined on buildings in a quest for immortality. “They’re building a tombstone,” Siegel said.

Henry Kravis, the billionaire co-founder of KKR, pledged $100 million last year to fund an expansion of Columbia University’s business school. The new lecture hall at his alma mater will be called the Henry R. Kravis Building.

‘They want a say-so’

Many donors today insist on more than a marquee. Robert Burton, who runs his own investment firm in Greenwich, Conn., said he gave more than $7 million to the University of Connecticut with the understanding that he would have a say in the football program. In January, when UConn picked Paul Pasqualoni as its new football coach — replacing Randy Edsall, hired by the University of Maryland — Burton asked for his gift back, saying he wasn’t consulted first. A month later, UConn announced that it and Burton had reconciled their differences.

“Donors want something back, and in many cases they want a say-so in what’s happening,” Siegel said. “When their money isn’t used the way they want it to, they are unhappy.”

In one of the more ambitious demands made by a donor, hedge-fund manager Jim Simons tried to use his pledge to change tuition practices within the entire State University of New York system. In July, Simons’s pledge of $150 million to SUNY’s Stony Brook University seemed like a life buoy thrown to a drowning institution.

SUNY was facing $210 million in budget reductions. Before writing the check, Simons, 73, the founder of Renaissance Technologies, demanded that the state legislature pass a law allowing the 64 SUNY campuses to set their own tuition for the purpose of reducing their dependence on state aid. The legislature rejected the proposal in August.

So the fund manager, who had donated $60 million to Stony Brook in 2008 for the Simons Center for Geometry and Physics building, has yet to fulfill his latest pledge. Through a spokesman, Simons declined a request for an interview.

Schools coping with strained budgets are under pressure to boost their fundraising, giving private donors more leverage in making demands. After peaking at $31.6 billion in 2008, total gifts decreased the next year before rising a half percent to $28 billion in 2010, according to the Council for Aid to Education.

While the average endowment of 865 U.S. colleges increased 8.4 percent last year to $408 million, that’s down from 2008’s average of $484 million, according to a survey by the National Association of College and University Business Officers and Commonfund Institute.

Drexel University spent years wooing Bennett LeBow, chairman of cigarette maker Vector Group, to get $45 million to construct a new building to house the LeBow College of Business. He gave Drexel $10 million in 1999 in a naming rights deal, but he demanded that the institution improve its position in business school rankings before he donated more.

“He is a businessman and looks at metrics and objective measures of performance,” said George Tsetsekos, dean of the business school.

Tsetsekos said he flew from Philadelphia to LeBow’s office in Miami several times to try to persuade the Drexel alum to make the gift. The dean also sent his best students to meet with LeBow and show him that the school was attracting higher-caliber pupils as its ranking improved.

LeBow, at a ceremony in November announcing his $45 million gift, credited Tsetsekos’s persistence. “I just want him off my back,” said LeBow, 73. “I wish I had enough Kleenex for all the tears I’ve been hearing from him in the past years.”

The Munk agreement

A $36 million gift from the family foundation of billionaire Peter Munk has been met with as much scorn as appreciation at the University of Toronto. The money from Munk, chairman of Toronto-based Barrick Gold, was used to help create the Munk School of Global Affairs.

Paul Hamel, a professor of medicine, and John Valleau, an emeritus chemistry professor, attacked the university’s agreement to accept the donation in a 7,361-word essay published in February in an online campus magazine. Students also staged protests outside the university’s governing council meetings.

In the funding deal, the Munk foundation will release the final $15.5 million at its own discretion and only if the university meets 23 requirements laid out in a 26-page memorandum of agreement. The professors say the structure of the agreement will make scholars at the Munk school reluctant to criticize Barrick, the world’s largest miner of precious metals.

Amnesty International and CorpWatch have alleged that Barrick’s operations have caused pollution and violated the human rights of workers in Papua New Guinea and Australia. In Tanzania, security guards at Barrick’s mines have allegedly shot and killed villagers who scavenge for small pieces of gold. Barrick has publicly denied that it’s responsible for these alleged violations.

“Anti-mining activists frequently make wide-ranging accusations against Barrick, often relying on information that is just plain wrong,” spokesman Andy Lloyd said. “The company is fully committed to responsible environmental stewardship and upholding human rights.”

The professors’ essay also lashes out at the demands attached to Munk’s gift. Among the 23 requirements, the university must stage an opening celebration for the Munk school and hire a media tracking service to evaluate its branding strategy.

Hamel and Valleau were especially incensed at the rule that said lower-level staff will not be allowed to use the front entrance of the building, which they say violates the social norms of a public university.

“The main entrance of the school, remodeled at considerable public expense, is to be restricted to ‘senior staff’ (defined how?), while everyone else, including their assistants and students and even their less-senior faculty colleagues, are to walk around to a back door!” the professors wrote.

President David Naylor posted a spirited defense of the Munk agreement on the university’s Web site. “Personal attacks such as those we have seen on Peter Munk are a deplorable affront to the values of rational and respectful discourse that are supposed to characterize a university,” Naylor said.

The university also said that critics misinterpreted the requirement about the building’s front entrance, saying everyone was free to use it. Barrick declined to make Munk available for comment.

Madeleine Pickens, the wife of energy tycoon T. Boone Pickens, used the power of her donation to try to change how the veterinary school at Oklahoma State University treats animals. She gave $5 million to the university, joining her husband who had donated or pledged $525 million to build a football stadium and to fund scholarships and faculty chairs at his alma mater.

In February 2009, Madeleine Pickens criticized the veterinary school in an interview with the university newspaper. She said students, as part of their training, were performing multiple surgeries on the same research dogs before killing them. “That’s barbaric,” she said in the article, and insisted that the school stop the practice of putting animals to death.

“I found out some things I knew weren’t right, and I felt very comfortable bringing the issue up,” she said in an interview. “People have a voice but animals don’t, so you have to speak up.”

Hours after the article appeared, the university issued a statement, saying it was working on ways to keep animals alive and to return them to shelters after the student training. Two months later, on her Web site, she commended the university for changing the practices at the vet school.

“She had some concern about the methods they were using at the school,” Boone Pickens said. “She spoke up, and they got with her right quick.”

New fundraising approach

Inge Reichenbach, vice president of development at Yale University, said schools have been changing their approach to fundraising to better handle the demands of donors. She said they have evolved away from accepting almost any gift, no matter the purpose, to steering benefactors toward the school’s priorities.

“What we have learned is you have to address issues in how you implement the gift and what the objectives are, both of the donor and the university, before you accept the gift,” Reichenbach said. “We take quite a bit of time to address these things so in10 years it doesn’t become a problem.”

Stanford University, near Palo Alto, Calif., tries to eliminate the possibility of conflicts with donors by surveying its professors. Before the school launched a $4.3 billion, five- year fundraising campaign in 2006, it asked the faculty and academic departments to compile wish lists of needed projects.

The university encourages donors partly by giving them a menu of projects such as naming-rights gifts to choose from. For $25 million, a benefactor’s name will be placed on a renovation of the Encina Commons, located behind one of the original collections of sandstone buildings built by railroad tycoon Leland Stanford. A $250,000 donation can support a fund for needy students.

Benefactors rarely deviate from the university’s preferred projects, said Martin Shell, Stanford’s vice president for development. “We want to make sure we understand what the donor has agreed to and what we’ve agreed on, to make sure there’s a meeting of minds so there’s no confusion down the road,” he said.

Stanford’s tightly scripted fundraising program didn’t prevent a blowup with Hollywood producer Stephen Bing. After he pledged $2.5 million for an undisclosed purpose, he learned that Exxon Mobil was running advertisements touting its earlier promise to donate up to $100 million to Stanford to support climate change and energy research.

Bing, who backs environmental causes, demanded that Stanford prevent Exxon from using the school’s good name in its marketing to promote itself as a green company. A group of alumni rallied to Bing’s cause and lobbied the school’s board of trustees to vote their shares in support of a 2007 Exxon shareholder resolution calling on the oil giant to reduce its contributions to global warming.

But that wasn’t enough for Bing, who rescinded his donation in 2007 because Stanford refused to end its relationship with Exxon. Bing declined to comment.

Allison, who promotes Ayn Rand’s writings, will probably generate more conflicts on campuses as he seeks to expand his foundation’s gifts to 200 schools nationwide. In 2006, Meredith College, in Raleigh, gave up a seven-year, $420,000 grant from the BB&T foundation after some faculty bristled at the president’s decision to accept the money on the condition that the school teach “Atlas Shrugged.”

After Guilford College in Greensboro, N.C., accepted a 10-year, $500,000 grant from Allison’s foundation, Richard Zweigenhaft, a professor of psychology, protested the decision in an article for Academe, a magazine published by the American Association of University Professors. He said the appropriate faculty committees weren’t consulted before the school decided to take the money.

“This deal with BB&T was simply an egregious case of the college administration deciding to sell a chunk of the curriculum,” Zweigenhaft said.

A version of this article appears in the June issue of Bloomberg Markets magazine.

Donors Rebuffed Schools didn’t receive gifts after these philanthropists’ demands weren’t met. $150 million Pledged to State University of New York at Stony Brook Donor Jim Simons demanded that the state legislature pass a law allowing the 64 SUNY campuses to set their own tuition. The legislature rejected the proposal in August. Gift pending. $2.5 million Pledged to Stanford University Donor Steve Bing demanded the university cut marketing ties to Exxon Mobil. Stanford refused. Gift rescinded.

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