The Problem With Making Large Donations to Universities

Along with bankruptcy following a lottery draw, making large donations to universities represents another monetary mire that many ultra-wealthy individuals find themselves attempting to traverse. Recently, the row between the Pearson family and the University of Chicago over a $100 million donation that the Pearsons made in 2015 has surfaced as a significant example of the intersection between charitable donations and conditionality.

The Conflicting Nature of Charity and Conditionality

A donation’s size and intentionality can often overshadow its charitable nature in the sense that the obligations that a university or other body must fulfill to get a donation may contradict the nature of a donation to begin with. In other words, there’s something to be said about making a donation and expecting something to be commissioned out of it, or for your money to be spent wisely.

Any Google search reveals that educational institutions like universities often do not fret in relocating the money of well-intentioned donors to more frivolous spending. There’s a spate of cases where donors sue universities for failing to uphold the “spirit” in which a donation is made, and the high profile lawsuit launched against University of Chicago is hardly an exception.

Sometimes the wasteful spending is so negligent that the universities are called out by the public rather than their donors, as in the case of Robert Morin’s $4 million donation to the University of New Hampshire. The Washington Post article highlights the hard-earned nature of Morin’s fortune in characterizing the gift: “A $4 million bequest to the University of New Hampshire by a frugal library cataloger who worked there for a half-century has been big news, with stories focusing on the life of Robert Morin, who drove a 1992 Plymouth, ate a lot of frozen dinners and squirreled away millions.”

The school’s decision to spend $1 million of the donation on a football scoreboard has drawn widespread criticism across social media platforms. Further, the spokesperson for the university only made things worse by attempting to explain the spending as justifiable based on Morin’s brief interest in football towards the end of his life. Most people are left with the bad aftertaste that the University of New Hampshire did not really care or look out for the interests of a dead man despite his dedication to that education institute.

Philanthropy Comes With Risks

In most of the lawsuits filed against universities by donors surrounding the inappropriate spending associated with their gifts, the universities usually win because of the nature of a donation. Once a donation is made, no matter how badly the university fails to fulfill an obligation discussed beforehand and no matter how badly the money is squandered, it is difficult to justify a reversal.

In other words, if you donate money to a body and then expect that body to be bound by a set of obligations after the donation, you’re walking on shaky expectations. In reality, like with the Morin case, there is little binding reasons or recourse that philanthropists may take to recoup losses associated with a “bad donation.”

This seems to be the case with Tim and Tom Pearson and their $100 donation to the University of Chicago. It is apparent to most onlookers that the university had cut corners in regards to the expectations and standards that the Pearsons set by forgetting to schedule an important summit and by hiring substandard talent. But again, it is immensely difficult to justify a lawsuit for the return of money already donated.

In this sense, the shrewdness of the Pearsons in setting a schedule of payments rather than simply handing off a lump sum payment of $100 million to the University of Chicago was well-met, as they only stand to lose around $23 million from the payments already made rather than the entirety of the promised donation. But such structures beg the question of what truly constitutes philanthropy.

Think about it from this perspective, if the Pearsons wanted to create a successful institute as their primary goal, they would have much more autonomy and control over the process if they did not make a donation but instead used their money in a commercial manner to develop that goal. Instead of having to debate whether or not UChicago fulfilled its end of the bargain when it came to hiring competent academic staff, the Pearsons would have been able to effect changes in a more direct manner.