Do You Really Want Every Donation?

Spoiler alert: the Family Foundation is suing the University for not meeting all of the requirements outlined in the 60-page charitable bequest agreement. As a result the Foundation would like the $22.9 million they’ve already given returned, and to revoke the rest of the donation.

What happens when a donor wants to donate with strings attached? As a fundraiser, how do you handle that?

Restricted giving is nothing new. Supporters may request that their funds target a specific program or use, but what about a more involved type of giving—gifts with contracts.

the Pearson Family Members Foundation

Janet Lorin, College endowments reporter at Bloomberg recently published an article entitled, College Donors Are Getting Picky. I highly endorse you take 5-10 minutes to read it. Lorin outlines the legal battle between the Pearson Family Members Foundation and the University of Chicago.

Spoiler alert: the Family Foundation is suing the University for not meeting all of the requirements outlined in the 60-page charitable bequest agreement. As a result the Foundation would like the $22.9 million they’ve already given returned, and to revoke the rest of the donation.

Let’s dissect this $100 million gift and discuss the positive and negative implications of complex giving. Ultimately, let’s address the question, do you really want every donation?

Pearson Family Members Foundation vs. The University of Chicago

$100 million is a lot of money, even in higher education. The Chronicle of Philanthropy has an ongoing and comprehensive list of all major private gifts made to higher education institutions since 1967. For some context here, the University of Chicago has received 8 gifts of $50 million or more in that time period.

The $100 million gift, made in 2015, from the Pearson family was incredibly significant to the University. It measures as the third largest gift the university has ever received from a private individual or entity.

Surprisingly enough, none of the Pearson family are University of Chicago alumni. The Family Foundation chose University of Chicago from a pool of about a dozen universities.

“Our choice of the University of Chicago for this gift underscores our recognition of the university’s history of fostering an environment where rigorous inquiry is successfully applied to society’s toughest problems,” Thomas Pearson said when the gift was announced.

The family shopped around before making their philanthropic decision, ultimately choosing the University of Chicago because of it’s academic rigor and status.

What’s even more interesting about the Pearson family is the stipulations and requirements they associated with their gift. As disclosed recently in court proceedings, the $100M gift came with a 60-page contract.

Hefty gift, hefty paperwork.

As reported by Bloomberg the 60-page document outlines very detailed requirements:

The agreement includes a detailed preliminary operating plan and budget, such as $250,000 for a full-time institute director in the first year. The Pearson center would move into a 15,000-square-foot space with a “prominent entrance” that will “meet Class A commercial standards.” The contract spells out the placement and appearance of signage and even the way the center should be referred to on the institute director’s stationery. A seven-page addendum requires the university itself to spend up to $1 million for the 2015 announcement ceremony and publicity.

The current lawsuit filed by the Family Foundation suggests that the University failed to meet their deadline to hire an institute director. The University is claiming that the Foundation breached their contract when they did remit a scheduled $13M payment last year.

This legal battle, reminiscent of what happened in 2008 with Princeton and a family foundation, is never a good thing.

Implications of complex gifts

There are the obvious, and unexpected ramifications of accepting the Pearson’s gift—the legal fees (for reference in 2008 Princeton paid ~$40M to settle their case, and they didn’t even go to trial), the distraction to University staff, and more. But there are also social implications emanating from the situation.

The reason the Pearson Family Members Foundation is bringing their suit to the University is because they think the University did not meet the requirements of their contract (hiring a director by a certain date). If you are not a major (or mega) donor your immediate reaction may be similar to mine, “Well, they set them up for failure. A 60-page contract with requirements? There was no way the University could meet every single one.” My thoughts continued on, “The donor should trust the University to use that money wisely.”

Surprisingly enough, that’s not how a major donor thinks.

I learned that quickly after discussing the Bloomberg article with a wealthy friend. Her concern? The University’s inability to execute on the donors vision, even when the donor provided a roadmap for how they wanted their money to be invested. As a major donor she was adamant that the University shouldn’t have accepted the gift if they were not able to implement the agreement, and that by not executing on the agreement (and subsequently getting sued), they have shown to future major donors that they are able to meet their needs.

This major donor made the case that the Pearson Family Members Foundation should be applauded for their rigorous research, planning and organization. She continued on that any and every funder that is that involved should be commended for their dedication to the organization’s cause. She even made the point that a major donor who is involved at this level, with this type of specificity, would almost certainly make more gifts in the future if the organization could prove their ability to execute on what is in front of them now.

I had obviously struck a nerve.

As I mentioned before, this was not my immediate reaction. However, after talking with this major donor it became clear to me that this is one of the unintended ramifications for the University of Chicago. Adept and experienced major donor prospects will be aware of the ongoing legal struggle and the way they perceive it will be entirely different from you or me.

On the other hand, you can argue that the Pearson Family Members Foundation didn’t trust the University to be autonomous and responsible with their gift. One could say that when a donor makes their donation to a selected charity they should then be hands off and trust the organization to use their funds wisely (this is especially true in terms of corporate giving to science-based organizations).

You may initially take this stance, but it would be hard to imagine investing $100 million without any guidance. Having a roadmap for execution supplied by the donor for how to invest $100 million is not a bad thing, especially when it is from an experienced and well-respected family foundation.

After researching the Pearson’s gift and the ensuing legal case my conclusion was this: the Pearson Family Members Foundation wanted to be a partner with the University of Chicago, not a donor, and when that partnership agreement wasn’t met they sued, similarly to how any business partner would react.

Philanthropy is evolving into a partnership. Major gifts with “strings attached,” and complex charitable bequests are one of the more obvious indicators that funders want to be more involved in their giving, and that is something as in industry we should welcome. Could you imagine your board members taking a big enough interest to craft a document for how to invest millions of dollars into your organization? That’s essentially what these mega-donors did, and they didn’t even have a connection to the University.

We should welcome this type of giving, even if it does raise the stakes and force our institutions to work harder to meet requirements. I am not suggesting that every line of the Pearson’s 60-page document made sense (who knows), but rather we should applaud this type of engaged major giving in an era where most organizations can hardly get their major donors to retain year over year.

What about at my shop?

What does this mean for you and me? Probably not too much on the surface. If you’re expecting a $100 million gift in the near future then maybe use this article as a forewarning of what could happen, but if you aren’t I would take away something slightly different:

  • Major donors and their family foundations strive to be partners with their charities, and we should support that, even when it means 60-page legalese documents (that’s their way of being “hands on”);
  • Charities should not accept all gifts blindly. It’s like sales, you want repeat customers, and if you can’t meet someone’s expectations you’d be better off referring them to someone else that can. Winning business just to win business ultimately costs you in the end;
  • Major donors think differently than you and me, and there’s nothing right or wrong about that. It simply means we need to reframe our mindset when encountering situations like these.

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