Noble intentions don’t always translate to the best results.
In the last six months, three interesting cases of controversy-generating philanthropy emerged. All represented some kind of fundamental miscommunication between the donor and the donee and/or the donee’s constituency. A gift was saved in one case; on the path to being lost in another; and examined by legal authorities in the third. As you’ll see, noble intentions don’t always translate to the best results.
The Wolf of Wall Street Gets Bitten
In the first case, a transformative gift from a grateful alumnus generated little appreciation and notable venom.
One of the most generous and sophisticated philanthropists of the last 50 years, Steve Schwarzman,1 fondly remembered his academic roots, Abington Senior High School (Abington) in suburban Philadelphia. Steve said it changed his life,2 as he went on to academic success at Yale University and Harvard Business School and became a financial titan serving as CEO of Blackstone. Ten years ago, he contributed $400,000 for the renovation of the football stadium bearing his name. He’d maintained friendly relations with school superintendent Amy Sichel.
Abington formed a foundation as part of a $100 million campaign to upgrade its technology. Steve offered $25 million to Abington’s campaign, easily its largest gift and likely the largest to a public high school in the United States. What possibly could go wrong with unprecedented generosity from an engaged graduate supporting a priority of the donee? It turns out plenty.
The primary flashpoint centered on the renaming of Abington to bear its benefactor’s name. When the gift was announced at a public meeting of the school board, some of the taxpayers decried both the lack of the board’s transparency and the influence of “big money, Wall Street money.” One comment from the audience noted: “Help me understand how you could make such a monumental decision without even asking the public.” The reporter covering the meeting described the crowd as hostile to Wall Street.3
Certain details common to gift agreements, such as publicity notifications and branding strategies, seemed to some to suggest too much donor control.
The secondary flashpoint stemmed from what additional benefits Steve would be receiving beyond the naming rights to the entire school. The donor sought named spaces for his twin brothers.
To the donor’s great credit, he withdrew the request for the naming rights of the school and honored his promise to commit $25 million.4 One could easily imagine most donors leaving the donee empty handed.
Global Conflicts
In the second case, a transformative gift from a friend to encourage dispute resolution created two lawsuits.
Unlike Abington, the University of Chicago (the University) is accustomed to receiving transformative gifts including $300 million for the naming of its business school. With a well-earned reputation as “the teachers of teachers” and a highly productive research enterprise, it’s not surprising the University receives support from non-alumni. The Pearson brothers of Oklahoma are sons of a minister and a civil rights activist and business entrepreneurs, investors and philanthropists with a long-standing interest in the resolution of global disputes and conflicts.5 They felt the University fostered an environment where rigorous inquiry was applied to society’s toughest problems. And so, with the best of intentions, they executed a 61-page gift agreement.6
Their $100 million gift was made at the direction of Thomas L. Pearson (chairman) and Timothy R. Pearson (president and CEO) of The Pearson Family Foundation. The gift money was to be used to establish an institute to study global conflict resolution.
The president of the University noted the gift aligned with its research practices: “The study of global conflicts is a field ripe for groundbreaking research approaches and The Pearson Institute will seek to inform more effective policy solutions to make a lasting impact around the world.”7
The Pearsons publicly acknowledged the challenge: “We know the journey ahead will be formidable—to find new ways through The Pearson Institute to study and understand global conflicts, to significantly and meaningfully impact and inform policy, and to share these findings around the world through The Pearson Global Forum.”8
What could go wrong as each party had its eyes wide-open as they pursued a goal of studying conflict resolution? A detailed gift agreement should anticipate and solve any disputes without lawyers, right? Emphatically no!!!
The Pearsons sought repayment of $23 million in pledge payments. The court pleadings show their frustration about the lack of progress in hiring a director of the institute as well as the quality of the holders of the professorships. They felt excluded from certain relevant events surrounding their institute.9 Other counts to their complaint included breaches of contract and fiduciary duty as well as fraudulent concealment.10
The University would have been interested to know the brothers had in fact sued a theological seminary because of their dissatisfaction with the administration of a much smaller gift.11 Had it known, perhaps it would have viewed the brothers in a different light and changed its communications strategy accordingly.
The University responded saying it met its obligations before the required fourth installment payment. Accordingly, they asked for the next installment and the dismissal of the Pearsons’ lawsuit.
The dispute will require conflict resolution from both sides, assuming an out-of-court settlement is reached. How ironic the attempt to resolve differences ended initially in a U.S. District Court in Northern Oklahoma with the plaintiffs demanding a jury trial.
Reefer Madness
The third case involves a check intended to alleviate human suffering.
Thomas Jefferson University of Philadelphia (Jefferson) became one of the first recipients of a gift to study medical marijuana and hemp. Founded by a $3 million gift from Australian banking tycoon Barry Lambert, Jefferson established the Lambert Center (the Center). The grandchild of the donor received relief from severe seizures through cannabis derived hemp. Barry hoped the gift would inspire more study into medicinal cannabis and offer hope to those in great suffering.
The president of Jefferson acknowledged the need for more angel investors for start-up funding for the Center. Soon thereafter, Jefferson identified six “Founding Members” who each committed $250,000. It was anticipated these gifts would develop Pennsylvania’s leadership in the medical research of marijuana. One of those funders, Matthew Mallory of Commonwealth Alternative Medicinal Options, paid $125,000 in December 2016.
So, what possibly can go wrong when research to alleviate suffering is being generously funded?
According to 420.com, Matthew was expecting more from Jefferson than a contemporaneous receipt for his “gift.”12 He’d sought an alliance with an acknowledged player in the research of medical marijuana. He’d hoped Jefferson would facilitate a relationship with Lake Erie Osteopathic College of Medicine. Within two weeks of paying $125,000, Matthew’s lawyer was expressing great disappointment at not being able to assist in securing an affiliation with a medical facility.
Matthew enlisted the Pennsylvania Attorney General (AG) to secure the return of the gift alleging that a consultant to Jefferson said, “If you don’t do it (make the pledge of $250K), you are not going to be part of the program.”13 Emails between Matthew and Jefferson were described by critics as “a crass exchange in which money was solicited to buy into the ground floor of a new pharmaceutical industry.”14 Nonetheless, the AG didn’t feel that Jefferson was obligated to return the contribution. Jefferson admitted no wrongdoing, though it did blame the consultant who helped solicit the contribution. The consultant denied any quid pro quo, stating, “there was never a promise of special favor with the commonwealth or any institution.”15 The director of the Center said the commitment as a founding member simply indicated support for research on medical marijuana.
Interestingly, of the five other founding members who gave, only one of them won a permit to operate a marijuana dispensary in Pennsylvania. They apparently thought they were making a philanthropic contribution.
It will be interesting to track the philanthropic contributions to Jefferson and the other health systems participating in the marijuana research program. My hunch is that legal counsel to those hoping to be dispensaries will recommend that their clients avoid making charitable contributions and thus avoid the appearance of a quid pro quo. Counsel for the research universities likely will err on the side of not soliciting contributions from those with potential business interests in the marijuana research arena. It was notable to me how quickly Matthew secured the AG’s attention and how quickly sensitive email exchanges became public. So perhaps “Reefer Madness” might really mean a world of altered perception in which charities refuse gifts.
(For summaries of the gifts in these three cases and lessons learned from the problems that ensued, see “Lessons Learned,” p. 44.)
Planning Pointers
All three case studies illustrate the value of a gift acceptance policy as a screener of potential problems with the gift and the donor. The more generous the contribution, the more likely the controversy generated either by the giver or how the giver created his fortune.
Some of the unpleasantries delivered on the Abington School District Foundation were avoidable or ameliorable with greater transparency between the donee and its constituents (students, alumni and taxpayers).
Avoiding such unpleasantries may require measures an institution may never be prepared to address. Part of the public regarded Steve’s gift as tainted Wall Street money. But, does an institution really wish to determine the “purity” of the donor’s fortune? Fortunes built by Andrew Carnegie, John D. Rockefeller, Sr. and Walter Annenberg all had elements of controversy. Carnegie employed strike breakers at his steel plant. Rockefeller, Sr. was deemed in violation of the antitrust laws. The Annenberg fortune was initially built in part on publishing materials to those betting on horse races, a legal activity. If such a purity test is imposed, what makes the fortunes of today’s tech billionaires more virtuous when their companies displace many workers and produce much of their value offshore? Perhaps the most reasonable approach is denying naming opportunities to individuals either indicted or convicted of civil or criminal charges. Imposing a purity test on how the wealth was created will be an exercise in futility.
The Pearson case raises the issue of how much a charity needs or wants to know about its donor, especially one who lacks a long-term, meaningful philanthropic relationship with it. Most transformational gifts come from alumni and friends known for years. A gift from a non-alumnus places a premium on truly comprehending not only the donor’s motivation but also the likelihood of the donor being pleased with the use of the gift.
Knowing whether a donor has ever sued another charity reveals much about the potential of a donor to become dissatisfied. For some charities, evidence of a lawsuit likely disqualifies receipt of the gift. For others, it requires a clear-eyed assessment of whether the donor ever can be satisfied. And perhaps for some, ignorance of the donor’s litigation history would be acceptable.
The sobering challenge, assuming the institution values this information, is securing it both inexpensively and inoffensively. Asking the donor directly is likely off-putting. Not asking directly incurs the time and expense of investigation. Each is likely to be prohibitive given the resources of the institution.
The Jefferson case should compel every charity to examine (or create) a policy for the selection of its vendors of goods and services. Many institutions will consider past philanthropic support as one of but many factors. Of course, it can’t be the dispositive factor. Correspondingly, the institution’s gift acceptance policy should explicitly bar the solicitation of or the acceptance of gifts in exchange for the awarding of contracts. Volunteer fundraisers and consultants acting on behalf of a charity must also be governed by the same restrictions imposed on the development team.
Final Thought
While the old saying that “no good deed goes unpunished” may not be true, it’s true that all good deeds are being scrutinized by a less than fawning public. Whether the donor or donee are equally matched or mismatched in terms of their philanthropic sophistication, the chance for fundamental miscommunications and misunderstandings remains possible.
Endnotes
1. Steve Schwarzman has committed eight and nine-figure gifts to the New York Public Library, Yale University and the Schwarzman Scholars program.
3. www.nytimes.com/2018/04/13/business/steven-schwarzman-blackstone-abington-pennsylvania.html.
5. www.uchicago.edu/features/pearson_family_donates_100_million_institute_to_confront_global_conflicts/.
6. www.scribd.com/document/375888212/University-of-Chicago-Grant-Agreement-with-Pearson-Family.
7. Supra note 5.
8. Ibid.
9. www.scribd.com/document/372996048/Pearson-Family-Foundation-v-University-of-Chicago#fullscreen&from_embed. See p. 14, para. 71 of Pearsons’ complaint.
10. Ibid. The Pearsons alleged failure to name an institute director (para. 16), hire a qualified director (para. 28), hold the Pearson Global forum (para. 35) and a number of other failures.
11. www.bloomberg.com/news/articles/2018-08-15/college-donors-are-getting-picky. The Pearson brothers sued over the stewardship of a relatively small gift of $1 million.
13. Ibid.
15. Supra note 12.