WSJ: "A Prenup for Donors" colleges making it tougher for philanthropists to renege

Parent Cafe
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<p>Most universities and colleges are quick to remind parents and alum that the current cost of post secondary education in America is not covered by tuition costs. At major research universities, such as Stanford tuition only covers 60% of what it takes to produce the "undergraduate experience". Stanford, Columbia, Yale, and the University of Virginia, Cornell etc. have recently embarked on mega fund raising campaigns. Other universities may be less ambitious in terms of dollar goal but do depend on the generosity of donors to give students a quality education. Of course, as many educators correctly point out, there is little correlation between money and excellence in higher education, but with tuition and other fees, such as room and board, sky high these days the issue of tuition costs and the value of the "undergraduate experience" is more important than ever. </p>

<p>This WSJ article takes a close look at the high stakes world of philanthropic donations and examines why universities, such as New York University, want to keep better tabs on pledges. With rising COA, universities now want to investigate the finances of potential givers in order to ascertain their ability to complete pledges. Columbia, NYU as well as Drexel University in Philadelphia, have or are taking heirs of wealthy alumni to court. Other institutions, such as Princeton, are more laid back when it comes to donations and avoid the "legally binding" phrase, prefering to keep pledges flexible "under advice from lawyers" because gifts are subject to interpretation by courts, "which have ruled in some cases that an agreement isn't legally binding unless the recipient has spent money or taken on a financial commitment based on the pledge." </p>

<p><a href="http://online.wsj.com/public/article/SB116432062969631485-u9pBPGdoaFtBE0xpranQ17LMxjU_20071124.html?mod=blogs%5B/url%5D"&gt;http://online.wsj.com/public/article/SB116432062969631485-u9pBPGdoaFtBE0xpranQ17LMxjU_20071124.html?mod=blogs&lt;/a&gt;&lt;/p>

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<p>"Lure of Great Wealth Affects Career Choices" and, as the article goes on to describe, creates new patterns of redistributing wealth through giving to IHEs.</p>

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Turning to Philanthropy</p>

<p>One in every 825 households earned at least $2 million last year, nearly double the percentage in 1989, adjusted for inflation, Mr. Wolff found in an analysis of government data. When it comes to wealth, one in every 325 households had a net worth of $10 million or more in 2004, the latest year for which data is available, more than four times as many as in 1989.</p>

<p>As some have grown enormously rich, they are turning to philanthropy in a competition that is well beyond the means of their less wealthy peers. “The ones with $100 million are setting the standard for their own circles, but no longer for me,” said Robert Frank, a Cornell University economist who described the early stages of the phenomenon in a 1995 book, “The Winner-Take-All Society,” which he co-authored.</p>

<p>Fighting AIDS and poverty in Africa are favorite causes, and so is financing education, particularly at one’s alma mater.</p>

<p>“It is astonishing how many gifts of $100 million have been made in the last year,” said Inge Reichenbach, vice president for development at Yale University, which like other schools tracks the net worth of its alumni and assiduously pursues the richest among them.</p>

<p>In an earlier Gilded Age, Andrew Carnegie argued that talented managers who accumulate great wealth were morally obligated to redistribute their wealth through philanthropy. The estate tax and the progressive income tax later took over most of that function — imposing tax rates of more than 70 percent as recently as 1980 on incomes above a certain level.</p>

<p>Now, with this marginal rate at half that much and the estate tax fading in importance, many of the new rich engage in the conspicuous consumption that their wealth allows. Others, while certainly not stinting on comfort, are embracing philanthropy as an alternative to a life of professional accomplishment.</p>

<p>Bill Gates and Warren Buffett are held up as models, certainly by Dr. Glassman. “They are going to make much greater contributions by having made money and then giving it away than most, almost all, scientists,” he said, adding that he is drawn to philanthropy as a means of achieving a meaningful legacy.</p>

<p>“It has to be easier than the chance of becoming a Nobel Prize winner,” he said, explaining his decision to give up research, “and I think that goes through the minds of highly educated, high performing individuals.”</p>

<p>As Bush administration officials see it — and conservative economists often agree — philanthropy is a better means of redistributing the nation’s wealth than higher taxes on the rich. They argue that higher marginal tax rates would discourage entrepreneurship and risk-taking. But some among the newly rich have misgivings.</p>

<p>Mark M. Zandi is one. He was a founder of Economy.com, a forecasting and data gathering service in West Chester, Pa. His net worth vaulted into eight figures with the company’s sale last year to Moody’s Investor Service.</p>

<p>“Our tax policies should be redesigned through the prism that wealth is being increasingly skewed,” Mr. Zandi said, arguing that higher taxes on the rich could help restore a sense of fairness to the system and blunt a backlash from a middle class that feels increasingly squeezed by the costs of health care, higher education, and a secure retirement. The Federal Reserve’s Survey of Consumer Finances, a principal government source of income and wealth data, does not single out the occupations and professions generating so much wealth today. But Forbes magazine offers a rough idea in its annual surveys of the richest Americans, those approaching and crossing the billion dollar mark...</p>

<p>To this day, teaching tugs at Mr. Moon, whose parents immigrated to the United States from South Korea. He steals enough time from Metalmark Capital to teach one course in finance each semester at Columbia University’s business school. “If Wall Street was not there as an alternative,” Mr. Moon said, “I would have gone into academia.”</p>

<p>Academia, of course, turned out to be no match for the job offers that came Mr. Moon’s way from several Wall Street firms. He joined Goldman Sachs, moved on to Morgan Stanley’s private equity operation in 1998 and stayed on when the unit separated from Morgan Stanley in 2004 and became Metalmark Capital.</p>

<p>As his income and net worth grew, the Harvard alumni association made contact and he started to give money, not just to Harvard, but to various causes. His growing charitable activities have brought him a leadership role in Harvard alumni activities, including a seat on the graduate school alumni council.

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<p><a href="http://www.nytimes.com/2006/11/27/business/27richer.html?pagewanted=1&ei=5087%0A&em&en=198f7d3c672b5fc3&ex=1165035600%5B/url%5D"&gt;http://www.nytimes.com/2006/11/27/business/27richer.html?pagewanted=1&ei=5087%0A&em&en=198f7d3c672b5fc3&ex=1165035600&lt;/a&gt;&lt;/p>

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<p>I would think the WSJ article on universities' perceived need for "pre-nups" when it comes to large philanthropic donations must have quite a lot to do with this news story covered by the NYT and MSNBC:</p>

<p>"Clash over donation to Princeton heads to court
Family of 1961 donors seeks to revoke gift in closely watched lawsuit"</p>

<p>"The children of a couple who in 1961 made one of the biggest donations in the history of academia to Princeton University say in a lawsuit closely watched by charities and conservative activists that the school is misusing the money and should give it back.</p>

<p>Lawyers for the Robertson family and the university were due in state Superior Court on Tuesday to start two days of legal arguments hashing out the parameters of a trial that is likely at least several months — and maybe years — away.</p>

<p>Among the seven legal motions to be argued are whether a judge or jury should decide the facts in a trial and whether Princeton should return more than $200 million the family claims was inappropriately used by the university...</p>

<p>While the lawsuit as a whole could reverberate throughout the nonprofit world, the arguments scheduled for Tuesday and Wednesday are largely technical, delving into tax laws, complicated accounting formulas and the governance of the Princeton-controlled board that controls the Robertson Foundation and the relationship between that foundation and the university.</p>

<p>Princeton is seeking to be recognized as the sole beneficiary of the gift so the money could not be granted to other institutions."</p>

<p><a href="http://207.46.245.33/id/15925917/%5B/url%5D"&gt;http://207.46.245.33/id/15925917/&lt;/a&gt;&lt;/p>

<p>and
<a href="http://www.nytimes.com/aponline/us/AP-Donors-v-Princeton.html?_r=1&oref=slogin%5B/url%5D"&gt;http://www.nytimes.com/aponline/us/AP-Donors-v-Princeton.html?_r=1&oref=slogin&lt;/a&gt;&lt;/p>

<p><a href="http://www.princeton.edu/main/news/robertson/%5B/url%5D"&gt;http://www.princeton.edu/main/news/robertson/&lt;/a&gt;&lt;/p>

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<p>
[quote]
The Johns Hopkins University has received a $50 million gift that will establish separate business and education schools, university officials announced late yesterday.</p>

<p>William Polk Carey, a trustee emeritus at Hopkins, is donating the money through his W.P. Carey Foundation. The gift is the largest to Hopkins in support of business education, the university said in a statement...</p>

<p>"More than a century ago, Johns Hopkins University forever broke the mold in American medical and graduate education, establishing revolutionary new approaches that remain central even today to the preparation of physicians and scholars," William R. Brody, president of Hopkins, said in a statement. "Bill Carey's generosity makes it possible for Johns Hopkins to break the mold again, this time in the education of our nation's leaders in finance, industry and entrepreneurship."...
The key to future economic growth is quality business education, and this school will be dedicated to producing our country's next generation of business leaders," Carey said.</p>

<p>The gift, one of the largest in Hopkins' history, is Carey's second $50 million donation in support of business education. In 2003, the foundation's donation to Arizona State University established the school's W.P. Carey School of Business.</p>

<p>The Hopkins business school will be named after William Carey's great-great-great-grandfather, James Carey, an 18th- and 19th-century Baltimore shipper, banker, member of Baltimore's first City Council and a relative of university founder Johns Hopkins.

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<p><a href="http://www.baltimoresun.com/news/education/bal-md.hopkins05dec05,0,6175539.story?coll=bal-local-headlines%5B/url%5D"&gt;http://www.baltimoresun.com/news/education/bal-md.hopkins05dec05,0,6175539.story?coll=bal-local-headlines&lt;/a&gt;&lt;/p>

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<p>Philanthropy courses that enable students to give away real money are offered at Davidson College in North Carolina, the University of Virginia, Cornell and the University of Mary Washington in Fredericksburg, Va.</p>

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[quote]
Many universities offer courses in philanthropy, but Colgate’s is unusual because in early May, at the end of the school year, the students will award $10,000 to nonprofit organizations of their choice, after researching worthy recipients. Only a few such courses nationwide give students the opportunity to give away real money.</p>

<p>“We’re helping students learn the business of philanthropy,” said Ellen Percy Kraly, the professor who teaches the course.</p>

<p>The seminar is financed by the Brennan Family Foundation of Ohio, which has ties to the university through Jay Brennan, a family member who graduated in 1981. Earlier this year, the foundation donated $50,000 for five years of classes, with each group of students getting $10,000 a year to give away.</p>

<p>The seminar is not offered for credit, Dr. Kraly said, because it was put together quickly over the summer after the college received the Brennan grant. She expects that credit will be offered in the future.</p>

<p>Part of the goal of the course, she said, is to help the local community, especially because the Colgate campus is an affluent enclave — where tuition, board and expenses cost about $45,000 a year — surrounded by a rural, economically depressed region. Dr. Kraly, a geography professor, is also director of the Upstate Institute, a research center of the college whose mission, according to its Web site, is to “create linkages between Colgate University and the regional community.”</p>

<p>Although the class cannot award money to an individual, it plans to choose an organization small enough so that future classes can study how the money was spent and what it achieved...</p>

<p>Students drawn to this kind of course are not necessarily planning on becoming the next billionaire entrepreneur, he and Dr. Kraly said. Rather, they are already drawn to service professions.</p>

<p>Ms. Katz is a pre-med student who is thinking about joining an organization like Doctors Without Borders. Ms. Echahly has already built a lengthy résumé with internships at several large nonprofit groups like the American Red Cross; she hopes to work for the homeless.</p>

<p>“I think I can see people who want to make a difference in the world,” Dr. Kraly said of the class.</p>

<p>Students have spent the first half of the course learning how foundations work. At a recent class, they were just beginning to think about their group as a mini-foundation, weighing, among other topics, how the public would react to their project.</p>

<p>In an area with great need, “I think it’s hard to justify the money going to the arts,” said Cassandra Galante, 19.</p>

<p>Later, the group worried aloud about making the right choice.</p>

<p>“Basically, where are we going to get the biggest bang for the buck,” said Conley Stout, 20. “And where can we have the most impact right now?”</p>

<p>Dr. Kraly urged the group to consider the “landscape of need” as part of their coursework. “When I think about the bigger picture, it’s overwhelming,” Ms. Katz said. “But we’re going to take it one step at a time.”

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<p><a href="http://www.nytimes.com/2006/12/06/education/06colgate.html%5B/url%5D"&gt;http://www.nytimes.com/2006/12/06/education/06colgate.html&lt;/a&gt;&lt;/p>