Friday, March 14, 2014

Dirty Money? Universities and Their Donors

Last week The Atlantic ran an article entitled Dirty Money: From Rockefeller to Koch that detailed the controversy surrounding a $1 million dollar gift from the Charles Koch Foundation to Catholic University.  The article quoted a letter of protest that stated:

We are concerned that by accepting such a donation you send a confusing message to Catholic students and other faithful Catholics that the Koch brothers’ anti-government, Tea Party ideology has the blessing of a university sanctioned by Catholic bishops.

Despite the controversy, it appears Catholic University will keep the gift. A few weeks ago, the Catholic University president and the business school dean collaborated in an article entitled Why We're Keeping a $1 Million Koch Gift in The Wall Street Journal.  The authors conclude:

We're grateful for the $1 million, and we're keeping it, because it would be an unhealthy precedent for a university to refuse support for valuable research because the money, somewhere back up the line, once belonged to a donor whose views on other subjects were unpopular within the academic community.

I have not seen anything further from the school on this issue since the cited WSJ article.

Many universities are facing financial challenges and are desperately looking for funds.  Last April, Catholic University announced a 20% budget cut due to falling revenue.  Schools could argue that they will put donated funds to good use, regardless of the source.  But are their limits on whose money universities should accept?  And if there are limits, how do we determine those limits?

To start, I think we should recognize that there are no perfect people, and schools looking for flawless donors should give up hope of finding any.  Further, I agree with the Catholic University president and business school dean that excluding donors merely because of their unpopular views sends the wrong message to our students and our community.  We should respect and expose our students to a variety of views, even views with which we disagree. 

Personally, I think schools should focus on two questions:

  1. Will the gift lead to improper influence?
  2. Does acceptance of the gift endorse unethical behavior?

Improper Influence.  We all have biases, but academics have the potential to be among the least biased voices in their communities.  Universities should be most focused on whether the gift will actually lead to improper influence, but might also be wise to consider if the gift will lead to even an appearance of improper influence.  Individual scholars have been accused of “shilling for Wall Street”.  Similarly, claims of improper influence levied against entire universities could be harmful as well.

Tying this to business law, In re Oracle Corp. Derivative Litigation, 824 A.2d 917 (Del.Ch.2003) Vice Chancellor Strine (now Chief Justice of the Delaware Supreme Court) recognized the judgment clouding potential of large donations.  Regarding two Stanford University professors who sat on an Oracle special litigation committee (“SLC”) VC Strine wrote:

And, for both Grundfest and Garcia-Molina, service on the SLC demanded that they consider whether an extremely generous and influential Stanford alumnus should be sued by Oracle for insider trading. Although they were not responsible for fundraising, as sophisticated professors they undoubtedly are aware of how important large contributors are to Stanford, and they share in the benefits that come from serving at a university with a rich endowment. A reasonable professor giving any thought to the matter would obviously consider the effect his decision might have on the University's relationship with Lucas.

Of course, anyone can levy a claim of improper influence, and schools (and individual professors) should be most concerned about reasonable and supported claims.  Schools can attempt to reduce reliance on any single donor by expanding their donor base.  Each school should also make donors and the public aware that the school's professors do not plan to push donors' agendas, but plan to stay intellectually honest, write about their areas with as little bias as possible, and expose their students to a range of views.   

Improper Endorsement. Universities should be places where students are inspired and encouraged to act ethically.  Taking funds from notorious, unethical figures could be taken, by students and the public, as endorsement of unethical behavior.  Improper endorsement of unethical behavior is less likely, in my opinion, if the donor publicly admits to his/her mistakes and is taking steps to make amends.  Improper endorsement is also less likely, or at least weaker, if naming rights are withheld.  For an earlier debate on the endorsement issue, see the controversy at UCLA Law School over the $10 million gift from Lowell Milken in 2011.  Professor Bainbridge added his thoughts here.  (I note, as Professor Bainbridge does, that only Lowell’s brother Michael was charged with a crime).   

In short, I do think there are some limits on the universe of acceptable university donors, but based on what I know about the Koch Brothers, I would not label them as "off-limits donors" (assuming they do and will respect academic freedom).   According to the cited WSJ article, 270 universities evidently agree and have accepted gifts from the Charles Koch Foundation. 

If others have thoughts to add, I would love to hear them in the comments or via e-email. 

http://lawprofessors.typepad.com/business_law/2014/03/dirty-money-universities-and-their-donors.html

Current Affairs, Ethics, Haskell Murray | Permalink

Comments

As faculties decry speakers of different thought (e.g., Condoleeza Rice at Rutgers and Ben Carson at John Hopkins), it most certainly emphasizes the need for me - as a parent - to engage my child resolving what "universe" of education she shall enter as a college student. One that adopts the "classic liberal" education or that of ideologically driven faculty driving curriculum.

Posted by: Tom N | Mar 15, 2014 7:25:21 AM

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