What should an institution do when a major donor reneges on a pledge?
The answer to that question, according to Charity Governance author Jack Siegel, depends on the situation.
Mr. Siegel, a lawyer and accountant who is the chief executive officer of Auto Didactix, a Chicago company that publishes instructional software on legal and accounting issues, confronts that question in light of recent news that a donor who had made a $25-million pledge to Stanford University is backing away from paying a portion of the gift.
The donor, who had already followed through on sending Stanford the first $22.5-million of the planned gift, decided to withhold the final $2.5-million because the donor disagreed with the university’s decision to conduct climate and energy research for oil company ExxonMobil.
The university is faced with some difficult choices, Mr. Siegel writes. Should it return the first $22.5-million to the donor? Should it reconsider its partnership with ExxonMobil? Or should it simply keep the $22.5-million and let the donor walk away?
“Stanford is faced with a tough decision. The donor’s parents have given Stanford millions of dollars, with a number of programs and facilities bearing the family name,” Mr. Siegel writes. “Given the family’s wealth, Stanford could lose a much larger future contribution if it angers the donor or his parents. But Stanford also has one of the larger university endowments. The whole point of an endowment is to free an institution from the present-day concerns that could adversely affect mission. Against that backdrop, Stanford should adhere to its original decision. Otherwise, what’s the point of amassing an endowment?”
Ultimately, Stanford could face an even more difficult choice — whether to take the donor to court.
On one side, its board of directors has to worry about the public-relations fallout that could accompany the decision to sue a major donor. On the other, it has a responsibility to protect the institution’s financial interests.
Mr. Siegel says institutions must carefully weigh those two factors before they head to court. And he says there is no hard-and-fast rule for making these decisions.
“It should look at each pledge, making a reasoned business judgment for each unpaid pledge,” Mr. Siegel writes. “In this particular case, we could certainly see the board arriving at the decision not to sue. Clearly that would inflame what appears to be an already emotional and delicate situation. Given the apparent opportunity for future contributions and prior generosity, we believe the board could defensibly forgo collection.”
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