College Donors Are Getting Picky

(Bloomberg Businessweek) -- In 2015, a gift to the University of Chicago merited a rock star’s welcome. “What kind of world do you want?” sang Five for Fighting’s John Ondrasik, his voice echoing across the century-old campus theater before a crowd of 1,100. The event feted the Pearson family, whose foundation—founded by Tom Pearson, an Oklahoma coal magnate—was giving $100 million for a global center for peacemaking.

Now the Pearson Institute for the Study and Resolution of Global Conflicts has become a case study in another sort of ugly conflict—between universities and wealthy donors. In February, the Pearsons’ foundation sued the University of Chicago, claiming the school had failed to meet its obligations anddemanding its money back. The school says it has honored the agreement.

Ever since the family of industrialist Henry Ford blanched at the perceived liberal leaning of the foundation that bears his name, America’s 1 Percent has fumed over institutions that have, in their view, subverted their legacies. Now, big donors are becoming more aggressive in hammering out detailed contracts to replace accords that once amounted to little more than a handshake.

College Donors Are Getting Picky

The 60-page agreement that came with the Pearson gift, disclosed in federal court, reads more like the terms of a merger contract than a charitable bequest. Underscoring its conditional nature, the Thomas L. Pearson and the Pearson Family Members Foundation described the gift as a “grant,” to be doled out in nine annual installments, ranging from $6 million to $13 million, some of which would become part of the university’s $7.8 billion endowment.

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. “That’s a level of detail that is a potential warning sign that there are hundreds of potential landmines to blow up the deal,” says Scott Nichols, Boston University’s top fundraising executive, who also ran fundraising at Harvard Law School for two decades. “There’s a massive expectation of failure.”

In their lawsuit, filed in U.S. District Court in Tulsa, Okla., the Pearsons say the school failed to meet the deadline to appoint a director of the institute. The family also claimed the university told them it had the right to charge the foundation for millions of dollars in operating expenses of the Harris School of Public Policy Studies, the Pearson center’s home. The university has denied the claim about operating expenses in its response to the suit. The university has met and continues to meet its obligations, the school said in a statement. It is hosting upcoming conferences and has used the grant fund appropriately, according to a spokesman.

The Pearson foundation has made payments of $22.9 million, which it wants returned. In a countersuit, the university says the family breached the contract by failing to make a scheduled $13 million payment last year. The Pearsons have denied they breached the agreement and said they made a $1.3 million payment in June 2018. The Pearsons’ lawyers didn’t respond to requests for comment. A trial is scheduled for next summer.

College Donors Are Getting Picky

The Pearson case rivals only a handful of other such fights in higher eduction. In 2008, Princeton struck a settlement agreement to return more than $90 million to the foundation of the Robertson family, heirs to the A&P supermarket fortune. The Robertsons had accused the college of misspending funds donated to Princeton for the Woodrow Wilson School of Public and International Affairs, which were intended for the training of students for careers in government service. Princeton said it had honored the spirit of the gift, which was made in 1961 and grew to be worth hundreds of millions of dollars.

The Pearsons, who aren’t University of Chicago alumni, shopped around and picked the school because of its reputation for rigor and storied history. The donation created an institute that would conduct research on resolving violent struggles and bring together scholars and policymakers in annual conferences. As inspiration, Tom Pearson cited his parents. He and his three brothers grew up in Iowa, the children of a Methodist minister who was engaged in the civil rights movement. Tom, 64, and his twin brother, Tim, a former senior executive at accountant KPMG LLP and chief executive officer of the foundation, graduated from DePauw University in Indiana. Tom earned a law degree at the University of Iowa and went into the coal business. In 2007, he stepped down as general counsel of Tulsa-based Alliance Resource Partners LP.

Tom Pearson has made a strings-attached gift before. In 2006, he agreed to donate $1.2 million to his father’s alma mater, Garrett-Evangelical Theological Seminary, on Northwestern University’s Evanston, Ill., campus. It would fund scholarships, with preference to those seeking to be ministers in Iowa. In the agreement, Pearson said the money would go to DePauw, his alma mater, if Garrett couldn’t fulfill its obligation. “I’ve never seen a requirement, if it fails, give it to someone else,” says American University fundraising administrator Chris Pipkins.

Since it couldn’t find enough Iowa-bound students, the seminary directed the money to aspiring ministers serving elsewhere. In 2011, Pearson sued in U.S. District Court in Chicago, and a judge sided with the seminary, which declined to comment. Pearson appealed. The outcome may be sobering for the University of Chicago. The seminary settled and gave Pearson his money back.

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