Not So Fast, Spelman College. That Big Cosby Gift Had Strings Atttached

Actor Bill Cosby and his wife Camille are very successful and generous people. By now, of course, everyone has heard of the allegations against Mr. Cosby and, while none of these have gone to court, institutions that have been the recipients of the Cosbys' donations are quickly backing away from him.

The latest is Spelman College in Atlanta, which indicated that it is “suspending a professorship” endowed by a 1987 Cosby donation. The William and Camille Olivia Hanks Cosby Endowed Professorship was established to bring positive attention and accomplished visiting scholars to Spelman College. However, the college is now suspending that professorship indefinitely.

I assume that the Cosbys' substantial cash donation established a permanently restricted fund and the gift instrument specified that the income from the fund was to be used for attracting and compensating a visiting professor. Suspending the professorship would appear to mean that the college is not going to retain a professor in that capacity and the unused funds will continue to accumulate until the college elects to restore the professorship.

The college also indicated that it believes it is “appropriate to suspend the professorship chair while the college reevaluates the relationship with Mr. Cosby.” This is certainly a sticky situation for the college.

Recently I discussed the relatively new reality of donors asking institutions for the return of their donations when the institution is not doing as the donor requested. Can Spelman College be facing a return of the Cosby funds someday in the near future? Doing so would certainly put a dent into its endowment as well as permanently eliminate a funded professorship position. Neither of those actions are in the best interests of students and they not something any college would like to do.

Only time will tell what will happen in this and similar situations involving the many restricted donations that Mr. Cosby has made over the course of his life to date. The conversation that this situation should ignite, however, regards what, if anything, an institution can do to protect itself when a past donor lands in hot water.

Professional athletes and entertainers who sign large contracts find that these contracts usually have a “morals clause” that releases the organization from the contract if and when the celebrity does something with which the organization does not wish to be associated. In this way, Nike was able to walk away from Tiger Woods and Michael Vick as soon as their negative publicity hit the airways. But can a charitable organization insert similar morals clauses into donor gift instruments that will allow the institution to keep the money but take the name off the building?

As easy as this sounds, the execution of it may be difficult. The Cosby circumstance provides a great example. All of the existing accusations are allegations—granted, they are from a large number of people over a long period of time—but right now, they are only unproven allegations. 

Spelman College is indefinitely suspending the Cosby professorship, but this is just a temporary, interim move. It must be hoping that something will happen to help them get out of the corner into which they are painting themselves. The endowment fund that has been providing the professorship funds will continue to grow, and no money can be withdrawn from it unless it is for the professorship. Sooner or later, Spelman needs to make a decision and I believe that decision has to be either to return the donor funds or continue the professorship. Or they can try to renegotiate with Cosby to drop his name from the professorship. (See my post on Avery Fisher Hall.)

An alternative to a morals clause is something known as "variance power." More and more institutions are asking donors to insert a variance power clause into their gift instruments. This is a clause that provides the institution with the ability to change the purpose of the gift at its discretion. Usually, the institution verbally assures the donor that it will not exercise the variance power unless it becomes impossible to continue with the original terms of the gift. For example, a university could use its variance power to divert funds which were restricted to support of the rowing team if the university discontinued the sport of rowing.

Would variance power help Spelman College with its Cosby Professorship problem? Probably not, for the same reasons that the morals clause might be ineffective.

The conclusion of all this? Restricted gifts, especially gifts restricted in perpetuity, are cast in concrete that is very difficult to break apart. What are your thoughts?