Two Donors Want to Revoke Their Mega-Gift. Is It a Sign of Things to Come?

the university of chicago. photo:  Henryk Sadura/shutterstock

Editor's Note: This article was originally published on March 13, 2018.

In 2015, Timothy and Thomas Pearson—the twin multi-millionaires known as the Pearson brothers—gifted a whopping $100 million to the University of Chicago to establish a research institute dedicated to the study and resolution of global conflict. 

Now their Pearson Family Members Foundation is suing the university to recoup the $22.9 million it has already handed over, saying the university’s leaders have failed to demonstrate they are using the landmark gift for its intended purpose.

The saga is being portrayed as a cautionary tale for donors and universities alike. To the former, if a mega-gift comes with conditions attached, those conditions may not be met. To the latter, that transformative mega-gift may quickly dissolve into an acrimonious lawsuit.

Dawn Rhodes, writing in the Chicago Tribune, provides a thorough analysis of the case, so I'll spare you the details. But here's the general gist of it. 

The Pearsons' list of grievances is extensive. The school, they claim, failed to hire a full-time director and faculty, develop proper curriculum, or schedule the annual forum as per the gift agreement. The school also excluded the brothers from gatherings during the 2016-17 school year, and, they claimed, planned to siphon off millions to pay for the operating expenses of its Harris School of Public Policy.

The University of Chicago is pushing back.

"The university has a demonstrated history of responsibly stewarding and administering gifts and grants of all sizes and for many purposes," the school's leaders said in their statement. "The university honors its grant agreements with its donors, and it did so with the Pearsons. Further, all academic and hiring decisions are the sole purview of the university and its faculty, guided by the principle of academic freedom."

This isn't the first time a donor or his heirs has asked for his donation back. Most famously, the children of Charles and Marie Robertson, who built their fortune in a popular New Jersey grocery store chain, sued Princeton University in 2002 for mismanaging a $35 million endowment started in the 1960s to support students who sought careers in government. 

The Robertson affair represented a landmark case involving the issue of donor intent, as the children of Charles and Marie convincingly argued that Princeton committed to a course that their parents had not envisioned and would not have supported. (In the end, Princeton paid $100 million to settle the Robertson lawsuit in 2008.)

Of course, there's a big difference between the Princeton and University of the Chicago incidents. The donors behind the latter gift are still very much alive and airing their disagreements in real time.

It's easy to see why donors would take action if a recipient university fails to adhere to his or her wishes, and even more so with mega-donors. Many of them hail from the business world, and are accustomed to control. Many are hands-on managers. They like calling the shots. And they are rarely told "no."

 Thomas Pearson was senior vice president for Alliance Resource Partners (self-described as “a diversified coal producer and marketer”) and is now an adviser on business, law and international finance. Timothy heads Pearson Advisors Partners, a marketing consulting firm.

And you'd expect that the bigger the gift, the more control a donor might try to exert. At the time, the Pearsons' gift was the second largest in the University of Chicago's history, eclipsed only by David G. Booth's 2008 gift of $300 million.

With so much invested, it's understandable why the Pearsons would want a strong say in the development of an institute committed to "data-driven, analytical approaches to inform better policy solutions." But to quote a wise and often underappreciated philanthropy sage, "you can't always get what you want."

As the Chicago Tribune rightly notes, "Donors and universities can agree to terms of a gift, but once the money is out the door, a benefactor relinquishes almost all control over how every dollar is spent."  

What's more, revoking a philanthropic gift is complicated, and in many cases, incredibly expensive.

"Donors put in as many conditions as they can, but a lot of it is subject to interpretation," said Richard A. Mittenthal, president and CEO of the TCC Group, a New York-based consulting firm for foundations and nonprofit organizations. "The violation of the arrangement has to be fairly significant for a donor to actually go to court."

As far as the Princeton lawsuit was concerned, approximately $40 million of the school's $100 million settlement payment was earmarked to pay for the Robertson’s lawyers.

What makes the Pearson story doubly intriguing is the fact that they've been down this road before. Thomas Pearson sued the Garrett-Evangelical Theological Seminary in 2011 to try to revoke an endowed scholarship, arguing the Evanston-based institution failed to meet his wishes about which students were qualified to receive the support. (That lawsuit was dismissed late that year.)

The Pearson Brothers drama certainly makes good copy, but for the time being, it remains a philanthropic outlier in the larger higher ed giving space where donors, however dissatisfied, don't want to deal with the financial costs and PR fallout of legal revocation.

But money still equals influence, and as universities become increasingly reliant on donor dollars, we should expect more drama in the future. After all, donor dissatisfaction manifests in different forms.

For example, in Kentucky, former Humana executive Bruce Perkins notified his alma mater, the University of Louisville, that he was pulling his multimillion-dollar pledges because of "extreme dissatisfaction with current leadership." (According to Tim Sullivan writing in the Louisville Courier Journal, "big money has been talking loudly" since the school fired athletic director Tom Jurich and basketball coach Rick Pitino last year.)

Last year, faculty members at Case Western University protested a donor's involvement in a faculty search. And many colleges have linked a decline in donations to alumni dissatisfaction with administrator's inability to stand up to student protesters and "political correctness run amok."

The pendulum also swings both ways.

Last year, Wall Street titan Kenneth Griffin made a $125 million gift to a school that was "fundamentally committed to free expression, fierce debate, and intellectual pursuit." The recipient school? The University of Chicago—the same school currently bracing for legal battle over a mega-gift originally earmarked for promoting world peace.