"It's a Gift. It's Not an Obligation." Donors Revolt After a University President Is Pushed Out

 photo: Ken Wolter/shutterstock

photo: Ken Wolter/shutterstock

In a recent post about Timothy and Thomas Pearson's efforts to cancel their foundation's $100 million gift to the University of Chicago, I wondered if we were entering a precarious new era when influential donors revoke donations with greater frequency and boldness.

If developments out of Las Vegas are any indication, the future looks rather ominous. Earlier this year, news percolated throughout the University of Nevada Las Vegas (UNLV) community that President Len Jessup was on his way out. Jessup had come under fire from the board of regents for, among other things, the rising cost of UNLV’s new medical school and the university’s handling of its dental school.

Not so fast, said the Engelstad Family Foundation.

After the foundation caught wind that Jessup was looking for a new job, it rescinded a $14 million pledge it made to the university's planned medical education building in December. 

Two days later, an anonymous donor who pledged $8 million toward a scholarship fund endowment notified the UNLV Foundation, the university’s fundraising arm, that he, too, would rescind the gift if Jessup were to resign or be fired.

And an unnamed mega-donor who contributed $25 million to the medical school, which drew a $25 million match from the state, told the Las Vegas Sun that the uncertainty surrounding Jessup had prompted her to reconsider the gift and future contributions to UNLV.

The complex, high-stakes drama, befitting Las Vegas, reveals how personal motivations compel donors to give to schools starved of public funding. And while donors have always exerted some degree of influence over recipient universities, the UNLV imbroglio ups the ante to a whole new level.

"Even With Philanthropy, It's a Transaction"

Let's start by looking at the funder at the center of the drama, the Engelstad Family Foundation.

Ralph Engelstad (1930-2002) was the multi-millionaire owner of the Imperial Palace casino-hotels in Las Vegas and one of the largest real estate owners in the United States. Before he died, he set in motion a plan to create a foundation to direct his family’s wealth back into Nevada communities.

Since its inception in 2002, the foundation had donated over $225 million with a particular focus on educational scholarships, medical research, and assistance to the disabled.

Gifts include a $2 million grant to support a public school-based community program created by the Latin Chamber of Commerce and Boys Town Nevada, $15 million to the Nevada Cancer Institute, plus an additional $20 million for lung cancer research and infrastructure, and 2017's $10 million pledge to advance the opening of Nevada's first private, non-profit, MD-granting medical school in Summerlin.

In November of 2009, it endowed $12.625 million to create the UNLV Engelstad Scholars Program. At the time, the gift was the largest active scholarship in the university's history and the largest endowment in the history of the Nevada System of Higher Education. 

So why did the foundation withdraw its $14 million gift from last December? In mid-March, trustee Kris Engelstad McGarry elucidated the foundation's thinking: "Part of our proposed commitment to them was predicated on the fact that leadership did not change," she said. "We rescinded that grant today. We are completely dedicated to the scholarships we have in place for the undergraduate and medical school students, but we don’t trust the stewardship of the board of regents to handle our money, sadly."

“Even with philanthropy," McGarry continued, "it’s a transaction, and both parties have to fulfill their end, and they did not."

Which brings us to the details of the transaction. According to the terms of the agreement between Engelstad Family Foundation and the UNLV Foundation, the construction of UNLV’s new medical school building included a provision that Jessup and medical school Dean Barbara Atkinson keep their jobs through 2022.

Jessup signed the agreement nine days after he received an evaluation that detailed "several weaknesses" in his job performance.

The timing raised ethical concerns around "self-dealing," compelling Thom Reilly, chancellor of the Nevada System of Higher Education, to seek an outside legal opinion. Scott Abbott, a lawyer retained by Reilly, found the agreement could be perceived as a "pre-emptive strike" in response to Jessup's unfavorable review, and that signing the agreement gave him a "significant financial benefit" as it would guarantee him nearly $1.6 million in salary.

"While Dr. Jessup may claim that he did not negotiate his continued employment as a condition for the donor's gift, the optics are appalling," Abbot wrote.

The Engelstad Family Foundation's McGarry was unmoved. "It’s not a self-dealing issue," she said. "It's a donor-preference issue."

Fair enough, but it's pretty rare for universities to agree to stipulations pertaining to personnel, much less a university's president. As an unnamed fundraiser told Inside Higher Ed, "Any gift agreement that encroaches upon university governance, especially at the highest levels, should not be accepted."

The closest analog here is a $40 million gift from Michael and Marian Ilitch, founders of the Little Caesars Pizza chain, to Wayne State University. Among other things, the agreement called for the university to consult the Ilitches or their foundation regarding the business school's curriculum.

But again, gifts of this nature are typically few and far between. While donors attach strings all the time, administrators aren't particularly keen on donors meddling with the hiring machinations of the university system, much less dictating who should be president.

Speaking to the Las Vegas Review-Journal, Regent Mark Doubrava sought to clarify matters, saying, "It is the board’s authority who will be a college or university president, and the board’s authority determines the terms of their employment contract.

"I would consider it a slippery slope to accept a gift that tries to usurp the board's authority."

Irrational Actors?

Of course, the idea of dissatisfied donors withholding money from a university isn't new. The New York Times recently suggested that alumni donors dialed back giving in response to their alma maters' unwillingness to put a lid on the political unrest roiling campuses a few years ago. 

And earlier this year, we learned that "big money has been talking loudly" since the University of Kentucky fired athletic director Tom Jurich and basketball coach Rick Pitino.

Conversely, there's the saga that unfolded at the University of Virginia a few years ago, in which donors allegedly played a role in pushing out its president, Teresa Sullivan, before she was later reinstated. Big donors have strong opinions on how universities are run. They often throw around their weight, sometimes in ways that overreach. 

As for UNLV, the anonymous donor also cited the departure of Jessup as the reason for the revocation of his gift.

"My investment in the university is largely based on my belief in the strength of President Jessup’s successes, as well as his extraordinary vision and ability to execute thereon," the donor wrote to the UNLV Foundation, before adding that the Board of Regents has "a personal vendetta against Len, and that’s what they're acting on."

It's also important to put the Engelstad Family Foundation and the anonymous donor's sentiments within a larger context. If it's one thing donors crave in any philanthropic relationship, it's stability. Unfortunately, stability has been in short supply at UNLV. Jessup, who was installed as president in January of 2015, was UNLV’s fifth president since 2006. 

Writing to the UNLV Foundation, the anonymous donor said that Jessup "accomplished an amazing number of things in a short time. Without him there, there’s an awful lot of question marks."

Meanwhile, Kris Engelstad McGarry chafed at the idea that the school was somehow entitled to her foundation's hard-earned and savvily invested millions. "I think they forget it's a gift. It's not an obligation," she said.

But boy, UNLV could use those hard-earned and savvily invested millions.

According to National Association of State Budget Officers, for the fiscal year 2015, higher education spending accounted for 6.8 percent percent of Nevada's total expenditures, putting the state behind California (7.2 percent) and Arizona and Utah (12.7 percent). It seems particularly counterproductive that the anonymous donor would withhold $8 million toward a scholarship fund endowment simply because he disagrees with an administrative decision. 

The school is also feeling the impact from the Engelstad revocation. The Nevada Independent found that "stagnant philanthropic giving and a university presidential search will likely delay construction of UNLV’s medical school, which is still tens of millions of dollars below targeted fundraising goals."

The main takeaway here should be abundantly clear by now. As universities become increasingly reliant on philanthropy, donors are wielding greater influence. Sometimes, this influence will clearly be for the greater good. Other times, this influence will lead to decisions that may be perceived as unfair, if not self-defeating and arbitrary. 

This fact opens up a Pandora's Box of questions, which include: Should a handful of donors have such a disproportionate amount of influence over a state school system? (It's less than ideal.) Would we be having this discussion if the Engelstad Family Foundation was rescinding, say, a $500,000 donation? (It's highly unlikely.) And, perhaps most importantly, is this any way to fund a university? (Fair enough, but what's the alternative?)

More Trouble Ahead

Less than a month after the Engelstad Foundation rescinded its gift, Len Jessup, citing what he described as "unfounded and unjustified" attacks by members of the Nevada Board of Regents and Chancellor Thom Reilly, announced that he was reluctantly leaving the university.

Jessup accepted an offer to become president of Claremont Graduate University in Southern California. He will begin his duties there effective July 1.

End of story, right? Not quite.

In the wake of Jessup's departure, Kris Engelstad McGarry laid out her counter-attack to the Las Vegas Review-Journal. A collective of donors is working to push for an effort to restructure the board of regents in the 2019 legislative session. 

"There’s no putting the genie back in the bottle,” she said. "We will continue to expose them for the fraud that they are."

"Our options for giving outside the state are innumerable," McGarry continued. "I have no desire whatsoever to give anything to this university system as long as this board of regents system is intact."

This is ugly stuff—indeed, one could call it "blackmail"—and while I wish I could say the UNLV situation is an outlier, I'm afraid it's probably more of an omen. The Engelstad family aren't the only mega-donors in the country with a desire to mold a recipient university in their image through either addition or subtraction.