For Institutions That Got in Bed With a Toxic Donor, Here’s How to Make Things Right

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As the wealthy class and its philanthropy come under scrutiny, executives at universities, museums and other nonprofits are grappling with how best to navigate the legal, financial and PR-related minefields that come with returning toxic gifts. Organizations can typically choose from one of three options: return the gift to the donor, transfer the amount to an applicable charity, or hold on to it for a host of reasons ranging from the legitimate to the dubious.

Professor David Rapach of Saint Louis University, who recently renounced his John Simon Endowed Chair in Economics to protest the school’s ties to billionaire donor Rex Sinquefield, told me he suspects that many university presidents don’t return or transfer toxic donations because they “want to be perceived as rainmakers. To sleep better at night, university leadership convinces itself that good is being done with the donation, but it fails to adequately recognize the social harm of its inaction.”

Ohio State University, meanwhile, chose the “transfer” option after a nine-month inquiry into donations from Jeffrey Epstein. In early April, the school issued a statement saying the J. Epstein Foundation gave the Wexner Center for the Arts $260,000 from 1990 to 1997, as well as a $75,000 pledge that it never received. This is in addition to a $1,000 gift Epstein made to the Wexner Center’s Membership Fund in 1990, which OSU revealed last July. As a result, OSU announced it will donate the full amount of $336,000 to the Ohio Attorney General’s Sex Trafficking Initiative.

Given the nuances endemic to these kinds of gift arrangements, there is no “one-size-fits-all” playbook for organizations returning or transferring toxic donations. That said, the following six components of OSU’s approach stand out in a larger philanthropshere where organizations have failed to act with an equal sense of clarity and urgency.

1. A transparent and detailed accounting. EY, the national accounting firm formerly known as Ernst & Young, conducted the OSU inquiry, looking into fundraising documents, real estate transactions, and treasury and investment records back to before 1980. According to the school, the age and “non-digital nature” of many of the documents “were a challenge that added to the time needed to complete the analysis.”

Epstein’s donations to OSU’s Wexner Center for the Arts also dragged business mogul, mega-philanthropist, and OSU trustee Leslie Wexner back into the news. In July 2007, OSU initially reported a $2.5 million gift from the COUQ Foundation, Inc., of which Epstein was a director and officer. As IP’s Debra Nussbaum Cohen noted, Wexler provided the entire corpus of the foundation. However, OSU’s review found that this gift, which supported a renovation of the Woody Hayes Athletic Center, came from the Wexner Children’s Trust and the Leslie H. Wexner Charitable Fund, and not from Epstein.

2. A willingness to take a financial hit. Revoking a gift can be an expensive proposition. Even the due diligence of determining how to proceed can be costly. In the case of OSU, hiring an outside firm to spend nine months digging through 20 years worth of analog records came with a price tag of $98,000, according to OSU spokesman Ben Johnson. 

3. Erring on the side of generosity. Last year, Harvard announced it would donate the unspent portion of the roughly $9 million in Epstein donations to victim’s organizations. This total amounted to $186,000. “The majority of Epstein’s gifts were designated for current use, not as endowed funds, and nearly all were spent years ago for their intended purposes in support of research and education,” said President Lawrence S. Bacow in defending the skimpy payout.

OSU, on the other hand, included a $75,000 pledge that it never officially received in its $336,000 donation to the Ohio Attorney General’s Human Trafficking Initiative. Moreover, rather than use restricted donor funds, tuition or tax dollars, the school identified discretionary funds to make the donation to compensate for funds it had spent some 20 years ago.

4. Values transcend timing. Schools like MIT accepted Epstein’s cash after he pleaded guilty in Florida in 2008 to a state charge of soliciting a minor for prostitution. Four years after Epstein’s conviction, MIT President Rafael Reif personally approved a donation and went so far as to sign a thank-you note to Epstein. Meanwhile, institutions like Harvard, while justifying administrators’ decision to keep the money, noted it accepted Epstein’s donations before his conviction.

Epstein’s gifts to OSU, which came between 1990 to 1997, were made “at least two decades ago, and many years before any questions about Epstein surfaced,” the statement read. Nonetheless, OSU determined that “retaining these gifts would not be consistent with the university’s values.”

5. A transfer, not a return. In 2014, UCLA announced it would return Donald Sterling’s initial payment of $425,000 and reject the remainder of his $3 million pledge made to support basic kidney research by the UCLA Division of Nephrology after the then-owner of the local basketball team made racist comments about Magic Johnson. A noble move, no doubt, until you view the action through the lens of effective altruism.

Donald Sterling is worth approximately $3.6 billion. That $425,000 is a rounding error to him. An effective altruist would argue that UCLA would have made a far greater impact if it donated that money to an anti-racism organization.

6. A clean break. OSU made a clean break from Epstein. However, when it comes to toxic donations from the Sacklers, we’re seeing institutions like the University of Connecticut keep the money and redirect it toward opioid addiction treatment and education efforts at the school. This is a laudable sign of progress, an effective altruist would argue, but why not direct the funding toward fully operational organizations that are already doing this kind of work? Moreover, holding on to the cash can lead to a host of thorny ethical questions.

Last year, Tufts University announced it would remove the Sackler name from its buildings at programs, making it the first school to do so. The university will not return the money, however, a move that Forbes’ Evan Gerstmann called hypocritical. Noting that Spelman College returned Bill Cosby’s donations, Gerstmann wrote, “moral redemption doesn’t come for free… Tufts has made it abundantly clear that all this is about appearances and politics, not morality.”

A follow-up post will take a closer look at Tufts’ approach, and in the process, hopefully surface some takeaways for organizations struggling with how to handle toxic donations.