Scrutiny of Donors and “Reputation Laundering” is Growing Thanks to COVID and Protests

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In 2019, when concerns over Sackler donations were reaching a fevered pitch, critics characterized the family’s giving as a form of “reputation laundering,” defined by Saint Louis University Professor David Rapach as “when a donor uses a ‘gift’ as part of a PR effort to deflect attention from unethical behavior.”

If Rapach’s name rings a bell, it’s because I’ve written before about his renunciation of the John Simon Endowed Chair in Economics to protest the school’s ties to billionaire donor Rex Sinquefield. “In my view, reputation laundering is quite pervasive,” said Rapach.

The practice is as old as philanthropy itself. Critics leveled such charges against Andrew Carnegie and John Rockefeller, as well as Bill Gates, who embarked on large-scale philanthropy at the same time that Microsoft faced prosecution by the U.S. Justice Department for violating antitrust laws.

Rapach and others argue that philanthropy has been built on an implicit understanding that the rich and powerful give billions to paper over transgressions and legitimize their class in the eyes of a suspicious American public.

The dual tragedies of COVID-19, George Floyd’s death and the protests that followed are chipping away at this tenuous arrangement.

While the public appreciates the efforts of the billionaire class to combat COVID-19, critics have complained that they should be giving far more, while others wonder why we’re so dependent on undertaxed billionaires in the first place. Meanwhile, other commentators have argued that as long as companies and mega-donors refuse to acknowledge their complicity in perpetuating racial injustices, their support rings hollow. Sure, a donation is nice, but how about more diverse boards and workforces, better pay and protections for front-line workers, and cracking down on racist disinformation online, even if it affects the balance sheet?

While blowback against Big Philanthropy has been growing for some time, the idea of “reputation laundering” suddenly looks a lot different than it did six months ago.

How Do We Know it When We See it?

Any discussion about reputation laundering must start with a baseline, and for that, I’d nominate Raymond and Mortimer Sackler and their family, who not only profited from the sale of OxyContin, but presided over a company, Purdue Pharma, that pled guilty for misleading regulations about the drug’s addictive nature in 2007. The fact that the brothers and their family gave millions to organizations as the opioid crisis metastasized leaves the unmistakable impression that they were trying to burnish their reputation.

Rapach cited Charles Koch as another blatant reputation launderer. “‘Charitable’ donations by the Charles Koch Foundation are obviously designed to improve Koch’s tarnished image,” he told me. “Koch also often gives ‘gifts’ with inappropriate strings attached, which only adds to the problem.”

Then there’s ExxonMobil. “The company is a leading cause of climate change,” Rapach said, “engaged in a campaign to mislead the public about the reality of climate change, and then makes a spate of donations to purportedly support research to develop green energy. Accepting a donation from ExxonMobil provides tacit approval for its socially damaging behavior, including its distortion of research. And if we have to rely on ExxonMobil to fund research to address climate change, then we’re surely doomed.”

But cases of purported reputation laundering can be more nuanced than these examples. Consider Steve Cohen and his wife Alexandra. Steve’s hedge fund, SAC Capital, pleaded guilty to insider trading in 2013 and agreed to pay a $1.8 billion fine.

In the wake of this settlement, the Cohens stepped up their philanthropy. Steve joined the board of the Museum of Modern Art in 2016, and the following year, he and Alexandra donated $50 million to the museum’s capital campaign. In acknowledgment of the gift, MoMA renamed its largest contiguous gallery the Steven and Alexandra Cohen Center for Special Exhibitions. MoMA Director Glenn Lowry called the couple “incredible philanthropists.”

“The value of such a statement to Mr. Cohen’s reputation was inestimable,” noted Michael Massing in the New York Times.

Yet even as the Cohens have emerged as top tier philanthropists in recent years, few critics have questioned their motivations or demanded that organizations return their millions. There may be a few reasons for this. First, the couple engaged in extensive philanthropy before Steve’s legal troubles—suggesting an authentic commitment to giving. And second, Steve’s alleged misdeeds pale in comparison to, say, hooking millions of Americans on opioids or pleading guilty to sex trafficking. As for supporting MoMA, it’s well known that Steve has been a collector of modern art for many years, and he’s served on the board of MOCA in L.A. since 2012.

All of which is to illustrate how the degree of a donor’s reputation laundering lies within the eye of the beholder. But as we’ll now see, sometimes the public sets aside nuance and collectively draws a line in the sand.

A Seismic Shift in Public Opinion

Back in December of 2017, the New York Times’ Colin Moynihan wrote that “few institutions seem concerned that the money they have received may be tied, in some way,” to the Sackler family fortune. Leadership had good reason to think the storm would blow over, since “historically, museum audiences have not shown evidence of being terribly concerned about sources of income for museums,” said Susie Wilkening, a museum consultant in Seattle.

Michael Gross, author of Rogues’ Gallery, a social history of the Metropolitan Museum of Art, agreed. “Boards of museums in New York and the rest of the country have been washing machines for reputations,” he said. “Traditionally, New York has not cared if you’re red or blue as long as your money is green.”

But now audiences are concerned about the Sackler name on the walls of universities and museums like the Met, which announced it would stop accepting gifts from the family last May.

Artnet News’ Tim Schneider calls this shift in public opinion a manifestation of the Overton window. Named after Joseph Overton, president of the Mackinac Center for Public Policy, this concept “describes the range of outcomes that are politically acceptable at a given moment in time.”

The Overton window “can apply to any niche where public opinion determines outcomes,” Schneider wrote. “You don’t get decent-to-good Mexican restaurants in middle America without Taco Bell first establishing itself as a money-making fast-food chain nationwide.” Similarly, the Sackler Trust and the Dr. Mortimer and Theresa Sackler Foundation wouldn’t announce a pause in new giving were it not for the relentless advocacy from journalists, demonstrators and activist Nan Goldin calling on organizations to refuse Sackler money, return donations, strip the family name from its buildings and refuse donations.

“The Overton window for ethical philanthropy seems to be moving farther and faster than I’ve seen in my lifetime,” Schneider wrote in April of 2019. Three months later, however, it appeared that the Overton window was moving a bit too fast for some organizations to handle.

A Pre-Pandemic Cautionary Tale

In July of 2019, Warren B. Kanders stepped down as vice chairman of the Whitney Museum of American Art in the face of protests over his company’s sale of law enforcement and military supplies, including tear gas which had been used by U.S. Border Patrol agents against asylum-seekers trying to cross the U.S.-Mexico border.

Up until the moment when the protests started—demonstrators marched to his Greenwich Village home and posted his address on Instagram—no one accused Kanders of doing anything wrong. He presided over a company that sold a legal product. How could he be held responsible for how his customers used it? There was no “bad” reputation in need of laundering (although some would argue that future gifts from Kanders, who is quitting the teargas business, would be considered an attempt to rehabilitate his reputation).

The activist group Decolonize This Place (DTP) was instrumental in Kanders’ resignation. Echoing the idea that mega-donors use philanthropy as a vehicle for glorified reputation laundering, DTP’s Amin Husain said that institutions like the Whitney “make rich people look better in the way that they’re doing, kind of, philanthropy, but it’s not really philanthropy. And then at the same time, they’re getting all these write-offs and hiding their money. And then their money comes out in art objects. And these art objects are somehow worth $70 million or $20 million or $10 million.”

Kanders’ ousting sent shivers down the spines of fundraisers and affluent donors across the museum world. Fellow board member Kenneth Griffin quit in solidarity with Kanders, only to be talked back from the brink by chairman emeritus Leonard Lauder.

Griffin had a right to be concerned. If Kanders could be ousted for what he legally did for a living, what does that mean for, say, billionaire hedge fund managers? According to the New York Times, some 40 percent of the more than 500 people who serve on the boards of America’s most popular art museums “either work in the finance industry or derive their wealth from it.”

If these and other donors are pushed out the door, how do organizations expect to pay the bills? Contributions from board members, including a total of $10 million from Kanders, had accounted for between 10 percent and 12 percent of the Whitney’s $60 million annual operating budget. In early April, the Whitney laid off 76 employees and announced it was expecting a $7 million shortfall due to the coronavirus.

Around the same time Kanders resigned, protestors called on MoMA trustee Larry Fink to divest his BlackRock investment fund of private prisons, fossil fuels and environmental destruction. And in March, activists protested MoMA’s affiliation with Board Chair Leon Black, who demonstrators labeled a war profiteer because of his private equity firm’s ownership of Constellis Holdings.

“We savor the fact that these violent oligarchs are now sleeping with one eye open,” DTP said after Kanders’ departure. “We would welcome further action against them (Kenneth Griffin, Nancy Carrington Crown, Pamella DeVos, we see you!).”

The Great Pandemic Trade-Off

Pre-pandemic, some museums relied on board members for upward of one-fifth of their annual budgets. Now, they’ve laid off workers and are facing massive shortfalls. They’ve been unable to tap tech riches and realize that Uncle Sam won’t be throwing them a significant lifeline anytime soon. Similarly hit were American universities that already faced formidable demographic and financial challenges before COVID-19.

Have conditions altered the dynamic such that “the public” could be more forgiving if a Kanders-like donor rescues an organization or university from oblivion?

The idea has certainly occurred to fundraisers, Rapach said. “I understand that schools will face even stronger temptations to accept tainted donations in the current crisis,” he told me. “Indeed, I’m sure that wealthy elites will use the crisis to further increase their influence over our vital institutions, including colleges and universities. It is thus more important than ever to uphold appropriate ethical and academic standards in accepting donations. To my mind, accepting a tainted donation is never justified, regardless of a school’s financial situation.”

A piece by corporate social responsibility specialist Garrett Zink in Maryland Matters underscores how the evolving definition of a “toxic” donor collides with grim COVID-19-era financial realities.

Prior to reading the piece, I had never heard anyone refer to Michael Bloomberg as a toxic donor or a reputation launderer. He has donated more than $9.5 billion to a wide variety of causes, and his money has saved countless lives in developing countries by curbing smoking and supporting road safety initiatives. However, as Zink noted, Bloomberg also faced allegations that he fostered a hostile and sexist work environment while running his company, and as mayor of New York, he presided over a discriminatory stop-and-frisk policy. Bloomberg’s doomed presidential campaign was bad for his philanthropic brand.

“Despite the valid criticisms of Bloomberg,” Zink wrote, “nonprofits should openly accept his funding. With the impacts of COVID-19 heightening the urgent need for philanthropy, as well as creating uncertainty for many charitable funding sources, we would do ourselves and the nonprofit sector a disservice by creating a stigma around accepting Bloomberg’s money.”

Toward a “Higher Ethical Standard”

If commentators like Zink argue that organizations should cut donors some slack in the wake of COVID-19, Joe Dunning, the founder of Dunning & Partners, a consultancy to “help ethical businesses make a real difference to the visual arts,” sees calls for greater donor scrutiny intensifying, particularly in the wake of the deaths of George Floyd and Breonna Taylor.

“At the heart of all these protests is the same core message: Activists are calling on our institutions to hold themselves to a higher standard, whether on climate change, health or systemic racism,” Dunning said, before pivoting to the Great White Whale of fundraising: millennials.

Millennials, Dunning correctly argues, care deeply about social justice, and it would behoove museums and universities to stay in their good graces. What Dunning doesn’t fully define is what constitutes an ethically pure institution—the Met’s board of trustees includes Henry Kissinger!—and how, in the short term, debt-riddled millennials will plug the gaps in funding if alleged reputation launderers like Kanders find themselves kicked to the curb.

At the very least, Dunning’s analysis suggests that the Overton Window is shifting yet again. Just as anti-Sackler forces convinced the public to purge the family name from institutions, the public is setting new thresholds around what they’re willing to tolerate when it comes to the way companies and billionaire philanthropists address social justice issues in the wake of George Floyd’s death. Here are three examples.

• When Nike posted a video urging its communities to reflect on racial disparities, advertising consultant Cindy Gallop tweeted: “Not one black person on your executive leadership team. For a company that’s made billions out of black sports people and consumers. Change THAT.”

• “Our mission is to hold the [music] industry at large, including major corporations and their partners who benefit from the efforts, struggles and successes of Black people accountable,” read #TheShowMustBePaused website, which launched after Floyd’s death. Companies and donors responded, committing tens of millions to causes focused on fighting racial justice.

• And on June 6, a group of scientists receiving funding from the Chan Zuckerberg Initiative pleaded with Mark Zuckerberg to stop his company from spreading misinformation and language “that harms people or groups of people, especially in our current climate that is grappling with racial injustice.”

Considering our premise, is Facebook’s recent $200 million commitment in support of African American-owned businesses and organizations merely an attempt by Zuckerberg to launder his and reputation and that of the least-trusted tech company in the world?

Tech Donor Exhibit A: Jack Dorsey

I’d like to end by providing two additional examples of how COVID-19 and George Floyd’s death has redefined the idea of reputation laundering in the tech space.

In mid-May, Jack Dorsey announced he had donated over $87 million toward COVID-19 relief as part of a larger plan to give away $1 billion, or 28% of his net worth. Even the most strident tech critics begrudgingly gave Dorsey kudos. Research compiled by Ryan Schlegel of the National Center for Responsive Philanthropy found that Dorsey, along with a single staffer who oversees his philanthropy, gave more money to marginalized communities than 95 percent of U.S. charitable foundations. In mid-June, Dorsey made Juneteeth an official corporate holiday at Twitter.

It also didn’t hurt that unlike Facebook, Twitter stood up to Donald Trump, flagging the president’s tweets for “glorifying violence.”

Dorsey’s gift and the subsequent glowing press has created what branding consultants would call a “halo effect” on the Twitter CEO. This is a problem, argues Scott Galloway, a professor of marketing at NYU Stern. “All of a sudden,” Dorsey “no longer is subject to the same scrutiny as every other CEO, because unlike most CEOs, he has $1 billion to give away. So you want to like him. So these guys wrap themselves in a philanthropic blanket.”

Moving forward, critics of tech philanthropy (and Twitter shareholders) may be more likely to give Dorsey a pass and direct their ire at donors like Zuckerberg, who woke up in late June to find that the NAACP and the Anti-Defamation League began urging advertisers to pull their spending on Facebook ads for July, emphasizing the platform’s “repeated failure to curb hateful and false content.”

Tech Donor Exhibit B: Reed Hastings

The other example is Netflix founder Reed Hastings. If we were to apply the Overton window to the field of higher education, it would tell us that affluent donors tolerated the fact that no historically black college or university had ever received a gift exceeding $30 million. As recently as mid-May, this group of affluent donors included Hastings and his wife Patty Quillin, who had planned to donate $1 million to Spelman and Morehouse Colleges.

Floyd’s killing and the outrage that followed were “the straw that broke the camel’s back, I think, for the size of the donation,” Hastings told the New York Times’ Andrew Ross Sorkin. The size of the gift grew to $120 million, distributed equally between the two schools and the United Negro College Fund (UNCF).

No one, to my knowledge, is accusing the Netflix founder of trying to launder his reputation, and it’s easy to see why. Commentators have applauded Netflix’s efforts to promote diversity internally and create original programming aimed at traditionally underrepresented groups. HBCU proponents realize the Hastings/Quillin gift was the real deal because it directly addressed fundamental funding inequities across higher education. The gift also aims to shift the Overton window in terms of how white donors view HBCUs. “I think white people in our nation need to accept that it’s a collective responsibility” to support these historically underfunded institutions, Hastings said.

So far, Hasting’s gift is having its desired effect. UNCF President Michael Lomax said the money is already stirring interest from other donors.