The paper below was given by Neal B. Freeman, chairman of the Foundation Management Institute, a student of philanthropy and a long time contributor to public policy. Though it was prepared for the Bradley Center for Philanthropy and Civic Renewal and Hudson Institute several years ago, I just came across it and wanted to share it with you.
What Mr. Freeman describes is all too common. Donors and prospective donors are wined and dined by their alma mater and other universities. School officials laugh uproariously at the target's jokes and consider his most prosaic observation profound. That is, they do until a short time after the gift is made. If he is at all conservative, none of his comments are contradicted. But the intents he has for his gift may be totally subverted over the passage of time.
Mr. Freedom describes The Robertson v. Princeton Case that shows that gifts to universities are "too important to be left to the lawyers." Let it be a warning. There are probably only a couple of dozens of institutions of higher education that can be trusted with your gifts.
It's a pleasure to participate in this program at the Hudson Institute. Back in my New York days, I spent memorable days at your original headquarters on the banks of the Hudson River. Your founder, Herman Kahn, would convene for marathon conversations an eclectic group of business leaders, journalists, academicians and military brass. Conversations with Herman tended to be highly autobiographical and on one of these occasions, Frank Cary, then the President of IBM and the only one of our number with the stature to do so, chided Herman for dominating the proceedings. Herman wheeled around - at almost 300 pounds, he was the world's largest physicist - and replied, "Frank, you don't understand. Some people learn through the eye by reading, others through the ear by listening. I learn through the mouth by talking."
Who knows, sometime during the course of these remarks I may become a wiser man myself.
You are all generally familiar with the Robertson v. Princeton lawsuit, the most important donor rights case since the Buck Trust case a generation ago. I will try to add some color and emphasis to accounts that have appeared in the press. I do so after stipulating that I am speaking only for myself and not for the Robertson family, nor - much as I'd like to - for Princeton University.
The story begins forty-eight years ago this month when a young and charismatic President exhorted his fellow Americans to bear any burden, pay any price in the cause of freedom. Two of those fellow Americans, Charles and Marie Robertson, patriots both, answered the call. They devised with officials at Charles' alma mater, Princeton University, a program to develop young Americans for government service in the international arena - Foreign Service officers, trade and development officials, intelligence analysts and such like. In 1961, to launch and sustain the program, the Robertsons made a contribution of $35 million. Inside the Beltway, that may sound like loose change spilled from a bailout bill. But it was at the time the largest contribution ever made to the university. It is thus useful to remember as this story unfolds that the Robertsons are one of Princeton's most generous donor families. It should also be noted that the Robertsons were private people who were assured by Princeton that their contribution would remain anonymous.
The new program, housed on campus at the Woodrow Wilson School of Public and International Affairs, got off to a promising start. So promising in fact that the rumor began to spread, and then take root, that the lavishly funded program was in actuality a CIA front. Fearing damage to its academic reputation, Princeton then asked the Robertsons for a second contribution - this time, the gift of their privacy. The Robertsons consented, their patronage was publicly acknowledged and Robertson Hall, designed by the eminent architect Minoru Yamasaki, became the visible symbol of the school.
Over the decades that followed, the Wilson School grew in reputation and influence, becoming both an ornament to the university and a resource for the nation. The initial Robertson gift of $35 million grew just as impressively. After giving away hundreds of millions to support the Wilson School, the Robertson Foundation - the supporting organization set up to administer the family contribution - had amassed assets of approximately $930 million by late 2007. This stellar investment performance, in perfect symbiosis, fueled the ongoing academic excellence. The Robertson Foundation - directed by a board comprising four university appointees and three family members - was regarded as an unqualified success; indeed, as a model of collaboration between a donor family and an academic institution.
Over time, of course, the founding generation gave way to successors. On the family side, Charles and Marie passed on and were succeeded in family leadership by their four children and a cousin. Leadership turned over periodically at Princeton, too, bringing in people who had not been present at the creation of the foundation and seemed to the family to be less collegial and, ultimately, less committed to the founding vision. As the years passed, squabbles over procedural issues began to harden into principled disagreements. In the view of the second-generation Robertsons, the foundation was falling victim to mission creep. They became particularly concerned that the Wilson School was no longer turning out enough first-tier candidates for the Foreign Service. In one cohort of 66 Wilson students, for example, only three had entered the Foreign Service. More from that same cohort had gone into management consulting, more into investment banking, more into exotic quarters of the financial services industry. While those professions may have been warmly esteemed in the offices of the Princeton Alumni Fund, they were taken as warning signals by the Robertson family. The Wilson School seemed to be morphing into some hybrid form of business school. As the data crystallized year to year, the Robertsons came to believe that mission creep had turned into mission deflected, if not mission aborted. Princeton seemed committed to a course that their parents had not intended and would not have supported.
After years of disagreement and contentious meetings, the family filed suit in July 2002. In their complaint, the plaintiffs sought what their lawyers referred to as the "death penalty" - the transfer of the Foundation's funds to other universities willing to carry out the Robertson mission. It is accurate to say that the lawsuit was filed and then pursued more in sorrow than in anger. Both of Charles and Marie's sons were themselves devoted Princeton alumni.
The university responded to the suit with a flurry of press attacks on the Robertsons - which I will not rehearse here - and launched a war of attrition designed to divide the family and exhaust its resources. And so the battle was joined...
Let me offer some observations on the winding course of this case that led to the settlement announced last month.
First, as Herman Kahn might have put it, a word about the correlation of forces. On the Robertson side, we had three first-class law firms - trial counsel in California, local counsel in New Jersey, settlement counsel in New York. We had two publicity offices. We had more than a dozen expert witnesses, each a brand-name specialist in some obscure corner of the nonprofit world. And we had a cadre of donors and would-be donors around the country that followed the case closely and provided sympathetic counsel. My own role fell under the category of litigation support, in which capacity I helped to give shape and direction to the case, while maintaining such coherence as we could between our twin campaigns, the one in the court of law and the other in the court of public opinion. (Yes, the great Irving Kristol was correct when he observed that the problem with contemporary society is that nobody can tell you what they do for a living in twenty-five words or less.) I had never been engaged in high-stakes litigation before, but I regarded our team as formidable, and likely to be irresistibly so. We had good people and plenty of them. That opinion was formed, alas, before the massed legions of Princeton University lumbered onto the field. In the conflict that followed, we might as well have been cast as the Tibetans, with Princeton as the Chinese army. What we discovered over the next six and one-half years is that if you walk down any corridor of New Jersey power - be it business, labor, law, media, finance, philanthropy or academia - you are likely to find ensconced in the corner office a chauvinistic Princetonian. You are virtually certain to find a person who hopes to send his or her children or grandchildren to Princeton. I have encountered such intensity of institutional allegiance only twice before. First at the US Military Academy. During my White House Fellows days, I was surprised to find that Army officers, by then well established in their careers, still measured each other by how they had performed in classroom and PT contests waged fifteen years earlier at West Point. Indeed, we know from their writings that even Eisenhower and MacArthur, well into late middle age, continued to eye each other through the prism of their performance as cadets. The other example is Yale. I returned to New Haven as a journalist in 2004, curious to learn why almost all of the stars of that political season had sprung from the same small college - George Bush, John Kerry, Howard Dean, Dick Cheney, Joe Lieberman. What I found at Yale was that curiosity ran elsewhere . . . to the question of how John Edwards had somehow managed to infiltrate their ranks. The point here is that Princeton was the home team and we were the visiting squad. Home court advantage was a factor from beginning to end, a reality that was punctuated by the home-town press coverage of the settlement itself. Readers of those stories could be forgiven for thinking that all of the issues had somehow been compromised away and that there had been no clear winner in the case.
Let me make a second point about the legal process. Watching big-time litigation up close should require parental consent. The process is nasty, brutish and long. Of the various motions filed by Princeton, none of them sought to sharpen the issue or resolve the case, all of them had the effect of delaying the proceedings, and not a few of them should have been memorialized on plaques in the Museum of Legal Nonsense. I am not a lawyer and I am thus not closely informed about the term "legal abuse," but to my untrained eye there was massive abuse of the system in this case. In her statement on the settlement last month, the President of Princeton opined that it was "tragic" that Princeton had been obliged to spend almost $40 million on legal fees - money that could have been better spent on education. I would observe, with due respect, that it was at the very core of Princeton's strategy to run up the legal bills and starve out the Robertsons. The Robertsons were ready - indeed, eager - for trial by 2004.
One result of a war of attrition is . . . attrition. On the family side, one of the original plaintiffs died. Members of the third generation grew to maturity and sought a voice in family councils. The original trial judge retired. His successor, swamped with administrative work, had to withdraw from the case. Her successor, a third judge, was called out of retirement to preside at trial. On the Princeton side, it should be conceded, there were signs of subtle improvement over the years, as the Wilson School seemed to tack back toward the original Robertson mission. I leave it to others to determine whether this late vocation was a matter of conviction or of case-related optics. Princeton even began a publicity campaign highlighting the contributions to public service made by its illustrious graduates. The results were mixed. One day I opened a document to find a glowing endorsement of the Wilson School from its distinguished alumnus, Eliot Spitzer. Shortly thereafter came the news that the Governor had been conducting interstate commerce at the Mayflower Hotel. He was quickly replaced in the campaign by equally devoted Wilson alumnus, Anthony Lake, about whom we have heard nothing but good things. And on the investment side, performance turned dramatically, from what had been notably good to what became alarmingly bad. Over the past year, the Foundation fund, as a consequence of Princeton's huge bet on so-called alternative investments, has plunged precipitously. In its ill-fated attempt to out-Yale Yale in investment performance, Princeton had loaded up on private equity, hedge funds and other illiquid assets. My guesstimate is that at the time of the settlement the fund had declined to $585 million. (I should note that Princeton has disputed this figure, while declining to release supporting data.)
Let me comment, finally, on the settlement and what it means for the world of philanthropy. Just to remind you of the facts: Princeton paid $100 million to settle the Robertson lawsuit, the largest "donor intent" award in history.
One of the most heuristic documents produced during the discovery process was an audit of Foundation spending. One of the Big Four accounting firms, PriceWaterhouseCoopers, had been commissioned by the family to conduct a forensic audit of Robertson Foundation accounts. What PWC found was that large chunks of overhead had been misallocated, that professors and other personnel had been improperly billed to the Foundation, that the construction of a building unrelated to the Robertson program - a building! - had been charged to the Foundation. In total, according to PWC, more than $100 million of Foundation funds had been misused by university officials.
Now, as it happened, the trial structure prescribed by the court would have begun with a presentation by the plaintiffs of the basic PWC findings. Day after day, a chronicle of Princeton's alleged misdeeds would have unfolded in the media capital of the world. Even at this distance, one can almost hear the taunts of the tabloids, the clucking of The New York Times. In my view - regardless of the verdict in the trial -- Princeton's reputation would not have been stained: It would have been irreparably damaged. For Princeton to settle was a thoroughly rational decision.
The family had its own calculus of concerns. You've all heard the wisecrack, "If somebody says -- 'it's not the money, it's the principle of the thing' -- you can bet it's the money." For the Robertson family it was, clearly, about the money and the principle. They wanted the money to carry out the original intentions of their parents to develop young talent for the Foreign Service and especially now, when a young and charismatic President has called on his fellow Americans to regenerate the soft power of diplomacy. The Robertsons also sought to uphold the lapidary principle that when a contribution is made for Purpose A, it cannot and should not be diverted to Purpose B. They sought to uphold that principle not only for their own family, but for donors and grantees everywhere. They succeeded. For donors, this case has brought a heartening example; for grantees, a sobering effect.
There were absolutists on both sides of the case - those who sought, on the one hand, a Mosaic reaffirmation of the Eighth Commandment or, on the other, a clarion declaration that donor rights should expire the moment the check clears. The absolutists were destined for disappointment at trial. In all likelihood, the verdict would have turned on an esoteric legal point, a conclusion fascinating to a few dozen lawyers and frustrating to a few million laymen. I sense no buyer's remorse on either side. The Robertsons reclaimed funds sufficient to the family task and secured at least for this generation the principle of donor rights. Princeton, for its part, was publicly embarrassed and financially penalized, but it managed to avoid the death penalty. Even before the legal contest was resolved, Princeton set up a new Office of Stewardship, whose responsibility it is to conform campus spending with donor intention. At this moment in time, the safest place on the planet for donor intent may well be Princeton, New Jersey.
At the risk of grandiosity, let me conclude by stating what I think this case means. At the heart of every charitable contribution is the concept of trust - trust by the donor that the grantee will do what he has agreed to do. If that trust is allowed to erode, if the donor can no longer rely on the grantee's assurance, then charitable contributions will decline and the civil society they sustain will decline along with them. If that were to happen - if the private, voluntary, civil society that Tocqueville first acclaimed, and that the Bradley Center still celebrates, were to wither away - America would abandon one of its defining national traits. Absent a vibrant civil society, only government would be left to fill the social vacuum and the America of tomorrow would come to look very much like the Europe of today.
As you work your way through your list of New Year's resolutions, please remember to thank the Robertson family. They have rendered a public service in the highest traditions of the Woodrow Wilson School.
Neal B. Freeman is Chairman of the Foundation Management Institute and can be reached at firstname.lastname@example.org.