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University Foundation Bust-Up Puts Focus On Big Gifts

Tom Burroughes, Group Editor, New York City , March 8, 2018

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The saga sheds light on some of the problems that can arise when UHNW donors create foundations and become unhappy about how such organizations are run.

A $100 million charitable bequest to finance conflict-resolution research via the University of Chicago has turned into a bust-up of its own, according to media reports. The case may raise questions over the understandings entered into by the creators and operators of such organizations - a key issue amid recent major bequests by ultra-high net worth individuals.

In 2015, Thomas L Pearson and Timothy R Pearson donated the money to the university to create a research institute bearing their name to push the cause of world peace. But the Pearson Family Members Foundation wants to reclaim the $22.9 million it has paid so far, alleging in a lawsuit that the school breached its obligations under the grant agreement.

The Pearsons, who aren’t alumni, allege the university failed to deliver on its obligations under the grant agreement (source: Bloomberg, Wall Street Journal, other). The family are unhappy about budgeting and hiring decisions as well as being excluded from guest lists for gatherings. One report said the institute held at least 24 events in the 2016-17 school year but "failed to apprise the Pearson family of, or invite them to, at least 22” of them, according to the lawsuit.

As chronicled by Family Wealth Report last fall, a number of large universities in Illinois, such as the University of Chicago, have received multi-million dollar donations, shedding a light on how such large gifts have become a feature of philanthropy from ultra-high net worth families, often using new forms of foundation. Last year, for example, Ken Griffin, founder and chief executive officer of investment firm Citadel, donated $125 million to the University of Chicago's Department of Economics. (See other examples of such donations here and here.)

FWR has contacted the Pearson foundation about the issue. A central issue, FWR understands, are the types of agreements, such as a form of "memorandum of understanding", that form part of the structure of any foundation, covering the stated wishes of the founders, use of money and other objectives. Susan Winer, chief operating officer of Strategic Philanthropy (and a judge for this year's FWR awards, to be announced later today) has written about the issues involved around major gifts. See here.

Media reports quoted a University of Chicago spokesperson as saying the Pearsons’ compliant lacked merit and that the school will “vigorously defend itself against the baseless allegations”.

At the time of the Pearsons’ donation, it was the second-largest in the school’s history, surpassed by Griffin’s donation.

“The Pearsons believe their story is a cautionary tale that should give pause to any family, philanthropist, benefactor or donor who is considering granting a university any amount of money - large or small,” the foundation said.

The twin Pearson brothers wanted their institute to push a data-driven approach to help end violent conflicts.

 

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