Withdrawal of $250-Million Gift Points to Need for Formal Donor Contracts

Centre College’s loss of an expected $250-million gift has inundated the Kentucky liberal-arts institution with tough questions from supporters that the institution says it is trying to answer honestly—an approach that experts say is the best way to win back donors’ trust after such a public embarrassment.

The withdrawal of the donation, which would have doubled the college’s endowment, offers lessons for nonprofit officials about the importance of hammering out gift arrangements before announcing them to the public.

Just weeks after announcing the gift from the A. Eugene Brockman Charitable Trust, Centre College said this month it would not be receiving the money after all.

In 2011 the trust gave the institution $19.5-million to finance a residence hall, and during the summer the trust said it would donate stock worth $250-million to the college.

The recent gift was to have been made possible through a $3.4-billion refinancing by Universal Computer Systems Holdings, which owns Reynolds and Reynolds, a business that develops software for automotive dealerships. But the refinancing deal fell through after the credit-rating agency Moody’s evaluated the deal as risky since the company would take on substantial debt. The trust was to be a major shareholder in Universal Computer, which is led by Robert Brockman, the son of Eugene Brockman.

Robert Brockman attended Centre College for two years and was chairman of its Board of Trustees for five years. (He resigned that post a few weeks before the gift was announced.)

Strong Relationship

The prospect of receiving such a big gift prompted Centre College to take the risky move of announcing the donation before the arrangement was finalized, Richard Trollinger, the institution’s vice president for college relations, told The Chronicle in an e-mail.

The college didn’t realize the deal might not occur, Mr. Trollinger wrote, and because the trust and the college had a strong relationship in the past, no written contract had been worked out. Nor had there been a contract when the trust gave the college $19.5-million for a residence hall, he noted.

John Cash, chairman of the Marts and Lundy fundraising consultancy, says he is surprised that the college accepted the gift without a written agreement.

“Having a written gift agreement may not be a legally binding document, but it’s certainly a clear statement of intent and understanding of what needs to be done,” Mr. Cash says.

However, he says, it’s easy to understand why Centre College felt confident in announcing the gift. As a former fundraiser at the University of California at Berkeley, Mr. Cash says he has seen many cases in which trustees have made gifts of their companies’ stock to colleges.

“I do think it’s important to remember that this family had a long history of support for Centre College and in fact made some of the largest gifts in the college’s history, so there was certainly reason to think they would be able to deliver on this donation.”

Need for Counsel

Mr. Trollinger says that, in retrospect, it was a mistake to announce the gift before the corporate refinancing was done. But he says the institution felt compelled at the time to go public with the information after Moody’s released a report indicating that Centre College would be acquiring stock in the company worth $250-million.

Almost immediately, Centre College donors, especially those with a background in finance, started asking why the college was apparently investing what seemed to be its entire endowment in one company.

That prompted Centre officials to secure the approval of Evatt Tamine, the sole trustee of the A. Eugene Brockman Trust, to announce the gift

A gift of such magnitude is a dream come true for every fundraiser. In fact, it might be too good, cautions Betsy Brill, co-founder and president of Strategic Philanthropy, a firm in Chicago that advises families and foundations on giving.

“For smaller and medium-sized institutions, it’s important if you don’t have the in-house wherewithal that you get appropriate external advice and counsel before accepting gifts of this size,” she says.

Mr. Trollinger says the college assembled a trustee advisory group that included its chief financial officer and in-house lawyer to make decisions about the gift. It also hired an outside law firm for additional guidance.

But a lingering challenge the college may face is reassuring alumni and others that the institution is well run under the guidance of trusted advisers.

John Wood, founder of Room to Read, a charity that builds schools and libraries in the developing world, says he experienced a similar situation in 2008 when a donor he declined to disclose withdrew a promised $5-million donation, the biggest ever made to his organization.

Mr. Wood decided to rally Room to Read’s 10,000 fundraising volunteers all over the world, acknowledging the lost pledge in a series of speeches.

His candor, he says, paid off. From 2008 to 2009 alone, Room to Read’s revenue grew by 26 percent. And the donor who withdrew the $5-million has since become a reliable contributor.

For all of his charity’s success, Mr. Wood is cautious in seeking big gifts.

“You can’t be too dependent on any one donor,” he says. “No single donor is greater than 5 percent of our annual budget.”

Possible Upside

Centre College could find, in the end, that all the attention it got for the announced gift and the subsequent withdrawal works to its benefit.

“Frankly, it puts the institution on the map,” says Ms. Brill. “For those donors who were already in the purview of supporting Centre College, this may give them some ammunition to really want to step up.”

Mr. Cash is not so sanguine. “I’ve worked with institutions that have suffered very public embarrassments,” he says. “This is a time to hunker down and really start communicating effectively with your alumni and your close friends, keep them very close to you to make sure they get the true story from the perspective of the college.”

Centre’s chief fundraiser, Mr. Trollinger, says he thinks that approach is working. “We have been encouraged by the many expressions of support we have received from alumni, friends, parents, and others,” he wrote.

He says he has been in contact with the Brockman trust since the withdrawal and the trust intends to donate to the college in the future.

For now, the college is proceeding with a $500-million campaign it announced when it unveiled the Brockman donation, although the goal may change based on the results of a feasibility study to be conducted later this year.

Mr. Trollinger says he has little regret. “It was a risk worth taking and I can live with the resulting embarrassment,” he wrote. “It’s still true that it is better to have loved and lost than never to have loved at all.”