Hard Lessons From Princeton’s $900-Million Donor-Intent Lawsuit

The title of a new book about a high-profile lawsuit over how strictly colleges must adhere to a donor’s wishes makes clear where the author’s sympathy lies.

In Abusing Donor Intent: The Robertson Family’s Epic Lawsuit Against Princeton University, Doug White argues that Princeton’s Woodrow Wilson School of Public and International Affairs showed little interest in preparing graduate students for government service in international relations, despite what he sees as clear language in the gift agreement spelling out that goal.

The case drew wide attention, not just because it focused on an Ivy League university and a gift that grew to more than $900-million, but also because charities and donors were hoping for some judicial guidance on the issue of donor intent.

The six-year lawsuit was settled in 2008, and both sides claimed some measure of victory, leaving no “clear road map,” as Mr. White puts its, on how donors and charities can avoid such a legal morass when structuring and carrying out today’s megagifts.

Mr. White, a fundraising consultant who teaches at Columbia University’s masters program in fundraising management, and others who work with charities and donors say the protracted legal battle left just one set of clear winners: the lawyers for both sides, who netted fees of roughly $90-million.

That alone, they say, should drive home to charities the importance of writing carefully worded gift agreements and maintaining good relations with top donors and their heirs.

“There’s got to be an ethos at an organization that says, We care about those people who care about us,” Mr. White says in an interview. “That’s true of any organization, and that’s why this is a broader message than Princeton.”

Questions of Intent

In 1961, Charles S. and Marie Robertson, an heiress of a supermarket fortune, made an anonymous $35-million gift to expand the graduate programs at the Wilson School. William S. Robertson, their son, and other family members sued the university in 2002, saying that it had not adhered to the terms outlined in the gift agreement: to use the money to prepare Wilson School graduates for careers in the federal government, particularly the Foreign Service.

Princeton maintained that its spending was appropriate and that it used the Robertson money to build one of the best schools in the country for preparing students for government and public-policy work.

In the settlement, Princeton kept most of the endowment, but it agreed to pay the Robertsons’ legal fees and to transfer $50-million to a new foundation established by the family to prepare students at other colleges for government service.

Mr. White says there’s plenty of evidence of misspending—an audit by PricewaterhouseCoopers came back with a $200-million difference—but little evidence that Princeton tried hard to meet the goals set by the Robertsons. The Wilson School didn’t even ask on its application if students were interested in working for the government, he says.

“They could have gone to the Robertson Foundation with the data and said, What can we do about this?” Mr. White says, referring to the endowment established by the gift. “They didn’t do that. It’s the stewarding of this gift over time that is the issue.”

Mr. White says he decided to write the book after Mr. Robertson came to him with the idea. He retained complete editorial control, Mr. White says, though he acknowledges that he was paid by Mr. Robertson for two months of work when he was deciding whether to take on the project. Those payments aren’t disclosed in the book.

“It was not a lot of money, and it had nothing to do with my findings,” Mr. White says. “The outcome I came to was based on the research that I did.”

Robert K. Durkee, Princeton’s vice president and secretary, declined to comment on Mr. White’s book, but he pointed to a statement he made shortly after the lawsuit was settled, in which he argued that it was the Robertson heirs—not Prince-ton—who were trying to overturn their parents’ intent.

Cautionary Tale

Groups like the American Council of Trustees and Alumni, which has advocated for donors in disputes with colleges since the 1990s, say the Robertson settlement continues to serve as a cautionary tale for colleges.

“It was a shot across the bow, putting colleges on notice that they ignore donor intent at their own risk,” says Anne Neal, the council’s president. “Sadly, the mantra too often is, Give us your money and leave us alone.”

Mr. White writes that comprehensive board training is one way to minimize such disputes. Princeton’s board was hurried into accepting the Robertsons’ gift, he writes.

“If board members had gone through the process of understanding what is really involved in accepting a gift … a lot of trouble might have been avoided,” he writes.

In an interview, Mr. White suggests that perhaps larger charities should consider making “compliance with donor intent” an explicit part of someone’s job. That might require that someone monitor major endowed gifts on a technical level, tracking total spending and areas of spending, and report the figures back to donors annually. Such work would have a cost, but it could give a college or charity an advantage in seeking large gifts, Mr. White argues.

“If you can prove that you’re dealing with this issue correctly with past donors, your future donors will have that much less concern,” he says.

Care in Wording

Kathryn Miree, a fundraising consultant in Birmingham, Ala., says one legacy of the Robertson case is that charities and donors need to put more thought into the wording of gifts. She believes the Robertson gift grew so large it was unlikely that Princeton could have productively used all of the $900-million endowment to prepare Wilson School students for government positions.

If a donor wants to make a gift for a narrowly defined purpose, perhaps that vision should expire after 20 to 25 years and be replaced by a related but broader goal, she argues. As an example, she says an endowed professorship with tight restrictions—like specifying that a professor come from Oklahoma—might be structured in the gift agreement to provide that the fund undergo a transition into a fund that supports teaching excellence.

Charities also should consider the costs of monitoring and administering heavily restricted gifts in deciding a minimum contribution when such funds are established. Colleges and charities can spend up to thousands of dollars carrying out the provisions of some restricted gifts, reporting on them, and preserving an audit trail.

One of her charity clients, Ms. Miree says, doesn’t accept a restricted gift of less than $1-million. Others will “fight me to death” to accept such gifts at the $50,000 level, she says.

“I just want them to think about the costs they will have along with the $2,500 per year that the gift is producing,” she says. “How much does it cost them to track the gift and do it right?”

Issue of Costs

Such costs are one of the sticking points in a current donor-intent dispute at Sage Colleges, in New York.

Louis and Hortense Rubin set up a community-fellows program in 1990 in which professors from Sage and three other institutions would receive paid time off to work with a local nonprofit or government agency. The $500,000 gift has grown to nearly $1-million and has paid out $600,000.

But the program has been of dwindling interest among professors and nonprofits, and administering it has become increasingly costly for Sage, says Kevin Stoner, an associate provost. The gift agreement permits less than a quarter of spending to go to costs other than the fellowships—much less than the amount Sage must spend.

“We’re happy to do that,” he says. “It’s part of our commitment to the community.”

Nevertheless, the college would like to change the gift agreement to allow the institutions to use “all of their resources” to help the community—an approach that might involve student volunteerism, he says.

Betsey Rosenbaum, a daughter of the original donors, who are now deceased, says the proposed changes came after a new president and provost assumed leadership a few years ago.

“There was this big hunk of money and they decided they had better uses for it,” she says. “There isn’t anything wrong with student learning and volunteerism, but that wasn’t what my parents were interested in.”

She complained in emails and a letter sent to the president, Susan Scrimshaw, but says she didn’t hear back for more than three months. The college responded only after the American Council of Trustees and Alumni sent a letter to a top administrator and the entire board, Ms. Rosenbaum says. “The fact that we needed a third party to help us was truly disappointing,” she says.

Mr. Stoner says the college has always responded to Ms. Rosenbaum. “If she thinks the response wasn’t quick enough, or wasn’t the response she was looking for, she has a right to her perspective,” he says.

The college is abiding by the gift agreement while it presents options to Ms. Rosenbaum and her siblings about how the program focus could evolve, Mr. Stoner says.

Though not commenting on the Sage case specifically, Ms. Miree says the worst thing a charity or college can do is allow a disgruntled donor or heir to stew. As a case in point, she says, just look at the Princeton situation.

“If you can learn from other people’s mistakes, then this is a gift,” Ms. Miree says of the Princeton lawsuit. “This is an opportunity for the charitable sector to become stronger and better partners with their donors.”

Caroline Bermudez contributed to this article.