How much say should donors have?Philanthropy Daily

For good and for ill, college has always been friendly to what John Stuart Mill called “experiments in living.” The quirky floormate, the old school Marxist professor, the extracurricular antics . . . for the most part, such eccentricities are remembered fondly. This nostalgia is, of course, one of the many reasons universities, especially elite ones, can raise so much money. It turns out that there’s no better pool of prospective donors than professionally successful alumni who reminisce about the good old days while crediting their alma mater for their success.

That is, until that alma mater becomes a fixture in the national news because vast swathes of its student body are calling for the murder of Jews, and university administration refuses to condemn their words or actions, instead pleading for people to understand the “context.” With this straw, the camel’s back broke, and a cohort of megadonors to Penn publicly renounced the university and pledged not to give another dime until fundamental changes were made. Last Saturday, Penn’s president, Liz Magill, resigned.

Donor Influence: Proper or Improper?

It remains to be seen whether this pressure from donors effects lasting change. For many, the incident raised thorny questions concerning donors’ influence over individual nonprofit institutions and over broader cultural and political change. Should donors be able to exert this level of influence?

The short, unsatisfying answer is: It’s complicated, and it depends. Specifically, much depends on the organization’s size and its type of influence. Smaller organizations are less of a concern; they have fewer stakeholders, fewer programs, and less bureaucracy. If the organization drifts substantially from its mission, it’s easier to right the ship, as leadership is (theoretically) more aligned on mission and responsive to stakeholders. If a donor tries to drag the organization off-mission, it’s easier to fend him off. In the most serious cases, the organization will simply close its doors. The stakes—that is, the impact on broader society—are far lower.

But what about for larger institutions? I have to confess my personal stakes: I went to Penn. And it is laughable to think that I, or any other alumnus on his own, have any influence, or even any way to deliver feedback on the place. A few of my current donors also went to Penn. In recent years, they have dutifully withdrawn their charitable support from the university and registered their complaints with the development office. They acted wisely, in my view, but they and I are clear-eyed about what happens next: A nineteen-year-old student intern—or, for a valuable giver, a twenty-four-year-old major gifts officer—skims their letter and tosses it in the trash. If they’re feeling particularly diligent, they might scan the letter and upload it to the Penn donor database, never to be viewed again.

Theoretically, stakeholders like me are represented by the board. But which board? Every school has multiple boards—governing boards, scholar boards, advisory boards—all the way up to the sacrosanct university board. But does the university board actually represent my, or any stakeholder’s, real interests? What do you do when university leadership abnegates its core responsibilities, and the governing board isn’t doing anything about it? Well, you have to get through to them by whatever means necessary. Or at least, that’s what these Penn megadonors thought. Were they correct?

The Role of Donor Accountability

I hold that donor accountability is generally a good and essential thing. Governing boards can’t oversee everything, and sometimes they get cozy with organizational leadership and lose their objectivity. In that case, donors can keep organizations accountable to maintain good financials, mission alignment, and a strong public reputation. Donor influence directed toward these ends isn’t particularly controversial.

Wading into specific, ideology-inflected issues is thornier. If donors—themselves unaccountable to anyone—can exert their influence this autumn at Penn, what’s to stop them from doing so more often, more widely, and on increasingly idiosyncratic issues? In my view, this worry is for the most part ill-founded. The timeline on which this unfolded makes it clear that Penn was preparing to batten down the hatches when the first megadonor sounded the alarm. It took a critical mass to topple Magill, and even now, it’s unclear what—if any—structural changes will be made. It’s also unclear to what degree Penn caved due to lost charitable revenue versus the public prominence of its aggrieved donors and their PR campaign. Penn can withstand the loss of a few hundred million dollars; a significant loss of prestige, less so.

The salient point here is that influencing the institution took a group of massive donors. It required an issue that a group of highly opinionated, highly influential billionaires agreed was a hill worth dying on. The more idiosyncratic the issue, the less likely such a consensus will be reached.

This prompts a further question: Are donors even equipped to keep institutions accountable? Replying to my argument above, donors would probably say that the incident at Penn resulted from university leadership straying from its core responsibilities. It isn’t a specific, ideology-inflected issue but rather a broader referendum on leadership failure.

But surely signs of leadership failure were present long before Magill stood down. How did these donors, who were giving hundreds of millions of dollars to the university, miss them until now?

Let’s return to where we started (aptly): the role that Penn plays in conjuring the good old days and advancing an alum’s professional success. The university makes artful and shameless use of nostalgia. Homecoming! Alumni reunions! The Palestra! Franklin Field! Hurrah, hurrah, Pennsylvania! Penn uses school spirit to prime the Quaker pump, then promises prestige in return for charitable giving. In this framework, accountability is an afterthought, even if you’re giving nine figures. Maybe most donors aren’t so “rational,” after all.