What You Don’t Know Can Hurt Your Institution.

Diversity, Equity, and Inclusion in Philanthropic Giving

By Kathy Johnson Bowles    //    Volume 29,  Number 6   //    November/December 2021
Takeaways

  • Does your institution know the history, purpose, and intent of the philanthropic gifts held? Unknowingly or knowingly, an institution may hold assets that perpetuate discrimination, sustain the power and privilege of the few, or hold assets gained through exploitation.
  • The cost of accepting ethically bankrupt gifts for higher education institutions can be high—threats to reputation, standing, ability to fulfill the mission, and financial support, as well as the potential for litigation.
  • Institutions should proactively take measures to imbue the tenets of diversity, equity, and inclusion into gift management. Governing boards must allocate the time and resources necessary for constant questioning, adjustment, realignment, and vigilance.
  • Trustees must work with staff and outside experts to guide decision-making of philanthropic giving. Governing boards should also facilitate systems that enable rigorous vetting, assessment of risk, the ability to say no to a gift, and the regular review of assets and purposes.

In 2020, the Los Angeles Times and other major news outlets broke damning stories about the University of California, Berkeley (UC Berkeley) and one of its endowments, the Genealogical Eugenic Institute Fund. Eugenics, a now-discredited field, is the racially biased study and practice of selective breeding to improve the genetic quality of the human race by excluding groups of people deemed inferior. Hitler used eugenics theory to justify the Holocaust.

According to an Inside Higher Ed article by Colleen Flaherty, UC Berkeley’s Genealogical Eugenic Institute Fund was established in 1960 by the Rogers Family Foundation. The University of California system received the funds in 1975, and documented expenditures first appeared in 1987. Annually, UC Berkeley promoted the fund, which recently amounted to $70,000 in available research funds from the earnings of the $2.4-million endowment, to faculty. After receiving an email encouraging faculty to apply for research funds from the Genealogical Eugenic Institute Fund, bioethics professor Osagie K. Obasogie lodged a complaint with the university with support from other School of Public Health faculty. These facts beg questions. Why does one of the most prestigious institutions hold funds for a morally corrupt practice? How does this happen?

And, yet, institutions around the country and the world find themselves at risk every day. Unknowingly or knowingly, an institution may hold assets that perpetuate discriminatory viewpoints, sustain the power and privilege of the few, or hold assets gained through subjugation and exploitation of other beings. Some institutions may have assets designed to support inclusivity but are unintentionally discriminatory. Numerous examples exist, such as funds to support programs and scholarships, buildings and monuments, and museum artifacts.

Does your institution know the history, purpose, and intent of the philanthropic gifts held? What you don’t know could hurt your institution. This article explores how assets of discriminatory and questionable moral standing like the ones at UC Berkeley are held by institutions and go unchecked, and how institutions can proactively and continuously take measures to support the tenets of diversity, equity, and inclusion in philanthropic giving.

A Chasm of Accountability: “It’s Not My Job”

The occurrence at UC Berkeley represents a fundamental disconnect between governance, administration, and employees. What happened in this situation was not an isolated instance of a charitable organization holding assets that represent discriminatory aims. Instead, it points to a systemic issue common to many institutions in which protocol for accepting funding lacks accountability measures. Responsibility to prevent the acceptance of ethically unjustifiable funding is often intentionally or unintentionally abdicated.

Charitable gifts typically enter an institution through one of several gates. In the case of UC Berkeley, assets of one foundation were transferred to the University of California system and then assigned to the UC Berkeley. Granted, this dynamic does not happen often. Most commonly, the development function of an institution directly receives gifts.

The following describes the process by which the transfer of assets from one institution to another may occur. In the event that a charitable organization wishes to or is forced to disband for whatever rea- son, the funds are transferred to the state as directed in the organization’s original charter or by other measures afforded by law. The state rules on what entity is best suited to use the funds. If the funds support research, a university may be the recipient. The university may or may not have a say in receiving the funds; it is dictated to them. The transaction only concerns the question of lawful ownership of the assets. Likely, the question, “Is this fund ethical?” goes unchecked and unexplored because that is not a legal consideration.

After the university receives funds, whether through a transfer from one institution to another or by a direct contribution, the institution’s finance function accounts for and invests the funds. Investment and spend policies guide decision-making. Annual available earnings are distributed to those responsible for directing and operationalizing the funds. The fund is an abstraction, a numerical construct in a chart of accounts. Amounts are assigned for the corpus and the spend account. These categories represent monies allocated for investment, available to spend, and monies spent. Management follows accounting rules, focuses on sound financial management, and ensures funds are spent on the intended purpose. It is not the responsibility of the finance function to question or even understand fully the goals of the funder. The role is simple: manage, notify, record, and comply.

At the faculty and staff level, the notification of ethically questionable funds available can be received in several ways. First, people might ignore the information if they are too busy to request funds, or the restrictions on the usage of the funds render the funds impractical. Second, people might notice that the fund’s goal represents intellectually and morally bankrupt ideas but feel they have no power to say what they think, or they might think if they do say something, they will put their research and career in jeopardy for challenging the administration. Third, they might apply and use the funds knowing of the funds’ dubious nature. And fourth, they might apply for and use the funds without questioning the ethics of doing so.

In the case of UC Berkeley, Professor Obasogie’s actions were extraordinary as he accepted the risk of being vocal out of moral obligation. He used his credentials and authority to speak out during a moment in time when those outside the academy were poised to listen, and external pressure could cause change. Ultimately, the university decided to rename the fund and its purpose.

However, it is not the sole responsibility of an individual to question whether a philanthropic gift represents discriminatory, corrupt, and unlawful aims, and Obasogie’s actions should not have determined whether the UC Berkeley situation was handled appropriately. The responsibility rests on the governing bodies to facilitate systems that enable rigorous vetting, assessment of risk, the ability to say no to a gift, and the regular review of assets and purposes.

It Is (and Is Not) All About the Money

A governing board’s measure of success for any president, CEO, or executive director of a charitable organization is the monetary value of gifts received. The amount of funds raised annually is a primary, objective measure of success in development offices at all institutions. Every year, the goal is to beat the previous year’s numbers. However, a focus on bringing in revenue without accounting for the potential costs of a gift represents a significant risk.

Considering the cost of a gift is not a new concept. Most institutions have confronted this issue at some time or another. For example, if someone wants to give an institution a yacht for environmental science research and an endowment valued at $1 million, the gift seems great on the surface. But the cost of operationalizing the gift must be investigated. The coast is four hours away from the institution, warranting significant investments in time and fuel. The yacht has a requirement of four crew members, which is an appreciable cost and also limits available space for students, researchers, or professors. In all, costs associated with the crew, insurance, fuel, maintenance, docking, and storage are found to exceed the endowment’s annual spendable earnings. In this case, the gift shifts from seeming like a great idea to evidently being a poor financial decision. Most trustees would rightfully reject the gift.

But when it comes to diversity, equity, and inclusion, are trustees and senior leaders willing and able to apply the same type of rigor in vetting? Are gift officers trained to recognize discrimination? Are they prepared to explain to a donor why a gift cannot be accepted? Is there a means of encouraging and recognizing gift officers who make tough decisions to question gifts and recommend that certain gifts should not be accepted from donors? The answer to all these questions is, oftentimes, likely not. But institutions should manage their development function in this way, because paying attention to diversity, equity, and inclusion is a moral imperative that can also have severe economic repercussions.

The cost of accepting ethically bankrupt gifts to a charitable institution can be high—threats to reputation, standing, ability to fulfill the mission, and financial support of the main body of constituents, as well as potential for litigation all exist. Early in 2019, protesters rallied at numerous major institutions to call out the institutions accepting contributions from the Sackler Family. The Sackler’s fortune was built from Purdue Pharma profits gained through the sale of OxyContin. Predatory marketing practices of the highly addictive painkiller have been blamed for fueling the opioid crisis. By March 2019, numerous museums vowed to reject Sackler contributions, including the Metropolitan Museum of Art, the Guggenheim Museum and Foundations, and the American Museum of Natural History. Many museums also removed the Sackler name from built spaces. These actions represent reactive measures born of public outcry, not proactive policy setting and creating a system focused on due diligence and risk management.

Building in Institutional Values: Gift Acceptance Policies and Procedures

Gift acceptance policies and procedures should include mechanisms to test whether or not the gift upholds the tenets of diversity, equity, and inclusion, similarly to how collecting practices in museums are commonly administered. For example, many museums today do not accept objects without clear provenance and vetting. The following questions should be asked: How did the donor come into the possession of the object? Was it collected legally? Was it collected by humane means? Was the collecting the result of subjugation or exploitation of others? Museums developed ethical standards in collecting to deal with issues that often arise, such as looting during war times, the slaughter of animals to create decorative objects such as elephant tusks, and the desecration of indigenous people’s burial sites by Europeans during colonization. The same should hold true for accepting monetary gifts. Questions about how the donor acquired the money should be a part of the decision-making process. Ideally, vetting should be conducted independently of those whose performance is evaluated based upon achieving monetary goals.

Gift acceptance policies and procedures should not only consider the types of gifts given (real property, personal property, cash, and securities) or the mechanisms for giving (outright, pledge, planned); they also should include a means to question the donor’s goals and how the gift will be operationalized to meet those goals. While some goals are ill-intentioned, others may come from good intentions but result in problematic outcomes. Scholarship giving is often fraught with unintended consequences. What if a donor wishes to establish a scholarship for LGBTQ+ students? This seems like a good idea in theory, but it would present problems in practice. If the scholarship is for LGBTQ+ students, who determines if the student identifies as LGBTQ+? What evidence does the student have to provide? What if the student has not come out to their family? A seemingly good idea ends up being impracticable. Instead, it might be better to give a scholarship to a gender studies major who exhibits leadership in advocating for LGBTQ+ rights.

Gift officers aren’t necessarily the right people to assess a gift in that way; it isn’t their expertise nor strength. Gift acceptance policies should include values statements and criteria outlining acceptable and unacceptable sources and purposes. Furthermore, the approval process should involve people knowledgeable about diversity, equity, and inclusion, as well as experts in antidiscrimination law and subject matter experts. This measure would be valuable in managing gifts, creating endowments, and assigning naming rights.

No Magic Eight Ball Can Predict the Future: Gift Agreements

Gift agreements often project a future of best-case scenarios in how donors’ gifts will produce results. Agreements are written to address current challenges and in language acceptable for the times. The crafting and signing of agreements represent joyous occasions. In these situations, building in language that accounts for what could go wrong might feel uncomfortable. But it must be done because the one thing that remains the same is that times change. Accounting for uncertainty and putting protections in place for institutions’ reputations is vital to any planning.

A gift given in perpetuity is one of the most problematic gifts to manage. Agreements made in 1890, 1920, or even 1950 might be viewed with alarm and disdain today as society has changed significantly since, but these agreements may also be exceedingly difficult to retract legally.

In the past several years, violent protests over monuments that reflect inappropriate and damaging social messages have erupted. In Richmond, Virginia, statues honoring the Confederacy fueled some of the most intense arguments, notably the statue depicting Robert E. Lee. The statue, pedestal, and the land plot on which it was placed was deeded to the Commonwealth of Virginia in 1890, a much different time. The deed stated, “The State of Virginia, party of the third part acting by and through the Governor of the Commonwealth and pursuant to the terms and provisions of the [1889 Joint Resolution] executes this instrument in token of her acceptance of the gift and of her guarantee that she will hold [the Lee Monument and the Circle] perpetually sacred to the Monumental purpose to which they have been devoted and that she will faithfully guard it and affectionately protect it.” When Virginia Governor Ralph Northam ordered it to be removed along with the other monuments, lawsuits were filed to have the statue remain. State Supreme Court Justice S. Bernard Goodwyn ruled on September 2, 2021, that the statue could be removed, citing the fact that the Commonwealth is not legally obligated to express a message that runs counter to public policy and deeming language of the deeds enforceable.

Establishing monuments dedicated to causes, naming things and places in honor of people, or simply accepting any gift in perpetuity can be problematic over time because humans are fallible and often that fallibility is only apparent in retrospect. What an institution or society in general believes now might not be believed even five years later. It is crucial to include language in gift agreements that enables your institution to change, adapt, and grow in response to new information and ethical standards. It is vital to be upfront about the unknowns of the future. The institution might include one or more of the following: If a donor’s or honoree’s behaviors put into question the institution’s reputation, X would happen. If the purpose or goals of the gift can or should no longer be met, X would happen. If a gift’s provenance were found to include evidence of unethical or illegal dealings, X would happen.

Review, Revise, and Repeat

Any one of the aforementioned situations could arise at any institution. While there may never be public knowledge of some circumstances, many intuitions hold assets they should not, whether due to the donor’s reputation, source of funds, purpose, or restrictions. No matter how effective, diligent, and competent an institution’s leaders and staff are today, they can never fully account for the evolution of thought and the law that occurs with the passage of time. Gift acceptance and agreements are based upon what one knows and understands in a particular moment in time. What was once acceptable may no longer be by current standards. What was legal years ago may no longer be permitted.

While trustees hope a philanthropic gift at their institution will not spark controversy, fund reviews can mitigate potential risk. Without these, issues might remain unknown and unaddressed. Fund reviews provide a retroactive means of identifying problematic holdings, as well as an opportunity to revise unlawful and discriminatory agreements and repurpose monies to achieve ethical goals as allowed by law. While fund reviews may seem burdensome and unnecessary, it is imprudent not to have consistent and comprehensive appraisals of institutional holdings. These reviews function similarly to audits. Would a governing board be satisfied with financial reporting unchecked by an independent authority? Not likely. Most institutions conduct external audits and internal departmental audits of financial matters. Overarching reviews of philanthropic giving policies and procedures and gift agreements should also be a part of every institution’s fund review process.

There are many benefits to fund reviews aside from undoing wrongs; they also allow for new opportunities in development. In undertaking these reviews, an institution may reconnect with past donors (and possibly their heirs), which can afford occasion to discuss institutional plans and goals, leading to more significant support. The review process can reveal gaps in communication and understanding between gift officers and those who operationalize funds and, thus, lead to more productive fundraising efforts. The process of accepting gifts might be made to include the approval of the department and the person in the position that will be directing the funds. Engaging subject matter experts and users of funds will likely lead to stronger agreements and better stewardship.

Institutions can use fund reviews to improve policies and procedures. The results can inform the development and utilization of templates, checklists, and style sheets as a mechanism to avoid problematic language and restrictions that do not foster diversity, equity, and inclusion. For example, one might disallow agreements that refer to identity, or at the very least use words like “preference” or “if at all possible.” A list of phrases might be developed to give the institution future flexibility, such as “if the intent cannot be met, the institution may repurpose the funds for programs and purposes as closely aligned as possible to the original intent and that are aligned with institutional mission, values, and needs.”

Conclusion

Imbuing the tenets of diversity, equity, and inclusion into gift management is not a simple task, nor is it a one-time process. It requires constant questioning, adjustment, realignment, and vigilance. Not only must institutions acknowledge the importance of such work, but governing boards must also allocate the time and resources necessary for the work to be conducted. It requires training for board and staff members and open dialogue with donors, gift officers, and those who direct and use funds about any gift’s ethical considerations and legal ramifications.

Trustees must afford staff the authority to point out injustices without fear of retribution and embrace change. Giving permission to ask the question, “who and what is really served by a gift?” is essential to providing effective checks. Individual trustees must be comfortable with the notion that their view of the world and even their actions in the past are incongruent with their roles as a trustee. Governance is a directive to uphold the public good; it is an opportunity to learn more about who is most often included in and excluded from the public discourse and to better fulfill the institution’s mission. It requires the questioning of assumptions, deep empathy, and humility.

Trustees, staff, and outside experts must work together to guide decision-making by determining what is and what is not in the best interests of the institution and the people it serves. Sometimes that may mean difficult conversations with donors, which, if done patiently and respectfully, can result in positive outcomes. On other occasions, it may mean rejecting a gift or returning a gift to a donor. Making difficult choices that uphold the tenets of diversity, equity, and inclusion has great value, perhaps more so than the monetary value of a gift. Governing boards, administrators, and advancement officers must take more care in what they accept and be willing to accept responsibility when they have made a mistake. Policies, procedures, records management, and reviews might be tedious and laborious, but the work is invaluable and often becomes unexpectedly important.

Kathy Johnson Bowles is the Everhart Museum of Natural History, Science, and Art’s executive director in Scranton, Pennsylvania. She has more than 30 years of experience in the nonprofit sector as a trustee, executive, advancement professional, and faculty member.