The old school tie: alumni philanthropy

When he graduated from the London School of Economics (LSE) in 1987, Stelios Haji-Ioannou, the scion of a Greek shipping family, was eager to achieve success of his own. Now titled Sir Stelios and worth an estimated $2.6 billion (€2.04 billion), the easyJet founder has certainly done that. Although the 47-year-old's days attending lectures at the LSE may seem a long time ago, his presence can still be felt in the university's hallowed corridors. Six years ago, through a £2 million (€2.53 million) donation, he funded part of a new LSE building and each year, his Stelios Philanthropic Foundation pays for 10 scholarships. He supports a further 10 “Stelios Scholars” annually at his other alma mater, City University London's Cass Business School, where he completed a master's degree. “I was very lucky to attend two of the foremost universities for economics, trade and industry. As part of my 'giving back', I want to ensure that as many students as possible are able to attend these world-class institutions without any financial hindrance,” he says. “Higher education is a passport to a better future. We help the students of today so they may help the students of tomorrow.”

Since at least the 19th century, many other high net worth individuals have taken a similarly philanthropic view. The University of Chicago, for example, traces its existence to the largesse of oil magnate John Davison Rockefeller Sr, while Pittsburgh's Carnegie Mellon University was set up thanks to industrialist Andrew Carnegie. Likewise, a donation from an Indian businessman, Hormusjee Naorojee Mody, allowed Hong Kong University to be founded.

Today, individual donations can run into tens or hundreds of millions of dollars; in the US they total more than $30 billion a year. The media magnate and former New York mayor Michael Bloomberg has pumped $1.1 billion into his former school, John Hopkins University, allowing the university to build state-of-the-art public health and physics departments. Reflecting a growing trend for major donations in Asia, in 2010 financial services millionaire Asit Koticha gave his alma mater, the University of Mumbai, 320 million rupees (€4.1 million) for a philosophy department and convention centre.

With such shiny new buildings emerging, it is no wonder philanthropy is often said to give universities “a margin of excellence”. “That's probably a little grandiose, but it provides funding for higher education to do research on topics that might be on the cutting edge, or to create new kinds of curricula offerings,” says Dr Leslie Lenkowsky, professor of practice in public affairs and philanthropy at Indiana University.

A 2012 Chronicle of Philanthropy report found that 19 of the United States' top 50 donors gave to educational charities, with around half donating to the schools they attended. Adrian Weston, who spent nine years on the council of the University of Leicester in the United Kingdom, says major donations can be “game changing”. Institutions can have something they wouldn't otherwise have. In Leicester's case, that meant a first rate cardiovascular research centre and associated biomarker facility to study links between heart disease, genetics and other factors. This, along with a cardiovascular research endowment fund, was made possible by a £7 million donation from a foundation set up by John and Lucille van Geest, whose family wealth was built in the banana industry.

Donors themselves may get payback by seeing buildings or spaces named after them following major gifts. In the past decade alone, benefactors have given their names to more than seven university buildings in Singapore. This might appear to be driven by vanity, but institutions seem keen to recognise donors' philanthropy publicly; it encourages others to give. “It's about leadership in communities,” says Ave Vinick, who worked in fundraising at Colby College in Maine, and is now deputy director of development at the University of Leicester. “People in a position to give major gifts are well known and well respected. They provide philanthropic leadership and the rest of the community sees a university as a cause to support and a valuable institution to invest in.”

Higher education philanthropy can arouse controversy, however, with donors even at risk of seeing their names tarnished. For example, Pan Shiyi, a Chinese real estate tycoon, was attacked on social media in China after giving Harvard University $15 million. His compatriots questioned why the money was not being spent at home. Pan justified his donation by saying it would fund scholarships for Chinese students from modest backgrounds.
That donors can typically take advantage of tax breaks when distributing their wealth has also led to debate. “When wealthy donors give money to their universities, they bypass the democratic system in the sense that these donations are always tax deductible … so the pot of the general public is smaller,” says Dr Femida Handy, a professor at the University of Pennsylvania's school of social policy and practice. Donors can fund what might be considered “pet projects”. But balancing this, says Handy, is the way philanthropists often pay for scholarships, opening up the university. And she notes that while some universities do have huge endowments (Harvard's stands at $36 billion), “We should see the amount [universities] give back in research that helps the world at large.”

Few would argue, however, that philanthropy creates a level playing field between institutions. According to the Council for Aid to Education, the top 25% US universities typically receive more than 85% of the money donated to higher education; the bottom quartile gets just 1%. Large differences are also seen in Europe, according to Dr Barbara Gouwenberg, co-author of a 2011 European Commission report, Giving in evidence: fundraising from philanthropy in European universities. “Universities with useful pre-existing connections to donors and pre-existing sources of philanthropic income are best-placed to raise funds from philanthropy. Most often these are the more prestigious 'elite' universities,” she says. “We might say that wealth and success leads to yet more wealth and success in an ongoing cycle of accumulative advantage.”

Major donors may also be tempted to promote particular causes. Last year dozens of educators expressed reservations when the Catholic University of America accepted $1 million from the Charles Koch Foundation. The foundation states its donations aim “to advance an understanding of how free societies improve the well-being of people around the world”. The lecturers however said the group had previously been responsible for “unacceptable meddling in academic content and the hiring process of faculty”. “This has been a concern going back about 200 years. In those days, it wasn't so much ideology as religion,” says Lenkowsky. “We want people to be generous, but we often criticise them for what they spend their money on.”

An opposite effect, when donors are unable to exercise enough control over how their money is spent, can also lead to tensions. For six years from 2002, Princeton University was in dispute with William Robertson, whose heiress mother had made a $35 million donation to the university in 1961 to fund the training of US public servants. Robertson said the institution was failing to adhere to the terms of the donation, the university disagreed, and tens of millions of dollars went on legal fees. Ultimately, Princeton agreed to pay more than $90 million to a Robertson family foundation. One-off donations for particular projects are less liable to cause problems than permanently endowed gifts, for which the institution will typically have leeway on how funds are spent in future. The advice is to have a watertight gift acceptance agreement to clarify how money will be used, although being too restrictive can itself create problems. Dr Tobias Jung, of the University of St Andrews' school of management and a member of the Centre for Charitable Giving and Philanthropy at Cass Business School, cites the case of the Joseph Thomson Mortification Trust, set up in the 18th century by a Scottish saddle-maker to provide food for Edinburgh's poor. “The fund's restrictive conditions meant that it became increasingly difficult to find eligible recipients, so that in the end it became dormant. The history of philanthropy is littered with similar examples,” he says.

Despite the pitfalls of giving, higher education philanthropy is set to become more important, driven in Europe by squeezes in government funding and a greater emphasis on having trained fundraisers who can tap alumni. In Asia, institutions are benefitting from economic growth, which is expanding the ranks of the millionaires and billionaires, plus contributions from a wealthy, overseas-educated diaspora.

“[Alumni giving] will develop a lot more,” says Handy, co-author of a forthcoming book, The Practice and Promise of Philanthropy in India. All the more reason for family offices to consider carefully how they structure and distribute their important donations.