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How Megadonors Could Rescue America’s Universities

New York City Mayor Michael Bloomberg and Blackstone CEO Stephen Schwarzman talk after a news conference at the New York Public Library.New York City Mayor Michael Bloomberg and Blackstone CEO Stephen Schwarzman talk after a news conference at the New York Public Library.
New York City Mayor Michael Bloomberg and Blackstone CEO Stephen Schwarzman talk after a news conference at the New York Public Library. Philanthropy to U.S. colleges and universities is growing, while donations from other sources to higher education have dried up.Ramin Talaie—Corbis via Getty Images

Blackstone chief Stephen Schwarzman’s recent eye-popping gift creating MIT’s new $1 billion College of Computing is a not only a transformational contribution to a stellar institution, but an endorsement of the importance of U.S. higher education to our country’s global competitiveness.

It also signals a shift in how higher education institutions can survive in our new political and cultural climate.

Schwarzman’s enthusiasm is countered by an assault on university endowments, nationally by the Republican Party, and in fiscally starved states, by local Democratic parties. Schools are threatened by increasingly discouraging immigration policies. State spending on public universities, while recently inching higher, remains highly uncertain. And higher education has been losing the traditional support of major philanthropic foundations. The Ford Foundation, for instance, announced this summer that it had dropped all higher education strategic priorities as part of its mission.

Fortunately, Schwarzman is not alone in making huge investments in American higher education. Since 1967, wealthy individuals have donated over 200 gifts of $100 million or more to higher education.

These current donors are different from past philanthropists in important ways.

First, these donors tend to be business builders, with most of them representing first-generation entrepreneurial wealth. Schwarzman is joined by other such builders who have given $100 million or more to higher education, including Michael Bloomberg, Phil Knight, Bill Gates, John Paulson, Michael Dell, and Ken Langone. All of these men are examples of those who achieved the American dream and wanted to give back.

Second, these donors tend to give while they live rather than defer to late life or posthumous gifts. By contrast, many past industrialists such as Andrew Carnegie, Henry Ford, and John D. Rockefeller made their gifts in their final years or through their heirs—too late to help guide the paths of their beneficiaries. Furthermore, these barons were motivated to cleanse earlier career controversies.

Today’s philanthropic business leaders are not driven to counterbalance allegations of misconduct; rather, they are proud of their careers and eager to shape the impact of their gifts while they are younger. They are donating earlier to share their wisdom, relationships, and energy in real time so they can match the profound finances of each gift.

Thus rather than provide unrestricted general institutional support, these new donors are pragmatic and specific. Bloomberg’s 2016 gift of $300 million to the Johns Hopkins School of Public Health was focused on research into the decline of U.S. life expectancy. Schwarzman’s MIT gift and Paulson’s Harvard gift explicitly target the advancement of the study of artificial intelligence and its disruptive opportunities for society. Langone’s gift to NYU will provide full tuition coverage to all new medical students.

Third, these megadonors’ approach is matched by a spend-down schedule for their personal foundations, in which money is allocated with the condition that it be spent in a limited period of time, rather than in perpetuity. This differs, again, from predecessors like Ford, Rockefeller, and Carnegie.

While spend-down strategies accounted for only 5% of the total assets of America’s 50 largest foundations 50 years ago, that share rose to 24% by 2010. With the exponential growth of ultra-wealthy individuals, this approach should continue to expand.

Spending down philanthropic money helps reduce tensions between donors and school administrators when school priorities shift away from original donor intentions. One example of this drift was in the 2000s, when the descendants of the Robertsons, whose family gave a $35 million endowment in 1961 to expand Princeton’s Woodrow Wilson School of Public and International Affairs, claimed that the gift was being used to train students for different careers than the Robertsons had originally intended.

Using philanthropic contributions within donors’ lifetimes can also cut administrative overhead, enhance transparency, and contain suspected ideological biases—which some industrialists worry can trend against business on campus—since donors can see how their money is being used.

The challenge on the agendas of new donors is that they want to bet on winners; according to a 2017 survey by the Council for Aid to Education, 28% of donations went to the 20 colleges surveyed that raised the most money. Donors don’t necessarily do this to seek vanity by endowing elite institutions. They are looking to work with schools with proven track records and that are efficient in spending philanthropic contributions. This could push other schools to become more efficient and focused on social issues in order to attract new donors.

Of course, universities often do not often welcome this donor intrusion in setting administrative priorities, limiting overhead allocations, and directing more pragmatic faculty research. Additionally, they fear a pro-business ideology seeping into the classroom.

At the same time, universities need these new generous friends as traditional sources of funding retrench. They are also dealing with a public skeptical of higher education. Over 60% of Americans think higher education in the U.S. is heading in the wrong direction.

While foundations, legislators, and the general public lose enthusiasm for colleges, it is fortunate that these new donors appreciate the competitive value of investing in these centers of free thought and innovation. But the donors should not expect that all on campus will appreciate their vital generosity.

Coco Chanel once said, “True generosity means accepting ingratitude.”

Jeffrey Sonnenfeld is the senior associate dean for leadership studies and Lester Crown professor of management practice at the Yale School of Management, and author of Firing Back: How CEOs Rebound From Career Disasters.