In the game of seeking out sponsors, institutions may be gambling their integrity

February 22, 2002

As US universities depend ever more on corporate largesse to fill their coffers, Stephen Phillips looks at the impact on funding of the Enron scandal.

Enron professor of economics Mark Wohar shuns his formal job title these days. "I don't use it," says the University of Nebraska academic. With the energy giant that paid for his chair accused of one of the largest-ever frauds, he prefers plain old professor of economics.

Wohar is not alone across US higher education in occupying a chair made distinctly uncomfortable by the Enron debacle. The discredited firm and its United Statesaccountant Arthur Andersen, whose involvement is still under scrutiny, were profligate university patrons. Andersen is reckoned to have endowed some 40 to 50 professorships. While Enron and erstwhile chief executive Kenneth Lay - befitting a former assistant professor at George Washington University - were no less generous in funding universities than they were in crossing politicians' palms.

Some recipients have been left high and dry, payment suspended in midstream. Rice University, in Enron's Houston backyard, learnt on January 7 that the bankrupt firm would not be making good on its $5 million (£3.5 million) pledge to set up two business school chairs.

At the very least, beneficiaries have been left with an unfortunate taint. Lay's alma mater , the University of Houston, where he chaired the Board of Regents and which bestowed a raft of honours on him, has two chairs in his name from donations made when Enron was riding high.

In Lay's home state, the University of Missouri cannot find any takers for its Kenneth L. Lay economics professorships. Associate economics professor Kenneth Troske, who is leading the search committee, discounts unease over the job title and is confident the posts will soon be filled.

Education and the roller-coaster fortunes of capitalism have always gone hand in hand in the United States. Most overtly, Carnegie Mellon, Vanderbilt, Rockefeller and Stanford bear the names of the business barons who founded them. But Enron's largesse raises disquieting questions about funding sources for higher education at a time when private philanthropy and corporate donations are swelling US university coffers like never before.

Between 1995 and 2000, private funding for US universities almost doubled to $23.2 billion a year, according to the Council for Aid to Education. Recent individual windfalls have been staggering. Stanford landed a record-breaking $400 million last May from the Hewlett Foundation, a charitable trust set up by alumnus Bill Hewlett, co-founder of computer manufacturer Hewlett Packard.

In October, computer-chip giant Intel's co-founder, Gordon Moore, raised the bar higher, paying back his alma mater , the California Institute of Technology, with a $600 million donation. Caltech president and Nobel laureate biologist David Baltimore hailed the gift as "one of the great events in Caltech's history".

Earlier this month, New York University scored $150 million from the will of an ex-scholarship student, saving it from having to hike tuition fees.

Such donations are typically used as bait to lure matching funds from other benefactors, so the institutions are banking on doubling their money. With such rich pickings up for grabs, universities are mobilising high-powered fund-raising machines to woo prospective benefactors.

Stanford, for instance, marshals a mini-army of 250 staff to tap donors. Their task is helped by a favourable taxation regime. Unlike Europe, donations are tax deductible and not subject to capital gains tax. The culture of giving is also fostered by a "tribal" identification with alma maters and a notion of higher education as "something of value that you need to pay back," as opposed to Europe, where it is viewed as a "public right", says David Ward, president of the American Council on Education.

Stanford's plum position in the heart of Silicon Valley has allowed it to mine a rich seam of largesse from the scores of alumni who have made fortunes in the high-tech corridor surrounding its Palo Alto campus.

Nevertheless, director of development John Ford concedes that fundraising staff sometimes have their work cut out convincing parvenu graduates to cough up. "It takes a little time to get used to being wealthy and giving money away." He also notes that Stanford's tech-intensive funding ties make its fortunes more volatile than more venerable East Coast elite institutions that have cultivated patrons over generations.

Alumni or charitable donations represent the highest prize for university fundraising departments as they come with fewer strings attached than corporate grants, usually earmarked for narrow purposes such as research projects. Accordingly, private donations are often used by universities to bail out arts and social science departments, which command little public funding, Ward says. Stanford, for instance, plans to use three-quarters of its gift to bankroll its School of the Humanities, the poor relation to its science faculties in attracting specific funding. Nevertheless, far from income re-distribution, Ward says the bigger picture of the recent spate of mega-funding deals is concentration of wealth in the hands of a few.

Less favoured institutions may lose out to lavishly funded peers in competition for staff and other resources, he fears. Then there is the question of the shrinking public higher education funding that private contributions are plugging. From 1996 to 2001, US central government spending on higher education fell to $15.3 billion from $17.6 billion. Washington DC accounts for about 11 per cent of higher education funding versus 35 per cent from state governments.

Moreover, while none of the universities concerned could have foreseen the scandal that engulfed their benefactor, the Enron case underscores the need to exercise discrimination in accepting private money.

"If universities are to be thought of as the fifth estate, their integrity is challenged by gifts from corporations with their own iconography and value system - even if this is good, they cannot guarantee for how long," Ward says.

Meanwhile, the universities saddled with the Enron-associated professorships are forbidden from unilaterally changing the names of the chairs.

Disgraced 1980s Wall Street financier Ivan Boesky gave institutions permission to drop his name from chairs he endowed after he was convicted of insider trading. But Troske at Missouri, with two empty Kenneth Lay professorships on his hands, is wary of broaching the issue with their patron right now. He has enough on his plate, Troske reasons.

You've reached your article limit.

Register to continue

Registration is free and only takes a moment. Once registered you can read a total of 3 articles each month, plus:

  • Sign up for the editor's highlights
  • Receive World University Rankings news first
  • Get job alerts, shortlist jobs and save job searches
  • Participate in reader discussions and post comments
Register

Have your say

Log in or register to post comments