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When Wealthy Philanthropists Put Their Mouths Where Their Money Is
By Henry Goldstein
Reprinted with permission from The Chronicle of Philanthropy, November 2002

Since the first known donor plaque — an engraving on a Sumerian tablet — went up 5,000 years ago, special treatment for wealthy benefactors has been standard operating procedure. The golden rule, as attributed to the late R. Brinkley Smithers, an IBM heir and major donor to alcoholism causes, has been that “the one with the gold makes the rules.”

In recent weeks, the news media have spotlighted three spectacular examples of the arrogance of wealth. Less illuminated have been the ethical dilemmas each situation presents.

In the first example, the Bill & Melinda Gates Foundation announced a $100-million pledge to help fight the HIV/AIDS pandemic in India. The nation's health minister accused Mr. Gates of sowing panic, but made sure to have his photo taken with the American technology tycoon.

Bill Gates's philanthropy is inseparable from the interests of Microsoft, the company he co-founded and runs. Microsoft is pursuing an expanding share of India's software business, and therein lies the dilemma for India's health ministry. Even though Microsoft is moving aggressively to capitalize on India's vast, but fragile, economy, no one in his right mind turns down a gift from Mr. Gates or his company. It is easier to consider a gift's end use to society than it is to question the provenance of money at its root. That is a practical judgment charities make every day. For most, it is not a matter of ethics, but of how other donors might react.

In the second example, the philanthropist Peter Lewis, who built his wealth in the auto-insurance industry, is holding Cleveland's charitable world hostage. Mr. Lewis is demanding that the trustees of Case Western Reserve University resign, en masse, because he regards its 48-member board as incompetent. And he will give no more money to the city's other nonprofit organizations until they do.

It seems the university's business school managed a 300-percent overrun (so far) on the cost of its new Frank Gehry-designed academic building that bears Mr. Lewis's name. Unless the graduates are going into government, one would assume a business school could keep to a budget. Besides, what university board needs 48 members?

Mr. Lewis has a sharp point, though a blunt edge. He is dead right that nonprofit boards are essentially accountable to no one, not even the largest benefactors. With his tough-minded money-talks approach, Mr. Lewis just might contribute to the greater good. Mr. Lewis is my man of the year.

In the third case, a $1-million donation from Citigroup followed the admission of a key employee's twin toddlers to a fancy nursery school at the 92nd Street Y on New York's tony Upper East Side. The employee was a top security analyst for the financial-services company. Sandy Weill, Citigroup's CEO, allegedly had asked the 92nd Street Y's board members to do what they could to get the tykes in.

The story got out because the New York state attorney general had subpoenaed the e-mail files of the children's father. The analyst had gone bullish on AT&T stock after years of downgrading it, supposedly at the urging of Mr. Weill, his boss. Mr. Weill also is a director of AT&T, and the telecommunications company is a major Citigroup client.

The school got caught in what appears to be one of the worst possible PR disasters imaginable for an elite institution: seeming to sell places to the highest bidder. However, the school's public denials are less than convincing. Though trustees insist that seats aren't for sale, circumstances suggest otherwise.

These, for very good reasons, are cynical times. The appearance of an ethical lapse is tantamount to reality.

The Gates, Lewis, and Citigroup episodes show that big-gift philanthropy has always operated on a simple premise: Give the most, get the most. Fund raisers who want to avoid spending the rest of their careers writing “dear friend” letters to $15 donors must come to terms with the inequalities inherent in soliciting money from wealthy donors. But that does not mean having to accept ethical impropriety as the price of employment. It means staying out of trouble. Some guidelines:

• In different degrees, self-interest and altruism motivate all giving. Unless a social good for an organization is greater than the benefit to the donor, ask why the gift should be accepted.
• If a gift smells bad — in other words, if something about it raises suspicion — it usually is bad.
• Most ethical dilemmas can be avoided if the rules are set out ahead of time in writing. What gifts are acceptable? What gifts are not?
• Every organization's governing board should have a written conflict-of-interest policy, and every board member should sign it.
• Every organization's personnel manual should have a conflict-of-interest policy, and anyone empowered to act in the organization's name should sign it.

Still, written policies and strong ethical standards don't always save the day. A West Coast charity recently had to write off $40-million of a $50-million pledge from the disgraced CEO of a bankrupt communications company.

“Well,” one of the group's fund raisers told me, “we got to keep $10-million.”


Henry Goldstein, president of the Oram Group, a fund-raising consulting company in New York, is a regular contributor to these pages. Click here to send an email.