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Wednesday, November 25, 2009
 

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Strings Attached
Donors and estates are sparring with charities over who controls endowments

By Julian E. Barnes
Two years ago, the Metropolitan Opera used a gift from Sybil Harrington, the late Texas oil heiress, to televise an abstract production of Wagner's Tristan und Isolde. The stark, geometrical set was draped in shadows, and one reviewer said the castle looked like a stovepipe with Isolde "standing in the middle of the orange oven." Harrington's estate says the televised production violates the philanthropist's restrictions on how her $33 million was to be used, which was to support opera performed in the "traditional manner." In July, the estate sued the Met to recoup some of the funds and obtain veto power over how the remainder is spent.


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After years of working closely with Harrington, the Met says it knows what she liked (Wagner, with a focus on the singers) and what she didn't (setting 19th-century operas in the present day). Now, the Met argues, the estate wants a level of artistic control Harrington never had and didn't want. "A donor can say how they wish the funds to be used; that is fine," says Sharon Grubin, the Met's general counsel. "But we can never yield artistic integrity to anyone."

The fight at the Met is the latest example of a struggle that has become intrinsic to modern philanthropy. Many wealthy donors want their money to help shape society long after they're gone and have strong ideas of how that legacy should be put to use. Institutions, which usually outlast individuals, want the latitude to adapt their programs to new discoveries, altered tastes, or changing times. "We are going to see more and more negotiations over these large gifts," says Paul Schervish, director of the Boston College Social Welfare Research Institute. "Both donors and institutions are trying to do what they believe is best for the world."

Floodgates. Traditionally, it has been up to state attorneys general to ensure that nonprofit groups use donations as intended. Suits by donors or their heirs were often dismissed to protect nonprofits from frivolous complaints. That changed in 2001 when a New York state appellate court ruled that Adele Smithers-Fornaci could sue St. Luke's-Roosevelt Hospital Center for failing to abide by the terms of her late husband's 30-year-old gift, which was to be used for the treatment of alcoholism through abstinence. The hospital used the endowment created with the original $10 million gift to fund other programs, says Smithers-Fornaci, and began using moderation methods to treat alcoholics. The hospital also sold the mansion where the clinic was housed. "When you give $5, $5,000, or $5 million, you give it for a specific purpose, and that is how the money should be spent," says Smithers-Fornaci.

Edward Kornreich, a lawyer for the hospital, says giving heirs the right to sue could hamper institutions' ability to allocate their resources properly. "Heirs do not have the same charitable impulse as the donors, and in some cases they are antagonistic," says Kornreich. The case was settled in October, with both sides getting part of the money from the clinic building sale.

Now, more judges have given the green light to heirs to go to court. "All of a sudden, the rules have started to change," says Michael Peregrine, a Chicago lawyer who represents nonprofit healthcare institutions. In New Jersey, heirs of Charles Robertson want Princeton University's Woodrow Wilson School of Public and International Affairs to give up an endowment exceeding $500 million because a majority of the institution's graduates do not choose to work for the State Department, as the donor wished. In California, philanthropist Paul Glenn is suing the University of Southern California, arguing the school has misused a $1.6 million gift he made in 1995. Glenn is now channeling his money directly to individual scientists to promote the study of aging.

Nonprofit groups worry they face an onslaught of resource-draining lawsuits, not to mention threats to their academic, scientific, and artistic freedom. Treading carefully lest they upset potential donors, institutions have begun to push for more flexibility. But experts are warning potential donors of the perils of giving up the reins. Laura Peebles, a director with accounting giant Deloitte's national tax office, says she counsels clients that once their money is given to a charity, their influence erodes. "It's like children: You can raise them right, but you cannot control them."

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