Endowment 101: Getting What You’ve Paid For

A few years ago, my family gave $1 million to a large state school in the West—a fine institution, worthy of support. We shook hands with the development folks, and handed over a check.

We had an idea of what we wanted. My father is a passionate advocate for liberty and freedom, and he asked the university to use the funds for the teaching of those principles.

While we were still thinking around our kitchen table how to use the funds, the development team suggested using half the money for campus landscaping, while doubling the remaining funds through a new program of state contributions. Everyone seemed to win.

The funds were deposited in the endowment, spending only a drip and a drop of annual interest. The bottom line? No program in liberty and freedom.

Let me be honest. My dad, Foster Friess, has been a discerning investor since 1974, and I had the privilege of picking tech stocks for him at the Brandywine Funds in the ’90s. With investing, we do our research and generally put things in writing. When dealing with the university, we just didn’t have the clarifying conversations that are part and parcel of good business practice.

It was a hard lesson: Wise giving to higher education requires as much care as any other purchase or investment. It’s essential that donors clarify their intentions and communicate clearly—before their gifts are made.

Desiring to direct the funds to our specific interests, we asked the administration about setting up an endowed professorship. But we discovered that we would have no voice about the selection of the professor. It appeared the selection was likely to be headed by a professor whose writings were substantially at odds with my father’s ideals.

I asked, “What are we to do if down the road we’ve set up a professorship and it is no longer funding someone who shares our values?” The response was, “Well, then, you could take the ultimate step, you’d have the power . . .”—and I’m thinking, we can get our money back?—”you then have the ultimate recourse of removing your name from the professorship.”

The university understandably did what most schools do: It supported its own priorities and adhered to its procedures for academic appointment. The university viewed our money as a gift, which needed to be governed by their procedures.

In the end, we worked with the university to use the annual endowment revenue from our check for a particular scholarship that we esteem. We are glad of that worthy cause. But, in retrospect, I wish we had taken the time to direct the money to support a dynamic new program that achieved our vision of educating students in the principles of liberty.

Lessons learned. When we handed over the check, the grateful university did not understand the purposes—and conditions—we assumed. We didn’t understand the imperative of presenting from the start an articulated plan. It was no longer our money and leverage.

It’s not that we needed a pricey consultant. Intelligent donors have a valuable ally in a group called the American Council of Trustees and Alumni. ACTA recently published a “how-to” called “The Intelligent Donors Guide to College Giving,” which is just that. I recommend it to every philanthropist. One idea from the guide is: Support a specific program with defined gifts over time.

We could have found a faculty friend who shared our values and who had specific classes he or she wanted to teach. We could have provided students with a new program, a new perspective, something other than the usual campus fare. We could have drafted instructions for our gift, ensured the money would not be fungible, and funded exactly what we wanted. Smart donors are doing all that and more.

As appropriations for higher education decline, institutions rely increasingly on private philanthropy. In fiscal 2009, alumni donated over $7 billion, and foundations over $8 billion. More than ever, donors are learning the important role they can play in providing a rich liberal arts education. They are discovering how to have true partnerships with higher education, ensuring that their philanthropic dollars are investments in the values of America and its future.

Sometimes people and institutions achieve less than they wanted despite good intentions—because they didn’t make their goals clear.

Higher education deserves our support, and all of us need to ensure that our good intentions get the best results.

Friess is an investor and philanthropist.