Robertson V. Princeton — Who Really Won?

The nearly six-year-old lawsuit between the heirs of donors Charles and Marie Robertson and Princeton University over who controls the assets of the Robertson Foundation has been settled. Princeton has now acquired most of the Robertson Foundation’s endowment, enabling it to exercise control over the foundation’s assets, which amount to between $600 and $700 million, or six percent of the university’s endowment.

But the case may well send a signal to other donors to be extremely wary of the gifts they make to colleges and universities. We’ll never know what would have happened at a trial. But the evidence clearly shows that Princeton was increasingly brazen in its efforts to use the Robertson Foundation’s wealth for causes other than which it was intended. Princeton’s conduct shows that universities want donors to have as little say as possible about how their contributions will be used.

As part of the settlement, Princeton agreed to pay $40 million between 2009-11 to the Banbury Fund, the Robertson family foundation who paid the Robertsons’ legal fees. In addition, Princeton has agreed to donate $50 million between 2012-19 to a new nonprofit designed to fulfill Charles Robertson’s intentions in helping to train students for government service. In return, the Robertson Foundation will be dissolved, and its funds will be fully integrated into Princeton’s endowment.

The case is the latest and largest battle over donor intent. Conservatives tend to support donor intent, as they feel that the general law of foundations is that conservatives tend to make fortunes and liberals tend to seize the wealth conservatives made to fund their own agenda. Liberals tend to oppose donor intent, as they tend to think that donors get in the way of their efforts to spend inherited wealth on causes they prefer.

While the Robertson Foundation case is not primarily about politics, the settlement is a muted victory for the left. Liberals did not score a complete triumph because of the unusual nature of the Robertson Foundation.

All the evidence suggests that when Charles and Marie Robertson gave Princeton $35 million in 1961 that Charles Robertson wanted his donation to be controlled by Princeton.

The Robertson Foundation had seven seats on its board and Princeton chose four of these seats.

But Robertson wanted some say over how his money was used. This is why the Robertson Foundation was a legal entity that existed separately from Princeton, even though its funds were controlled by Princeton.

This ambiguity over the Robertson Foundation’s status—independent of Princeton, but controlled by the university—was ultimately resolved in the university’s favor. The case shows that any donor who gives partial control over his gifts to a university should expect that the university would eventually exert complete control over how the gift is used.

The Robertson Foundation was an experiment in donor control that failed. It is highly unlikely that it will be repeated. The operating foundations that effectively aid universities are ones like the Madison Program at Princeton, whose scholars claim Princeton credentials but whose salaries are paid for by an entity that Princeton does not control.

Moreover, the Robertson case reminds donors that their intent inevitably erodes over time. The Robertsons decisively showed that the Robertson Foundation money was being used for joint professorships where sociologists and historians spent most of their time outside the Woodrow Wilson School, yet had their entire salaries paid for with Robertson funds. In addition, the first-class forensic accountants the Robertson Foundation hired showed that Princeton had manipulated overhead charges to use a large amount of Robertson Foundation funds for general operating expenses.

Finally, the Robertson settlement reminds donors that the courts are a weapon of last resort. Princeton president Shirley Tilghman is absolutely right when she says the $80 million Princeton will pay in legal fees was money “that could have and should have been spent on educational and charitable purposes.” Princeton says the settlement was on substantially the same terms as they offered in 2004, and it’s far from clear what the Robertsons gained by not accepting a deal four years ago.

The Robertson case provides three valuable lessons to donors.

Be careful. Donors must assume that universities can and will exploit every available loophole to divert a gift to causes they prefer. Donors should also realize that gifts are fungible and that universities will often take the money saved by a donation for an endowed chair and use it for causes donors would oppose. For example, a donor who gave money to endow a professorship for a tenured market-oriented economics professor would have no recourse if the school then took the money it saved on the professor’s salary and overhead and use the funds to pay for socialist speakers.

Avoid perpetuity. Except for museum donations, donors should know that the longer a university has a donor’s money, the more likely donor intent will be eroded. It’s likely the Robertson Foundation case would never have come to trial if the foundation had a term limit.

Maintain control. The tighter the strings on a donor’s gift, the less likely the university is to unravel them. Donors should make their wishes as explicit as possible.

The most valuable lesson the Robertson Foundation case provides is to teach the next generation of donors to colleges and universities to avoid the mistakes Charles and Marie Robertson made that ultimately led to the Robertson Foundation’s demise.