Aftershocks from the at least 1,400 people killed in Israel by Palestinian terror group Hamas earlier this month are having a direct impact at Harvard University, the University of Pennsylvania, and other Ivy League universities where several high-profile donors are vowing to stop giving due to what they view as acquiescence to student and faculty groups blaming Israel for the violence.
Fundraisers are now in the middle of a debate regarding whether free speech and academic freedom considerations override the moral obligation of school officials to denounce support for terrorism and antisemitism in similar fashion to statements they have issued regarding other social justice issues. The situation also raises the question of what recourse might be available to nonprofit leaders when donors abruptly pull out of what might be a long-term or planned giving arrangement, as opposed to major gifts which typically are large onetime contributions.
Among the notable individuals castigating the response by school officials regarding war between Israel and Hamas was former Harvard University President Larry Summers. He wrote on his X social media account that administrators had “failed to meet the needs of the moment” by not swiftly renouncing statements made. “Why can’t we find anything approaching the moral clarity of Harvard statements after George Floyd’s death or Russia’s invasion of Ukraine when terrorists kill, rape, and take hostage hundreds of Israelis attending a music festival?” asked Summers, who previously held top roles in the Clinton and Obama administrations including a stint as U.S. Treasury Secretary.
Leaders of the Wexner Foundation, which has given millions of dollars to Harvard’s Kennedy School of Government during the past three decades, notified school officials that they plan to end that relationship including the foundation’s longtime sponsorship of a fellowship program for Israeli public service professionals. Leaders of the foundation, started by billionaire Victoria’s Secret founder Leslie Wexner, announced the decision shortly after Israeli billionaire Idan Ofer and his wife, Batia, resigned from the Kennedy School’s executive board amid similar anger regarding what they called the administration’s “abandonment” of Jewish and Israeli students.
Most planned gifts are in the form of revocable pledges payable upon death, meaning they can be withdrawn at any time prior to death if a donor changes their mind. However, the opposite is true at universities and other large nonprofits, which tend to receive a majority of planned gifts in the form of irrevocable pledges constituting what effectively are a binding legal obligation upon a donor.
“Really sophisticated organizations are going to have more irrevocable gifts, in part because they may be counting on that money for buildings or other large projects on which they’ve already made sizable down payments,” said Bob Mims, a senior consultant at the Memphis-based Sharpe Group. “Getting to irrevocability in my mind is sort of like dating. A revocable gift says you can always break up with me. But as an organization, you want to have your donors marry you and take you into their family so you have the assurance of receiving that money and knowing you’ll be included in their will when their estate gets distributed.”
Nonprofits receiving such pledges can almost always counter with legal action if a donor later reneges. “If I promise to give you $100 million toward a building project that’s going to cost $250 million, and then I pull out after you’ve already broken ground and committed to all these vendors and contractors, that’s a clear case where you can prove you were relying on that pledge and suffered harm as a result. That’s called detrimental reliance,” explained Seth Perlman, an attorney in New York City whose law practice has been advising nonprofits across the country for more than 30 years.
It’s for this reason that Perlman typically counsels nonprofit managers to insert language to this effect in donor agreements specifying both the project or mission toward which the money is going and that the pledge is enforceable. Not all states require a showing of detrimental reliance, he added. “In some states, like New York, it’s enough just to show that you received a pledge and that the donor reneged and that you as a nonprofit have a right to hold them to that pledge,” he said.
How to proceed when a donor reneges on a promised gift isn’t as clear-cut as it might seem on paper. “Most charitable and nonprofit organizations are reluctant to sue even when there’s a clearly enforceable agreement, because it’s bad for PR and bad for donor relations,” Perlman said. “It happens probably in fewer than 5% of all cases, but it does happen. But that has to be weighed against the donor relations and PR issues that come into play.”
James Estabrook, an attorney and board member of the Kean University Foundation in Union, New Jersey, concurred with Perlman. “I represent a lot of charities, educational institutions, hospital foundations and all sorts of other nonprofits and it typically never escalates to a legal issue. Very rarely are you going to see a case where Charity X sued Mrs. Smith for revoking her pledge,” said Estabrook, a partner with the firm of Lindabury, McCormick, Estabrook & Cooper in Westfield, New Jersey.
The balancing act, as in any other relationship, comes down to stewardship, communication and anticipating problems before they have a chance to fester and do permanent harm. It’s a delicate balance especially for colleges and universities, where student and faculty views might run counter to the views of their donors.
“The best thing universities can do is try to get in front of controversial topics where donors and students may not be in alignment before it gets to the point of someone pulling a gift, which perhaps you can do by reassigning the type of gift they want to give,” said Mims. “If somebody was planning to give to a general fund for student scholarships and is upset over something the students have done, perhaps you can shift gears and redirect that money to a bricks-and-mortar project for the studies or science of a particular topic or subject area, or vice-versa,” Mims said. “So, you could change the restriction of a gift. But again, it all comes down to stewardship.”
Estabrook recommends nonprofit leaders keep in mind the adage about catching more flies with honey than with vinegar. “If a donor is upset, nobody wants to come after them on a legal basis for something they feel has touched them personally,” he said. “And most institutions, in my experience, would not want that kind of reputation. They want their donors to give willingly and freely.”
