OT: OSU Law School Namesake Going after School for Violating Endowment
This could turn into a phenomenal family feud.
TLDR: 20 years ago, Mike Moritz donated $30M to OSU law school, and $10M of that is supposed to go to 30 full ride scholarships every year. OSU apparently has never given out 30 full ride scholarships, and instead wastes money on "development fees" (aka administrators’ salaries, entertaining donors, banquets, dinners).
Mortiz family has now created a website and is doing serious public relations push to challenge development fees.
I've always wondered about university endowment expenditure oversight. Is it a nebulous world rife with superfluous, unmonitored spending? Or do the endowers universally require endowees (is this a word?) to submit annual auditing reports? I would love to hear insider info on how this sphere operates.
Some donors are very involved and request/demand audits, etc. Those people have a great deal of control over how their money is spent. However, most are not, and defer to the board to ensure that their gift is spent consistently with their wishes. (Or they're just dead and their trusts are poorly managed, if managed at all.)
The board has broad discretion with those gifts. For example: if your $$$ was earmarked for "student life," well, could that include building a new student lounge? Probably. Could it include annual maintenance for that lounge? Getting further away, but possible. Study abroad programs? I think no, but not impossible to say yes. What about a fancy ceremony to honor to the donors who funded the new student lounge? Etc, etc.
In these judgment calls, the board's biases play a heavy role in what is / is not found acceptable. Boards are full of financial people who love development and recurring revenue streams, so they are more partial to those. Similarly, they tend to think professors / academics are spendthrifts and think they are always unrealistic with budgets. (They also love large bureaucracies, they're very good at justifying themselves to rich people & they remind them of their own businesses.)
Even with that said, boards do not want to go too far afield -- it is important for attracting future donations that they can convincingly say that they respect gift limitations.
-not quite an insider, but very familiar with this world because I'm friends with insiders at a major private university. I've posted a bunch about how much it sucks that finance people run major universities!
Much appreciated info. Seems like the board's makeup, combined with interpreting - and sometimes bending - the endowment's intended wishes if it's not actively monitored by the endowment source, are the critical components to this system.
Yes. I think an immense amount of how universities are run can be explained by the fact that boards are almost exclusively full of rich people in finance or with finance backgrounds. When's the last time you saw a professor on a board? Someone with less than $5mm net worth?
Not just for university endowments, but donations made to research institutes, labs, charities, etc., may have very strict criteria in how the money is to be used. This is not always the case but often with the larger donations there are strict instructions on how to use the funds. Some have pet projects or beliefs, some just want X% spent per year, etc. Some donations require the money to be segregated from the main operating accounts and used for very specific purposes (e.g., not for general business operations, salaries, etc.). These demands often come with audit rights, that the granter will exercise if they think the money isn't spent in accordance with the agreed-upon terms. There have been some high-profile investigations/allegations in the recent past about this topic. I think Princeton was hit 15 or so years ago with some allegations of misuse of funds that deviated from the intent of the donation.
Half tempted to share my story... donated several hundred coolers to the university a few years back, not happy with the way they've been used. :)
They were used for their intended purpose?
Obligatory.....
sounds like a shitty situation.
Why several hundred?
If you get the right cooler, one is all you need.
Administratoration is one of a critical few real problems with the university system today. When money is available, excess and unnecessary salary employees are inserted as a siphon, which becomes a permanent drain on that funding source. Then the next budget round begins, they say "hey, we're just breaking even here, we need more money and buildings (both for these people and to fund the original thing that was supposed to be funded by this money)." Repeat that cycle through decades and that is where we are.
I know this topic is specific to endowments, but it's the entire system that works this way.
sorta feels like the entire system, including athetics spending, needs to go through a reset at some point. oh wait.....
If anything good has come for the COVID thing it is that the economic model for universities will be challenged as never before. Why exactly do Universities need all this investment in brick and mortar? Why do they need an army of execucrats who don't educate anyone? Why does it all cost so much when so much of education can be moved online? COVID had forced education to do things differently and there is little to no justification for much of it to go back to how it was. Especially at ruinous tuition rates.
I don't think so, for a few reasons.
- Administrations have grown because boards have let them grow. Until you change the people in power, that won't change.
- Education has always been pretty expensive, but the catastrophic declines in state / federal funding have moved that burden to students.
- Whether education can be moved online is an open question, I think. Can certain professional skills be taught online? Yes. Can many introductory quantitative / scientific courses be taught online? Yes. However, classes where discussion is the point -- or upper level courses, where real interaction is required -- cannot be done in the mass-distribution model. I fear, deeply, that we're about to create a two-tiered educational system: Harvard and Stanford students get thoughtful discussions of the humanities, Oakland University kids get streamed videos on marketing 101. That's really alarming to me on first principles.
- I'm a big, big defender of the liberal arts on their own merits. (They often aren't taught on their own merits.) It frankly worries and saddens me that people aren't getting good exposure to them.
- Will that save money? Harvard's charging just as much for an online semester, etc.
You mean BUCKEYES couldn't be trusted to follow instructions, much less do the right thing?
Well, I'll be a soiled cooler!
Not sure if the University is considered a non profit, but a lot of times when receipts for donations are given, they will have a caveat along the lines of “we will try to use it as you have requested, but we reserve the right to spend it however we want”. Meaning, we don’t care what you think you’re giving it for, we will spend it as we see fit. It’s really quite common.
While that may be the case for a regular Joe like me and the pittance I give, I can't imagine there are caveats for $30,000,000.00 gifts.
This is correct.
Yes, one lesson here if any of us actually were to donate any sum like $30M, is to get ALL your expectations of how the money is going to be used in writing and also establish accountability for compliance with the agreement. For piddly donations they won't do that. But if they want the huge donations, it's a different story.
oh damn.
Exactly like our military budget. Money simply evaporates and no one knows where it goes.
not shocked
The irony of this is that Moritz set up the endowment so Ohio State could potentially attract more top of the line law students and enhance its reputation as a law school. By eating into the endowment and being able to support fewer scholarships, the school is undermining the whole idea of the endowment. Whether they have a right to do this or not, it is an incredibly stupid way to go about enhancing your at-best-halfway-decent brand.
I'll add to the irony list. Wouldn't it be ironic if litigation resulted from improper endowment allocations to the OSU law school?
He'd have been better off just giving the money directly to the composite 5 star law recruits.
JT was short, and now we know how they paid for that spot.
Nah, those ones DO end up at Michigan.
What I appreciate the most in this story is the donor’s first and last name begins with a M.
i guess he will now be known in Columbus as Lessitz...
They have a law school?
In my experience, the administrations of these schools largely operate in an accountability vacuum. They spend as they please on themselves and pet projects, and take max or near-max tuition increases every year, usually 2 to 10x the rate of inflation, to fund their folly, and there is little to no check on it.
If they are that at ease at screwing young adults making minimum wage, what would stop them from mis-spending endowment money?
I just got off of a webinar hosted by Pearson talking about the future of education. Part of the discussion was that administrators salaries and expenses have gone up at a much higher rate than inflation and that the value of many traditional universities are being called into question. The amount of dollars being spent on actual teaching versus administrator empire-building is way out of whack. With COVID, where everything is being driven online, the value of a flowery tree-lined campus is dubious. While socialization is important, college isn't kindergarten. One of the predictions is that big tech (Google, Amazon, Apple, Microsoft) will start offering online learning and certifications in a much more structured way. Jeff Bezos has famously said "your margin is my opportunity." It doesn't cost $30-$50k a year to teach someone English Lit or Computer Science, if you're not paying for buildings, and over-priced administrators.
So I'm not surprised OSU, or any other school, is ripping off it's donors with admin fees.
It's not just that administrator salaries have been rising, but that the number of university execs, managerial staff and other admins has more than doubled in the last 25 years, this as the number of faculty declined.
Power is a cancer whether it be giant companies/money or government/universities. It compounds upon itself and kills everything else around it. The good news is that once Power kills everything including itself new things will be created. The painful part is the dying.
Double post
" $10M of that is supposed to go to 30 full ride scholarships every year."
How does that work? 30 full ride scholarships for in-state students at Moritz College of Law is about $950K (not counting housing, books, etc). If the $10M is an endowment to fund the scholarships, are they really planning to make 9.5% on the $10M every year?
Maybe when he gave the money 20 years ago you could get 4% and pay for tuition for 30 people and have some cash left over, but with tuition rising at the current rate it has become completely impossible to endow 30 scholarships with $10M.
This was my first thought but OP did say they gave 20 years ago. My quick googling found that in 2000 in state rates were about $10k a year and out of state about $20k (compared to 31k & 46k currently).
It was perfectly reasonable to think 4-4.5% could be spent each year. But I'm not sure how much extra cash would be left over to help that grow to support the increases in tuition especially after that development fee.
OP did also say they've never once given a full ride to someone even in the first year or two when tuition rates were more in line with what they were likely envisioning.
Even if the $10M doesn’t currently generate enough for thirty full-ride law scholarships, it should still all be used for that purpose, to fund full-ride scholarships.
In agreements of this kind, it’s illegal for OSU to do anything else with the money. So the “development fees” loophole must be written into the agreement. The fact the family isn’t simply suing the University tells us that. [They aren’t, right? I didn’t read everything.] Instead, SOL, they’re trying to shame them into doing the right thing.
If I’m OSU, step one is to fire the major-gift officer who is assigned to this family. No way it should ever have come to this. Step two is to go to them with a draft of a revised agreement that eliminates the loophole, in exchange for the recognition that it isn’t enough for thirty scholarships, but all of the income will go to students. Step three is to embrace this thing. The horse is out of the barn.
This is not unprecedented, and should happen more in my opinion. There's been success recently to force institutions to follow donor stipulations, even after the original donor death. Hillsdale College just clawed back a $5M gift to another university when that institution refused to follow the deceased donor's wishes:
A donor to the University of Missouri school of business endowed three chairs and three professorships, specifying they must be adherents to the Austrian school of economics (von Mises, Hayek, etc). He set up Hillsdale as an overseer; should Mizzou fail to honor the donation criteria, the money would revert to Hillsdale. Mizzou didn't, Hillsdale sued, won, and got the $5M.
I halfway expected this to be OSU funneling endowment funds to the football team. So I’m pleasantly surprised .
I expected this to be about a multimillionaire asshole going after the school for using the endowment to help with legit covid-related funding problems. Turns out it's the university employees that are the assholes.
I also expected something similar: some rich clown ticked off that the signs with his name on it aren't big enough.
But good for this guy. I'm glad he's going after them. Law school tuition is disgraceful and its shocking they didn't provide the scholarships as requested. He's right to be so mad. If I graduated from Ohio State law within the last 20 years with a mountain of debt I'd be pissed.
cuz "we ain't come here to play school"
Whaaattttt?
Ohio State doing something unethical, get out of here.