In 2012, financier and Cantor Fitzgerald CEO Howard Lutnick made a transformative donation to his alma mater, Haverford College, a small liberal arts school in Pennsylvania. Over time, Lutnick’s contributions — reportedly totaling roughly $65 million — helped fund major campus initiatives, including the college’s library, which now bears his name.

More than a decade later, the institution finds itself confronting a difficult governance question. Following renewed scrutiny surrounding Lutnick’s past associations with Jeffrey Epstein, Haverford students and community members have begun asking whether the college should reconsider the recognition attached to that gift.

Situations like this place nonprofit organizations in a challenging position: what should an institution do when a once-celebrated donation becomes a reputational liability?

Why Donor Controversies Create Difficult Decisions for Nonprofits

Major gifts can make or break nonprofit organizations. Donations fund new facilities, support scholarships, expand programming, and enable institutions to pursue ambitious strategic goals. In recognition of these contributions, nonprofits frequently provide naming rights, public honors, or other forms of recognition tied directly to the donor’s reputation.

When a donor later becomes associated with controversy, criminal allegations, or political scrutiny, that recognition can quickly become problematic. Nonprofit leaders may face pressure from students, employees, community members, or other stakeholders to reconsider the donor’s recognition. At the same time, organizations must remain mindful of their legal obligations related to the gift.

The Gift Agreement Is Usually the Starting Point

When controversy arises, the first document nonprofit leaders should review is the gift agreement governing the donation. Gift agreements typically define the purpose of the donation and any restrictions on how the funds may be used, including the form of recognition promised to the donor.

Many large donations include naming rights for buildings, programs, scholarships, or academic positions. These agreements sometimes specify how long the recognition will last and whether the organization retains authority to modify or remove it.

Increasingly, nonprofits are including provisions in their gift agreements addressing reputational risk. These provisions, sometimes called morals clauses, allow the institution to reconsider donor recognition if the donor becomes associated with conduct that could damage the organization’s reputation or undermine its mission.

Restricted Gifts Can Limit a Nonprofit’s Flexibility

Another important consideration is whether the donation is restricted. Restricted gifts are common in major fundraising campaigns as donors donate to a specific cause and tie their donation to restricted uses. These restrictions may require that the funds support a particular program, building project, or scholarship fund.

Under state nonprofit and charitable trust laws, organizations generally must honor donor restrictions. This means that even if a nonprofit wishes to distance itself from a donor, it may still be legally required to use the funds in accordance with the donor’s instructions. Nonprofits can and should consider attempting to create more flexibility wherever possible in accepting such donations.

Naming Rights Often Become the Most Visible Issue

In many donor controversies, the most visible issue involves naming rights. Buildings, lecture series, scholarships, and other institutional programs often bear a donor’s name for decades. When a controversy arises, stakeholders may question whether continuing to display the name of a controversial donor aligns with the organization’s current values.

For nonprofit leaders, these moments often require careful consultation with legal counsel, board members, and institutional stakeholders before taking action. They also require discipline around the definition of mission, vision, and values of the organization. Smart organizations consider the reputational and political volatility associated with accepting significant funds with strings from high profile donors.

Governance Practices That Help Nonprofits Prepare for Donor Risk

Nonprofits may wish to consider governance steps such as:

• Adopting formal gift acceptance policies that give the development and leadership team direction and discretion regarding when donations may be declined or restrictions of gifts resisted.
• Including reputational risk provisions in major gift agreements.
• Establishing board oversight procedures for naming rights decisions.
• Conducting appropriate due diligence before accepting very large donations.

Is There a New Style of Donation Emerging?

In the midst of churn and discomfort around cases like the donations of the Sackler family to many institutions, there is a new style of philanthropy emerging. MacKenzie Scott in particular has made extensive large, unrestricted donations to many nonprofits over the last several years. Others have followed suit. These gifts have followed extensive consideration and research, but they come with little or no requirements for reporting and no restrictions on use of funding.

This may be more of a statistical or anecdotal anomaly. In an era when many nonprofits are faced with how to address disentangling themselves from brand damage associated with decades old naming rights and gifts, it is hard not to see this approach to giving as being a dramatic break from the past.

Balancing Donor Intent and Public Trust

Major donations often help nonprofit institutions achieve goals that would otherwise be impossible. At the same time, those gifts can create long-term relationships between an organization’s reputation and a donor’s legacy. Careful governance policies and thoughtfully drafted gift agreements can help institutions respond effectively when circumstances surrounding a donor change.

If you have questions concerning donations to nonprofits or need help with a specific compliance issue in Virginia, Maryland, or the District of Columbia, please contact Tim Hughes at (703) 526-5582, thughes@beankinney.com or Doug Taylor at (703) 526-5586, rdougtaylor@beankinney.com.

This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors and are not necessarily the views of any client.