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Why Universities Need to Prioritize Donor Due Diligence

August 22, 2023 (6 min read)
Donor due diligence is as important for higher education fundraising as it is for all nonprofits.

No institution wants to be embroiled in a scandal—especially when it could have been prevented. Unfortunately, that’s exactly what happened to Tufts University when it was revealed that when one of their long-standing donors, the Sackler family, was tied to the opioid crisis. Over a period of nearly 40 years, the university received around $15 million from the Sacklers, who own the pharmaceutical company Purdue Pharma.

Tufts received extensive criticism—and even legal action—for their tie to the Purdue company, highlighting the need for universities to complete due diligence checks and vet their donor lists before accepting financial contributions.

While the Massachusetts liberal arts college could have tightened up their donor screening process, these mistakes are far from rare, and they are something that all universities should be regularly monitoring.

In this article, we will outline the reasons why donor due diligence is necessary for universities and how to begin your due diligence process.

Why donor due diligence is necessary for universities

Just like with any other not-for-profit institution, fundraising for higher education requires checks on donors. To protect an institution from sanctioned third-parties or other unwanted donations, it’s imperative that academic workers are just as aware of the due diligence checklists as corporate leaders are. In fact, due to their position as institutions of learning and influence, it may be even more important.

Although due diligence includes obstacles (like financial investment or lack of access to resources) and a great deal of work, academic institutions are just as likely as other nonprofit organizations to fall victim to donor scandals.

Here are just a few of the ways a robust due diligence strategy can protect your organization.

Avoid legal action

The Tufts-Purdue case culminated in a Massachusetts attorney general filing allegations in court, claiming that Purdue Pharma funded a program at Tufts to “influence Massachusetts doctors to use its drugs.” This type of legal action is a major concern for universities who accept large donations, especially because the underscoring tenet of academia should be a fair and just approach to education. When a school accepts money from a company that could be potentially bribing the institution, it puts the organization’s entire reputation in jeopardy and elicits legal concerns.

That’s why performing checks on current and potential donors protects institutions from legal action, reputation fallouts, and much more to ensure that the money being accepted is coming from a reputable, brand-safe sources. This includes checking sanction lists like those outlined by the Office of Foreign Assets Control (OFAC), such as the Ukraine-/Russia-related Sanctions and Syria sanctions.

If an institution accepts money from sanctioned donors because they didn’t check the aforementioned OFAC lists, they could be subject to similar legal recourse. For example, elite British universities recently made headlines for accepting millions from Russian donors. Oxford University allegedly accepted over £2.6m from a family who is now under sanctions, and, because of this widespread issue, a new law requires British universities to disclose any donation larger than £75,000 that’s received from a foreign nation not allied with the UK.

Protect your reputation

While Tufts ultimately was able to avoid heavy legal consequences, the institution’s reputation was put at stake. Conferring with unsavory third party donors could have massive ramifications for a university, including reducing its ranking and making it less prestigious. Another example happened with Purdue University (not to be confused with Purdue Pharma) in 2018 when the school had received a $8 million gift from John Schnatter of Papa John’s pizza fame.

Due to the gift, Purdue had dedicated its Economics building to Schnatter, who later came under fire for using a racial slur in a conference call. Ultimately, Purdue opted to roll back the building name, as well as offering to return the financial gift from Schnatter’s foundation. And while proper due diligence, like regular sanction and headline checks, could not have foretold or prevented Schnatter’s unfortunate choice of words, it may have revealed some concerning elements of Papa John’s corporate culture that may have given Purdue pause.

MORE: How to use media monitoring to your advantage in nonprofit fundraising

Understand donor history and its impact

In similar nature, universities should also be wary of the other organizations that their big donors support that could reflect poorly on the school. Over the last few decades, Ivy-League college Princeton University has proudly inserted itself into the climate change debate, funding critical research and investing in policies that promote action on climate change.

However, Princeton has accepted significant contributions from foundations and corporations that are commonly criticized by climate activists, including ExxonMobil and BP. The school also accepted at least $1.5 million from organizations like the Lynde and Harry Bradley Foundation, which supports organizations that “attack and spread disinformation about well-respected environmental advocacy organizations and launch campaigns opposing anti-fracking initiatives.” Following much criticism from students, donors and activists, Princeton very recently announced its decision to not only divest but to disassociate from 90 fossil fuel companies—indicating that they recognized the ethical issues of benefitting from the generosity of corporations and foundations with values contradictory to their own. Hopefully, this case study will prove helpful for Princeton and other universities as a signal to level up their donor precautions.

While this could be easily researched, some associations are harder to recognize. That’s where due diligence screening comes in. With the right due diligence tools, organizations can screen for past donations, board associations, or other connections that could imply that a big-ticket donor doesn’t align with the company’s overall mission—especially as environmental concerns and ESG requirements are on the rise.  

MORE: Why donor due diligence is crucial to your nonprofit’s success

How to respond to publicity from negative donor impacts

When it is uncovered that a university has received financial support from a third party that is misaligned with its ethos, or holds other potential concerns, it’s important that the school’s public relations team works quickly to address this negative news coverage. Immediate action and investigation can help a university to implement change in a swift manner and ensure other donors that the mistake will not happen again.

Of course, schools should also be sure to end their relationships with donors whose actions caused pause in the first place. And, from a legal perspective, universities should immediately cut contact with third parties who are under national or global sanctions.

This rapid response should be followed up with a pledge to increase the due diligence process, so stakeholders at the university can rest assured that future donations will be more thoroughly vetted. Be transparent about new processes used to track and screen donors or ongoing validation processes to ensure up-to-date monitoring. This will signal to your community that you are committed to your mission and are working to rectify any harm caused.

MORE: How to engage your alumni to improve fundraising

Get ahead of donor risk with a robust donor due diligence strategy

An extensive due diligence strategy is imperative to avoiding possible donor issues, like the Princeton, Purdue and Tufts examples. This can be accomplished with a few preliminary tasks, starting with creating a prospect research process. Universities should craft a strategy that requires them to search donor dossiers on a regular basis to see if potential partners come with major red flags, as well as use monitoring tools to see what their current major donors are involved in outside of giving to the school.

A university should also work within its communications teams to monitor incoming news and reports about current donors, particularly for individuals who have given generous amounts of money or support to the institution.

Fortunately, these things can all be done with technology; plenty of due diligence tools, Nexis Diligence+®, offer search capabilities as well as full reports on donors. These tools gather information from across the web and generate alerts and regular check-ins automatically so that internal teams don’t need to spend their time on manual monitoring. 

As development teams are often strapped for time and resources, these tools will allow your team to focus more on achieving your mission than fighting fundraising fires. For more information on starting your donor due diligence journey, check out our recent e-Book, “Create the Full Picture of Your Donor Prospects.”