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A $400 Million Gift, and Accompanying Scrutiny

Analysis: John Paulson’s record donation brings Harvard fundraising unprecedented criticism

UPDATED: July 7, 2015, at 12:25 p.m.

After the announcement that billionaire John A. Paulson had pledged $400 million to rename the School of Engineering and Applied Sciences, Harvard administrators celebrated the huge stimulus to the growing school, the largest gift so far in University history and its record-seeking capital campaign.

University President Drew G. Faust lauded Paulson’s donation as “transformative.” The gift, she wrote in a University-wide email last month, “will place the School on sound footing as it establishes itself in new spaces on our campus in Allston, deploys knowledge in service to humanity, and pushes the boundaries of discovery.”

SEAS Gift Announcement

Outside the Harvard bubble, however, a number of commentators had a nearly opposite reaction: The world’s richest university, they said, did not deserve the money.

Boston Globe columnist Steven Syre argued that Paulson’s gift and the “sheer voraciousness of the Harvard money machine... shines an unflattering spotlight on the wealth gap in higher education and the ways in which it is perpetuated.”

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Opinion writers and pundits joined the chorus, maintaining that the New York hedge fund manager’s money would have been better served at a needier school—at least not the country’s wealthiest—or to tackle other world issues, like poverty or malaria. “Literally any other charity is a better choice,” one critic wrote.

Paulson is not the first to donate hundreds of millions of dollars to Harvard. Billionaire Gerald L. Chan pledged $350 million to the since-renamed School of Public Health last September, and Kenneth C. Griffin ’89 put down $150 million, mostly toward College financial aid, in early 2014.

But unlike those donations, Paulson and his $400 million donation have received much more than praise. Administrators maintain that the criticism will do little to hurt their fundraising efforts, but one fact remains: Paulson’s record gift has brought record scrutiny to Harvard’s $6.5 billion capital campaign.

DRIVING CRITICISM

A few factors, experts and administrators say, could make Paulson and his gift different from the high-profile donations that preceded them.

Harry R. Lewis ’68, who serves as SEAS’s interim dean, suggested that the gift may have received more flack because of the nature of the school it benefits. The impact of an unrestricted gift to engineering and science, Lewis said, is more abstract than the promise of public health research and financial aid.

“Not everyone believes technology is a good thing, so you have to get down to cases to see what it’s being used to support,” Lewis said. “I do think that it points out that there are things that only well-funded universities are able to do which other universities should be doing more of.”

Aggravating the frenzy of critique may have been an apparent lack of concrete, advertised examples of how SEAS would use the money.

When administrators announced the $350 million Chan gift last fall, School of Public Health Dean Julio Frenk had already decided on four global health threats that school would use the donation to address. When they announced Paulson’s record donation, in contrast, SEAS leaders spoke about their intentions for the gift more generally, naming “research,” “faculty,” and “financial aid,” as priorities, according to a statement.

Richard A. Marker, the founder of New York University’s Academy for Grantmaking and Funder Education, said Harvard would benefit from being more specific about the impact of Paulson’s gift to convince people that donating to Harvard will indeed advance the greater good.

“The issue isn’t with the Paulson gift,” Marker said. “[Harvard] needs to say, ‘If you look over time at what we’re able to do, these are some things we can demonstrate.’ Then people don’t think it’s a contradiction to give to Harvard and satisfy a public good.”

Another source of criticism was the donor himself. A Wall Street powerhouse, Paulson made millions profiting from the collapse of the housing market that preceded the 2008 recession. Anticipating problems with the housing market, Paulson started betting against subprime mortgages. In 2007, when the market collapsed, he made an estimated $3.7 billion, followed by $2 billion the next year.

Some commentators noted Paulson’s wealth and his position on Wall Street in their criticism, arguing that his gift not only exacerbates inequality in higher education but also points to what they saw as troubling income disparities in the U.S. more broadly.

“In meantime, the man will presumably write this latest mega-donation off from his taxes, meaning the American public will effectively subsidize his act of personal monument-building,” Jordan Weissmann wrote in Slate.

Paulson was not available for comment on the criticisms surrounding his gift, according to Patrick S. McKiernan, a spokesperson for Harvard's Office of Alumni Affairs and Development.

DEFENDING THE GIFT

Harvard, predictably, defends the donation. Though critics were quick to note in their commentary that Harvard—which boasts a $35.9 billion endowment— is already the world’s richest university, Lewis said that SEAS needs the funding. Harvard schools each have their own specific shares of the University’s endowment, and because it is a relatively new school, SEAS has a smaller pile of funds to use than some of its counterparts.

“The funds that we receive we put to very, very good use in terms of…scientific researchers in SEAS who are working in robotics, drug delivery systems, energy research, and climate science research,” Lewis said.

Harry Lewis Q&A

University leaders seem to agree that SEAS needs funding; they have prioritized turbocharging the school with money and resources. To stay competitive with other science and engineering hubs like Stanford and MIT, the burgeoning science school is currently undergoing major transformations—a move across the Charles River to Allston and a boost in enrollment.

Other Harvard donors are also quick to defend the gift. Paulson’s neighbor and former business partner Paul J. Zofnass ’69, also a prominent Harvard donor, called the denunciations of the donation “incredibly offensive.”

“It’s not their role to talk about what someone else should give,” Zofnass said.

The super wealthy often hope their gift will leave a legacy, Zofnass said. One way to do that is by leveraging the reputation of one of the world’s most recognizable education institutions.

In addition to receiving recognition for his gift, mega-donors like Paulson, Marker argued, may be more inclined to give to an established institution with a large money management apparatus able to handle large sums.

“[Paulson] made his money being very high-risk, but he spends his philanthropic money supporting low-risk institutions,” Marker said. “On some very profound level, people don’t have huge confidence that if you support small grassroots organizations it will effect the same change.”

FORGING AHEAD

The criticism comes at a busy and important time for Harvard’s fundraisers, who are in the midst of running the University’s largest capital campaign. But even if the criticism surrounding the Paulson gift was loud and largely unprecedented, administrators and outside experts maintain that it will not stop potential donors from choosing Harvard.

Frederick M. Hess, the director of education policy studies at the American Enterprise Institute, said he doubts that the negative attention on the Paulson gift will immediately hurt fundraising efforts, especially given Harvard’s track record of recognizing big donors by naming fellowships, deanships, and now schools after its benefactors.

“People like giving to Harvard because they like to give to a prestigious institutions that is going to honor them,” Hess said. “But if you get enough of this [criticism] on a sustained enough basis, people might think twice about whether to give to Harvard or to give to someone else.”

Experts added that while the criticism may not disincentivize donors, it might force Harvard to prove publicly why it is worthy of so much money.

“What is likely to take place is it will put pressure on Harvard itself to take a position to show how it’s benefiting society as a whole and not being a wealthy finishing school,” Marker said.

Lewis said that he plans to forge ahead on the fundraising frontier—in spite of naysayers—for the duration of the campaign.

“[The criticisms] will have some impact with some people, I’m sure, but the reality is that successful people like success,” Lewis said. “They want to give their money where it’s going to have an impact, but they also want to give their money in places where they can have confidence that the future is positive the future is bright.”

—Staff writer Mariel A. Klein can be reached at mariel.klein@thecrimson.com. Follow her on Twitter @mariel_klein.

This article has been revised to reflect the following correction:

CORRECTION: July 7, 2015

An earlier version of this article incorrectly stated the size of Harvard's endowment. In fact, the endowment is valued at $35.9 billion.

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