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University of Missouri Sued for Failing to Follow Donor’s Intent

August 19, 2019

The University of Missouri is the target of a lawsuit claiming a deceased donor’s endowment gift is being misused.

The University of Missouri is the target of a lawsuit claiming a deceased donor’s endowment gift is being misused.

Sherlock Hibbs, a 1926 Missouri graduate and Wall Street financier who died in 2002, left his alma mater $5 million, which was invested until it now totals $9 million after the university spent $4 million on salaries. The bequest was made on the condition the university use the money to hire six "dedicated and articulate disciples" of the free-market Austrian school of economics and preeminent Austrian thinker Ludwig von Mises.

The Austrian school is distinct from other free-market schools of thought, such as the Chicago school associated with Milton Friedman. Austrian economists emphasize individual choice and subjective preferences in human action. In addition to Mises, the Austrian school is associated with 1974 Nobel laureate F. A. Hayek.

Under the terms of the gift, the University of Missouri was to establish and fund three new chairs and three new distinguished professorships at its Trulaske College of Business, all to be filled by Austrian economists. Bruce J. Walker, former dean of the business school, created the positions but “appointed individuals to the Chairs and Distinguished Professorships whom he knew were not Austrian economists,” Hillsdale’s attorneys stated in a brief to the Missouri Supreme Court.

Donor’s Enforcement Mechanism

To enforce the restriction on his gift, Hibbs arranged a unique backup plan involving Hillsdale College, a conservative-leaning liberal arts school in Michigan that houses Mises’ personal library.

Hibbs’ bequest required Mizzou officials to regularly certify to Hillsdale the Misesian credentials of its new hires. If Missouri violated the terms of the gift, the money would go to Hillsdale, thus creating a strong incentive for Hillsdale to take care in watching Missouri’s stewardship of the funds.

“Mr. Hibbs named Hillsdale College not only to ensure that his gifts were used as described in his will, but also to take action if the intent of his gift was not fulfilled,” stated Hillsdale attorney Peter W. Herzog III, The Columbia Missourian reported on July 14. “Hillsdale takes that obligation very seriously.”

Four professors hold positions created by Hibb’s gift. The other two posts are vacant. Each of the four professors signed an affidavit affirming he or she is “a dedicated and articulate disciple of the free and open market economy (the Ludwig von Mises Austrian School of Economics).”

In an email revealed by the discovery process and quoted in the Hillsdale brief, Walker wrote, “the Austrian School of Economics is quite controversial. We didn’t want to wade into that controversy, so we focused on some Austrian tenets that are compatible with what we do in our business school.”

‘Cannot Be Trusted’

A decade and a half later, Hillsdale sued the university, alleging school officials failed to comply with the donor’s intent and therefore Hillsdale should receive the money.

The case will now proceed to trial, the Missouri Supreme Court having issued an opinion that the proper venue is a probate court in Boone County, location of the university’s main campus, instead of St. Louis County, where the lawsuit was originally filed, on June 25.

In its filing of the lawsuit, Hillsdale’s attorneys, one of whom is former Missouri governor Jay Nixon, allege the University of Missouri found the prospect of promoting Austrian economics “distasteful” and quote then-Provost (and later Chancellor) Brady Deaton as saying the university and the business school were being “held hostage by a particular ideology.”

The actions of Missouri officials highlight the practice of ignoring benefactors’ instructions, says George Leef, director of editorial content at the James G. Martin Center for Academic Renewal.

“This case shows once again that college officials cannot be trusted to follow the wishes of donors but prefer to spend their money on their own priorities if they can get away with it,” Leef said.

‘Not Donor-Driven’

Government schools don’t respond to incentives the way private or commercial institutions do, says Jeff Deist, president of the Mises Institute.

“The problem with the case in Missouri is that you’ve got a large public institution and it’s not profit-driven,” Deist said. “It’s not donor-driven.”

“It’s awfully hard to force them to use [his money] as he wanted,” Deist said. “In other words, public schools answer to a lot of other people.”

Another problem, Deist says, is that donor agreements are never watertight.

“No matter how creative you get with your legal documents, no matter how ironclad you try to write them, the enforcement is always a lawsuit,” Deist said. “Lawsuits generally are pretty inefficient in the sense that the lawyers eat up a lot of the money and neither side gets the outcome they really hoped for.”

Ignoring the Customers

Nonprofit organizations aren’t like competing commercial enterprises that are responsive to the demands of their customers, Deist says.

“What makes [universities and nonprofit organizations] different is that they aren’t up against it with regard to profit and loss the way a private business is,” Deist said.

“You know, if Ford has mission creep and loses sight of buyers’ intent, then they sell fewer cars and they get in trouble,” Deist said. “But oftentimes, foundations and university departments and nonprofits, they sort of take on a life of their own.”

Harry Painter (jharrypainter@gmail.com) writes from New York City, New York.

 

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Harry Painter (jharrypainter@gmail.com) writes from Brooklyn, New York.