If the donor funds the endowment fully in the first year, the university may allow the investment to grow for the two to three years that it takes to find a candidate to fill the position. In other instances, the donor may spread the donation over two to three years as the search goes on, while taking the full tax break in the first year.

A donor interested in creating an endowed chair should have frank discussions about possible candidates and the type of scholar he wants or does not want before signing a gift agreement. The parameters for the type of chair holder should be clearly stipulated. If a donor wants to encourage or facilitate a type of research or an area of study that is controversial, the school may ultimately refuse the gift.

Donors should expect their motives, their wishes and even their business practices to be vetted by the school before any gift agreement is drafted.

That happened at Yale when alumnus Lee Bass, class of 1979, donated $20 million for the creation of a core curriculum in Western civilization. The gift included funds for several professorships. An internal battle delayed and finally scuttled plans to carry out Bass’ wishes. Late in the process, Bass asked that he be allowed final approval over the professors that Yale would hire for this new area of study, a stipulation that Yale could not abide. Ultimately, Yale President Richard Levin returned the funds in 1994, the largest such gift ever returned by a major university.

Lay’s Legacy
The courtship involving any large donation goes both ways. Universities avoid donations that have too many strings attached, or with a donor who is himself controversial. "Nobody wants the Bernie Evers endowed chair in business ethics," Kinnear quips. However, this is a serious concern, as officials at the University of Missouri can attest. In 1999, Missouri’s economics department gladly accepted a $1.1 million gift of Enron stock from Kenneth Lay’s family foundation when Enron was trading at $82 a share. The donation was earmarked to create the Kenneth Lay Professor of International Economics. Fortunately, the university liquidated the stock long before Enron’s epic collapse. Unfortunately, the university has been unable to fill the position, perhaps because of the publicity attached to Lay’s name in the ensuing scandal following Enron’s nasty bankruptcy in 2001. In 2002, 28 members of the Missouri faculty signed a public letter asking the university to return the funds. In another public letter, the chair of Missouri’s economics department, Michael Podgursky, tartly defended the gift. "If higher education institutions rejected philanthropic contributions from controversial American businessmen, prestigious institutions such as Stanford University, the University of Chicago, Carnegie-Mellon, Vanderbilt and Duke University, to name just a few, would not exist," he wrote. To date, the chair remains vacant. In the wake of Lay’s indictment in 2004 for bank fraud, securities fraud and lying about the same, recruitment efforts stalled.

These are headaches no university wants. Donors should expect their motives, their wishes and even their business practices to be vetted by the school before any gift agreement is drafted. The conversations around creating an endowed chair take as long as four years, and includes discussions about the type of scholar who might be chosen, the criteria for choosing and the name of the chair itself. Many donors do not wish to be identified as the donor of a chair, and may name it for a colleague or a field of scholarship, such as Middle East studies or sustainable business.

Donors should stay involved with the school and the selection process for as long as possible. In many cases, this means meeting the candidates for a chair and offering opinions on them. Because an endowment of any sort is a charitable gift, the university is not obligated to take the donor’s advice about whom to choose. Of course, many times schools are concerned about how donors feel about the chair holders. They will arrange introductions and facilitate a relationship between the donor and potential chair holders.

When this relationship works out, it can be beneficial for both donor and chair. Michigan’s Kinnear holds a chair donated by Keith Alessi, former CEO of the Jackson Hewitt tax preparation service. Kinnear values the relationship he and Alessi have developed since he took the position. "I have a lot of respect for him," he says, "and we have great discussions."

Michelle Seaton is a senior correspondent for Worth.

Illustration by Brad Yeo.