ClarenceHallUniversityandtheDonation.pdf
UVA-E-0382 Rev. Mar. 14, 2013
This disguised case was prepared by Mallory Combemale (U.Va. ’14) under the supervision of Bidhan Parmar, Assistant Professor of Business Administration and Lauren Purnell (PhD ’14), with the assistance of Jenny Mead, Senior Researcher. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright 2012 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to sales@dardenbusinesspublishing.com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation. ◊
CLARENCE HALL UNIVERSITY AND THE DONATION Annalisa McGann, chair of London’s prestigious Clarence Hall University, sat at her
desk and pondered the familiar English adage, “a bad penny always turns up.” Two years earlier, in 2009, Clarence Hall had accepted a pledged donation of a total of (British pounds) GBP8 million (equivalent to [U.S. dollars] USD13 million) from the Natour Charitable Foundation. The foundation’s chairman and founder was Ibn Jarrah Natour, a 2008 Clarence Hall doctoral program graduate and the son of General Natour, the leader of a corrupt, authoritarian regime in an oil-rich region. Ibn Jarrah had recently issued an outspoken defense of his father’s brutal crushing of a democratic uprising in an incendiary speech claiming that attempts to oppose his father’s authority would result in the streets’ turning to “rivers of blood.”
Within the past week, the British press had managed to uncover the financial dealings
between Clarence Hall and the Natour family, and the university now faced a public relations disaster over its 2009 decision to accept the funds and a quandary over what to do with them. Of the initial sum, GBP5 million (USD8 million) had already been invested in research into a new leukemia drug that could significantly increase patients’ chances of survival. The remainder—GBP3 million (USD5 million)—was pledged to start an endowment fund for low-income students for the following academic year.
As she prepared for an emergency meeting with the Clarence Hall University board,
McGann had to sort through the complexities of the situation in which the school now found itself and come up with a proposed course of action. Returning the money to the Natour foundation was a possibility, but that option presented its own complications. She sighed and reached for her cup of tea. Clarence Hall Background and Principles
Currently ranked fourth in the World University Rankings, Clarence Hall was considered one of the most prestigious universities not only in the United Kingdom but around the world. It was founded in 1890 by Jeffery Hall and George Clarence, prominent industrialists and pioneers
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-2- UVA-E-0382 in the British philanthropy movement. Both were avid participants in the Royal Institution of Science and strong in their conviction that the pursuit of knowledge had positive effects throughout society. The current board of directors pledged to follow the founders’ original mission: “Clarence Hall University aims to greater understand the universe and use its knowledge to improve society. It endeavors to do this by fostering a community of intellectually engaged scholars who are able to put their talents to good use regardless of background.”
Throughout its history, Clarence Hall had attempted to be true to the mission of its
founders and was particularly well known for its medical research. Its biology department was instrumental in developing laser eye surgery and several other well-known technologies. The university prided itself in attracting top talent from around the world. Ibn Jarrah Natour himself earned a PhD at the university in 2008. Furthermore, Clarence Hall offered 15 full scholarships for outstanding students from any country who had demonstrated excellence in the categories of scholarship, citizenship, and leadership. Apart from these merit scholarships, it offered other forms of need-based financial aid, which was unusual for UK colleges compared with what many U.S. colleges offered. Often, the only financial assistance available to students was in the form of low-interest loans and government grants. Clarence Hall’s program, though small, was pioneering because it privately offered aid in addition to existing government programs. The expansion of its financial aid program was one of McGann’s goals when she took the position of university chair in 2006. The Natour Charitable Foundation
Ibn Jarrah Natour established the Natour Charitable Foundation shortly after receiving his
PhD from Clarence Hall in 2008. The foundation had funded some indisputably great work, including reconstruction of buildings and homes in Haiti after the devastating 2010 earthquake and home reconstruction in Gaza. One prominent British politician had, in 2010, praised the organization, comparing it to the Bill and Melinda Gates Foundation as an example of a significant and effective nonprofit. Although it appeared that the foundation’s sole purpose was altruistic, many accused Natour of “dollar diplomacy,” or trying to buy political influence by giving monetary aid to certain regions of the world. Reporters investigating the foundation revealed that over three-quarters of the foundation’s money came from the Natour family and thus could be traced directly back to General Natour’s regime. Nonetheless, the money pledged to Clarence Hall was designated for two important areas.
Leukemia research
From the Natour foundation pledge, Clarence Hall had deposited GBP5 million
(USD8 million) into the account for its leukemia research project. The chemistry department of Clarence Hall was developing a new drug that had the potential to cure leukemia, a form of blood cancer caused by genetic mutations, without subjecting patients to a painful bone marrow transplant. The researchers had targeted the drug at children with leukemia. This research could save thousands of lives, especially considering the increasingly long waiting lists for bone
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-3- UVA-E-0382 marrow matches. The project leader, Dr. Stephen White, was one of Clarence Hall’s most esteemed and widely published experts in the field of leukemia research. He was the BBC’s top science correspondent, which made him practically a household name; this generated positive publicity for the university. McGann also knew he had a personal horse in the race: his own grandson had died from leukemia.
The research project, with its potential for a huge scientific breakthrough, was nearing its
final stages of testing; what was left of the original amount would finance this final testing. To withdraw the funding now would essentially halt the project. If the university returned the Natour money, the project would have to draw from other school funds, almost certainly resulting in faculty pay cuts and reduced student financial aid. White had sent McGann a memo urging her to continue the leukemia project at all costs, even threatening to leave Clarence Hall in favor of a “more supportive institution” if funding was withdrawn or if additional funding, if needed, was not available.
Scholarship funds
The remaining GBP3 million (USD5 million) of the Natour money was due to arrive the
following month, and plans had already been made to invest it in a new scholarship fund. The money would fund 45 full scholarships and 75 partial tuition scholarships for students who demonstrated financial need. McGann thought about her 2006 inauguration pledge to extend the accessibility of a Clarence Hall education to talented but less well-off students. Clarence Hall had, in the past several years, been criticized for accepting a high proportion of international students. McGann and the administration defended its admissions policy by stating that the university aimed to attract the best talent, wherever it came from. McGann knew, however, that foreign students, who could be charged up to four times the amount British students paid, were a financial boon. This money was often used to plug the increasing gap between government funding and Clarence Hall’s operating and research costs. The critics argued, however, that, as a public institution, Clarence Hall had an obligation to accept more British students, whose parents’ tax dollars had helped support the higher education system. More than any other time in its history, Clarence Hall needed the Natour foundation’s money to stay true to its principles of accessible education. But unlike the money that had already been spent on leukemia research, this portion of the funding would be comparatively simple to refuse.
British University Funding
Unlike many American universities, all British universities were publicly owned and funded as part of the state education system. Students did not pay tuition and, as a result, there was little culture of saving for college. But as enrollment increased dramatically in the 1980s and state funding was reduced, the universities began charging tuition: approximately GBP1,000 in the early 1990s and, by 2005, up to GBP3,000 (USD5,000) per year. Another increase had come in 2011, after which universities could charge up to GBP9,000 (USD15,000) per year in tuition.
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-4- UVA-E-0382 This was the only way universities could make up the difference between their operating costs and the funding they received from the state.
Students in England graduated with some of the highest debt levels worldwide, especially
those who attended London universities where the cost of living was extremely high. Some students had amassed debt of up to GBP35,000 in tuition costs and living expenses during the course of their three-year degree. Considering the current economic situation, many had also found it difficult to find jobs after graduation. As a result, student satisfaction was at an all-time low, even at highly ranked universities such as Clarence Hall. Increasingly, students were questioning whether a university degree was actually worth vast sums of money, especially with new research showing that the correlation between higher education and future expected earnings was much weaker than had been previously thought. See Exhibit 1 for percentage of Clarence Hall students receiving financial assistance.
For decades, universities in Great Britain had been underfunded, and now they were
coming under increasing financial strain. As part of the government austerity measures aiming to cut the large budget deficit, in December 2010, funding for all universities was reduced. Clarence Hall was one of the hardest hit; its total funding was cut by 10.9%. The Liberal Democrat party, now the minority group in the coalition government, had pledged in the May 2010 election to oppose tuition fee increases; unfortunately, it was unable to change the reality of the government’s financial situation, and a new law was passed that allowed universities to triple annual fees to GBP9,000 (USD15,000). McGann had been involved in making the difficult decision to fill the funding gap by raising Clarence Hall’s fees to that maximum threshold, which threatened to exclude many students who could not afford such high fees. Students would immediately feel the effects: the increase in fees was unexpected, so they had not been able to plan for it.
In December 2010, violent student protests broke out around the country in response to
the increased university fees. Protests were especially fierce in London, where many students from Clarence Hall clashed with police. One student was crushed to death in the crowds and another received third-degree burns from one of the many trash cans that were set on fire. Two angry protestors even broke the windows of the royal limousine conveying the Prince of Wales and his wife, the Duchess of Cornwall, to the theater. The country’s economic woes had caused discontent to sweep across the nation; university funding had become a highly sensitive issue that prompted passionate and sometimes violent reactions. As she considered the future, McGann had kept these recent demonstrations in mind.
Clarence Hall Finances The growing gap between operating costs and available funding had prompted McGann
to implement a new financing plan for the university in 2007. Fundraising and development efforts were intensified; soliciting donations from alumni was particularly emphasized. Faculty and staff salaries were frozen, and some were laid off. Plans to renovate on-campus housing and
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-5- UVA-E-0382 the physics building were put on hold. This had led to speculation that Clarence Hall’s world ranking would fall, because spending cuts inevitably led to a decline in the quality of facilities and teaching.
Clarence Hall had an endowment of GBP50 million (USD81.6 million), and its average
annual income—from government funds, tuition, and donations—was GBP154 million (USD251 million).1 In this context, the Natour Charitable Foundation’s donation of GBP8 million (USD13 million) was significant and could not be turned down lightly. The donation represented a significant portion of the university’s annual operating costs as well as a potential resource for financing new projects and preventing cuts in the operating budget. See Exhibit 2 for the total value of the Clarence Hall University Endowment Fund over time. Political Situation
In 2009, when McGann and Clarence Hall senior management made the decision to accept the Natour foundation funds, the political situation, particularly in the Middle East, was relatively calm. Years of strained relations between Great Britain and General Natour had ended in 2006 when Natour announced to the world that he was abandoning his pursuit of nuclear weapons. As a result, diplomatic and economic relations between the two countries were restored. Former Prime Minister Tony Blair was keen to forge links with the country to gain lucrative oil deals and enhance the region’s stability. Many people in Great Britain were not pleased with their government’s reaching out to Natour; they thought the government and some prominent British businesses were turning a blind eye to the dictatorship’s suspected human rights offenses in exchange for political and economic security and gain.
But relations between Britain and General Natour’s regime soured in 2011 after news
reports showed the general’s forces opening fire on civilian protestors during a time of political and social unrest in Natour’s country. Turmoil had spread throughout the Mideast; people in Tunisia and Egypt, among other countries, were protesting the poor economy and lack of political freedoms under their respective authoritarian regimes. But the upheaval in Natour’s country took a particularly violent turn as the general tried to dispel it. Instead of stepping down and ceding control as Hosni Mubarak had done in Egypt, General Natour was determined to keep his position and ordered troops to halt the uprising. His ruthlessness was now made clear as troops fired into the crowds, killing several hundred unarmed civilians.
In light of the protests and Natour’s brutality, the British media keenly dug up many
cases of Britain’s “unethical” involvement with the Natour government. A document released during the WikiLeaks scandal revealed that the British government offered to provide tanks and
1 In comparison, the University of Virginia, in 2009, had an endowment of USD4.45 billion and total revenue of
approximately USD1.3 billion. Even taking into account the fact that UVa was twice the size of Clarence Hall, the difference was still notable.
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-6- UVA-E-0382 weapons to the regime in 2007. There had also been a deal to train the country’s leaders and army officers at the Royal Military Academy Sandhurst, among other prestigious army colleges. These were the very leaders who were responsible for crushing the democratic uprising and who had committed many of the atrocities against civilian protestors. There was widespread outrage among the public in response to this news.
Clarence Hall: Internal Unrest The decision to accept the Natour funds in 2009 had not been easy. McGann and senior
Clarence Hall administrators worried that further government funding cuts for universities were inevitable and that, therefore, the Natour money would be invaluable. Nevertheless, McGann considered the fact that the donation was not a personal gift from Natour; it came from a legitimate nonprofit organization. Although many Clarence Hall faculty members were grateful for the extra money, others were not. Prominent faculty critics of the decision included Professor Ben Samson, a Middle East specialist; esteemed physics professor Monty Rahman; and Professor Elizabeth Gilbert of the religious studies department. Their protests in 2009 went mostly unheard, but recent events—the unrest in the Middle East and General Natour’s brutal crackdown on his own people—had given this trio of faculty critics greater voice and influence within the Clarence Hall community. In the last few days, the three professors had given many high-interest media interviews condemning the Clarence Hall administration for their decision to accept the funds. Samson became somewhat of a media celebrity, flaunting his status as a Cassandra-like figure. Clarence Hall’s reputation was being dragged through the mud, and McGann had to consider possible consequences: a reduced applicant pool and alumni being less inclined to donate to the university.
Many current Clarence Hall students initially had been critical of the decision to accept
the funds, and—like the British press—had recently begun a public pummelling of the university, demanding that it return every penny of the Natour foundation’s donation. In addition to using the mainstream media as a megaphone, students were also using social media. There was a proliferation of Facebook status updates and Twitter posts about the issue, as well as opinions on many high-profile blogs run by Clarence Hall students. McGann’s quick Internet search revealed quotes such as these:
“I can no longer hold up my Clarence Hall degree with pride, knowing this is how my
education is funded.” “It’s a complete scandal and just goes to show how easily not just Clarence Hall
administration but Britain as a whole sold out to the Natour regime.” “I shudder to think what our founders, Jeffery Hall and George Clarence, would have
made of this. The principles on which this supposedly great institution rests no longer seem to apply.”
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-7- UVA-E-0382
The previous day, the Student Union organized a protest to pressure the administration into giving up the funds. Students from other London universities joined the demonstrators. Although these demonstrations were nonviolent, police had to be stationed around the university for crowd control. After marching around the Clarence Hall main building, protestors occupied the staff dining room and camped out outside McGann’s office for the rest of the day. She remembered all too clearly the results of student unrest the previous December over the issue of increased student fees. She also considered the essential role students played in the university community; if at all possible, their wishes should be taken into account. After all, the institution existed for them, and they were partially funding the university’s activities. But much like the student protests in December, these demonstrated a high level of idealism with little thought for practicality. It was not a simple matter of returning the money to the Natour foundation. More than half of it had already been spent, and returning it would entail raiding the Clarence Hall budget.
Before the Board
McGann collected her thoughts and prepared to face the Clarence Hall University board. She had to consider the principles imbued in the university by its founders as well as the current political situation, domestic and abroad. As she weighed her options, she could hear the student protestors rallying loudly outside her window and thought of the reporters she knew were in tow. She also recalled White’s impassioned memo. With all these things and more in mind, she wondered what the best course of action was.
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-8- UVA-E-0382
Exhibit 1
CLARENCE HALL UNIVERSITY AND THE DONATION
Percentage of Students Receiving Financial Assistance
Data source: Clarence Hall University documents.
0
10
20
30
40
50
60
70
80
90
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
% S
tud
ents
Year
Full scholarship
Partial financial aid
No financial assistance
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-9- UVA-E-0382
Exhibit 2
CLARENCE HALL UNIVERSITY AND THE DONATION
Total Value of the Clarence Hall University Endowment Fund Over Time
Data source: Clarence Hall University documents.
0
10
20
30
40
50
60
70
80
90
100
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
En
dow
men
t fu
nd
(m
illi
ons
of B
riti
sh p
oun
ds)
Year
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