When charitable gift agreements go bad: why a morals clause should be contained in every charitable gift agreement.

• Author: Goldberg, Adam Scott
• Position: Tax Law

Tyco International was a small New Hampshire conglomerate in 1991. In 1992, Tyco appointed Dennis Kozlowski as CEO. He led the company for 10 years, during which Tyco became a global giant doing business in over 100 countries and having an annual revenue over $40 billion. (1) Kozlowski was living the high life in a $31 million apartment on New York's Fifth Avenue, which had $6,000 shower curtains in the two bathrooms. (2) Kozlowski was a highly paid corporate officer with an extravagant lifestyle. In 2005, he was convicted in New York criminal court on multiple accounts of grand larceny, conspiracy, securities fraud, and falsifying business records. (3) The judge sentenced Kozlowski to serve between eight years and four months to 25 years in prison. (4)

While Kozlowski was serving as the CEO of Tyco, he made numerous charitable donations. Three of his favorite charities were Seton Hall University (of which he was an alumnus); Berwick Academy (a historic private primary school in Maine where he was head of the board); and Cambridge University in England (where he donated approximately $4 million dollars [2.5 million [pounds sterling]] for an endowment in corporate ethics).

Prior to the criminal conviction, Seton Hall University had named a classroom building Kozlowski Hall along with a rotunda at the university library. Berwick Academy in Maine named its athletic facility the Kozlowski Athletic Center. Cambridge University created the Kozlowski Endowed Professorship in Ethics. It is easy to imagine the charitable organizations were not pleased when the news of his criminal investigation broke. Imagine taking a business ethics course in a classroom named for a convicted felon.

Luckily for Seton Hall University, Dennis Kozlowski voluntarily agreed to remove his name from the building and the library at Seton Hall University via a telephone call in July 2005 with then university President Robert Sheeran. (5) His voluntarily agreeing to this action suggests that Seton Hall did not have an automatic right to remove his name from the building based upon his criminal conviction.

Seton Hall University now has a two-page policy on naming opportunities that was enacted November 11, 2002. (6) This policy is in addition to the separate gift acceptance policy for the university.

The case of Dennis Kozlowski is not a rare example. Other examples include Enron Professor of Economics at the University of Nebraska, Texas A&M, and the University of Southern...