Schnatter and Koch Grants to University of Louisville Revisited.

The John H. Schnatter Center for Free Enterprise at the University of Louisville College of Business is up and running.  Last fall, when the enabling grants to the University of Louisville Foundation by the Charles Koch Foundation and the John H. Schnatter Family Foundation were announced, much concern was expressed by faculty and others in the community about the lack of institutional control that was given up to the funding organizations, the shortcuts taken within University governance to sign the agreements, that the University and Foundation were committing themselves to funding elements of the Center even if the Donors withdrew support, and concerning the general concept that the Donors were seeking to purchase academic legitimization of their far-right political philosophy.  These issues were discussed prominently within the local community including by the Center for Investigative Reporting, Insider Louisville, The Courier-Journal, WFPL, WDRB, Business First, and even the Kentucky Health Policy Institute.  The practice of the Koch Foundation funding similar interests in other colleges and Universities has drawn national attention in The Atlantic, Huffington Post, Center for Public Integrity, and others. Following the rollout of the Center, a series of submissions and letters to local media – some from outside the state – brought the matter to my attention again and prompted this follow-up to my earlier articles.

To my knowledge, at the time of the initial controversy, the public had access to only one of the two interlocking contracts funding the center – the contract with the Charles Koch Foundation.  Through the open records process, I recently asked the University for all the final grant and other agreements agreements relevant to the Center.  As it happens, the grant agreement from the John H.  Schnatter Family Foundation differes from that of the Koch Foundation in a way that in my opinion amplifies concerns about institutional control.  Therefore, in this article, I make available the complete set of Grant Agreements, including extensive promises made by the University.  [The Schnatter Foundation and Charles Koch Foundation grants can be downloaded using these links.]  I also outline why what has been given away by the University chills this old academic to his bones in the same way that relinquishing clinical control of University of Louisville Hospital to Catholic Health Initiatives deeply disturbs me as a physician.

Fait accompli.
Both the Schnatter and Koch Foundation grants were signed by the relevant parties on or before March 10, 2015.  Both should have been available to the public at the same time.  The grants were therefore in force at the same time the President and Provost were still giving lip service to their respect for required faculty oversight of the creation of new centers.  Although I and perhaps others were led to believe that negotiations were still ongoing and that faculty input was welcome, the Koch agreement provided to me this month is identical to the one released last spring.  Except for one clause in the Schnatter agreement and the amounts funded, the two grant agreements are otherwise identical so I suspect the Schnatter agreement had not changed either.

Lack of institutional control is baked-in.
The funding is being given to the University of Louisville Foundation, not the University of Louisville Research Foundation, the usual recipient of external research grants.  The University maintains that the Foundation is a private entity and not subject to the same rules or oversight as the University itself.  The University therefore uses the Foundation to do things that cannot do, or which might even be illegal for the University to do in its own name.

The fact that the money is being given to a Center rather than to the College of Business further insulates the activities of the Center from traditional academic administrative accountability.  While the University claims it will follow its usual protocols of hiring and business practices, it is the Donors that have chosen the Director of the Center, not the University.  It is the Center Director, Dr. Stephen Gohmann who calls the shots of the Center, not the Dean of the College of Business.  Professor Gohmann has been given what appears to me to be unprecedented control of search committees and other activities of the Center.

What is even more outrageous is the control given to the Donors over the actual fruit of the academic enterprise.  What is being termed “Free Enterprise” is really a code word for a far-right, libertarian, and tiny-government brand of economic and political theory espoused by believers of Ayn Rand or the similarly Koch-funded Cato Institute.  While in theory any new faculty members and fellows should be free to follow their own research to whatever conclusions they reach, they will be hired because of their commitment to this economic philosophy. Furthermore, the University of Louisville Foundation is required by contract to give an annual written report of the activities of the Center to both Donors, the acceptance of both determining whether the next tranche of funding will be forthcoming!

Stick to the mission.
The Mission of the Center is specified in the grants: “to engage in research and teaching that explores the role of enterprise and entrepreneurship in advancing the well-being of society.”  This seem quite vague to me and could certainly be subject to whatever is in the eye of the Donors at the time. How will the Center know whether it is on track without asking the Donors?  More constraining or even threatening to me is the clause that states, “If in the sole judgment of the Donor [the Schnatter Foundation] any academic program conducted by the University in accordance with the terms of this Agreement is no longer principally focused on the Center’s mission, at the donors election, in addition to any other remedy available to the Donor by reason of a breach in this agreement, donor may direct the University to immediately cease and desist used of the center name in connection with such program,”  – an agreement intended to survive in perpetuity.

Reinforcing the discretionary authority of the Donor over the program, the first clause in General Provisions declares that, “if at any point during the Term, the donor determines in its reasonable discretion that: (i) the Foundation or the University has not acted in good faith under this agreement, (ii) the Center programs are not advancing the center’s mission as stated in this agreement….The donor has the right to terminate the agreement upon providing 30 days notice…”  As a further inducement to tow the line, “the Foundation’s and University’s obligation shall end upon the Donors termination of this agreement, except that the University shall continue to provide support to maintain the Tenure-Track professorships indefinitely.”  It looks to me like the University has bought a pig in a poke.  In my opinion, the faculty and researchers in this Center are not being given free rein to think, but are being told instead what they must think.  I am stunned that my University would buy into this.

Additionally, my reading of the contracts says that if one of the interlocking grants is unilaterally terminated, the other will terminate as well.  Talk about the double whammy threat!  It seems to me that the vaguely defined Center’s Mission is subject to whatever the Donors say it is at the time.

President Ramsey, signing for both the University, and the Foundation, promised to “ keep confidential and not to disclose to any third party the existence of or the contents of this Agreement” without the written approval of the donor – unless of course required by law or by getting caught.  Nothing new here, but doesn’t that say a lot how this is being done?  What is in these agreements that the rest of the University or its community public, should not be allowed to see?

Who controls the public face of the Center?
The Schnatter and Koch grant agreements are nearly identical save that the Schnatter agreement includes on Page 3 a separate section on” Naming Rights, Acknowledgment, and Publicity”.  This contains a long paragraph related to the control of the any mention of John H. Schnatter Center for Free Enterprise in every imaginable product of the Center.  Fair enough.  The Foundation is paying for what it gets.  Others might view the requirements as overly possessive if not vainglorious. (I wonder what the “Outreach Director” is supposed to do?)

More troublesome are other paragraphs in this unique clause.  The Foundation and University agree to allow the Donor to review and approve the text of any proposed publicity which includes or mentions the Donor.  The Donor is permitted to use any of the Centers activities for its own purposes, but “the University shall not use the Donor’s name or logo without the Donor’s express written consent.”  Since the donor’s name is intrinsic to the name of Center, I find myself wondering whether the University or Foundation can say anything at all without such outside censorship?  Finally, the Donor keeps the door open to damages of all sorts should it believe that breach has occurred.

Insufficient funding with UofL holding the bag.schnatter-cntr-funds-2016

The term of both agreements is seven years, ending March 10, 2022.  However, potential funding is only budgeted for five years!  Perhaps the Donors believe that the Center should be on its own feet by that time, but the University and Foundation have made financial commitments regardless.  The University promises to provide space and additional staff support at its own expense. One unique clause in the Koch Foundation grant is a tantalizing offer of possible additional “in-kind” services to help promote the work of the University, the Center, or University faulty, students, and staff.”

Below is a table displaying the upper limits of the promised amounts and their uses available to the Center.  I divided the total amount in each category of expenditure by five to give an estimate of the amount available annually, and again by the number of persons in each category to serve as an estimate of individual salary and fringe benefits. Be aware that the amounts listed total only to a potential maximal amount.

An unfunded future.
If all goes well from the Donors perspective, the Foundation will have received the full promised amounts by August, 2018, little more than three years into the program.  Presumably the Foundation will bank the funds for its future commitments, but a risk is still there that unspent funds will be clawed back should the Donors believe the “Mission” of the center is being insufficiently fulfilled.  Seems to me, the Center pretty much knows what it’s going to say, or better know.

Concluding remarks.
This is as good a place as any to note that the economic theories espoused by Messrs. Schnatter and Koch are generally identified with the interests of the wealthy and of big business. I find it ironic that they would be so enthusiastically received in a city and state where inequity of income is so substantial, or indeed by a University whose leadership appears tone deaf to complaints about exorbitant executive compensation within its own halls.

Obviously, others have and will believe that there is nothing the matter with the agreements the University and Foundation made.  Some will declare that such affirmative action scholarship is necessary in the structurally liberal Academy.  I view this as a struggle to define the terms and vocabulary of debate. That is what think-tanks do.  The side that can do so has already won.  Money can buy ideas as well as votes.

I was unaware that at the same time my University and its Foundation accepted these research grants, a parallel center was being funded by the Schnatter and Koch Foundations at the Geffen College of Business and Economics at the University of Kentucky!  As so often seems to be the case, UK got $12 million to our $6 million.  I wonder how their grants read?  The Koch Foundation is funding hundreds of other colleges and Universities around the country. It appears that the Schnatter Foundation is following in those footsteps.  I applaud their generosity but am disappointed by their distrust of the freedom of thought inherent in the academic enterprise. True charity does not have as many strings attached as I see dangling from the grant contracts discussed above.  The old scientist and academic dinosaur in me believes that you should follow your ideas wherever they lead you, and that furthermore, that you rarely end up where you thought you were going.

Peter Hasselbacher, MD
Emeritus Professor of Medicine, UofL
17 Feb 2016