Rich Duke Donors May Cut Back Philanthropy

This story was written by David Graham, The Duke Chronicle
Perhaps no donors are as ubiquitous on campus recently as Aubrey and Katie McClendon, Trinity '81 and '80, respectively.

Their gifts, totalling $16 million, have helped to build McClendon Tower and the West Campus Plaza, funded an organ for the Divinity School's Goodson Chapel and are refurbishing one of the Chapel's huge organs. Their names also adorn a commons at the Office of Undergraduate Admissions.

As major givers, the McClendons represent a trend in giving at Duke: Even as total cash gifts have increased in the last few years, the number of donors has decreased. Downturns represent a special challenge for universities like Duke, as well as other nonprofits-they rely heavily on donors, who are subject to market conditions.

McClendon, president and chief executive officer of natural gas giant Chesapeake Energy, found himself forced to sell most of his 33.5 million shares in Chesapeake because of leveraged buying when share prices plummeted.

In July, those stocks were worth around $2 billion, the vast majority of his estimated $2.1 billion value. He made about $569 million on the sale, losing more than $1.4 billion.

McClendon told the Wall Street Journal that he has "other resources" and would be fine. But his loss-and the potential for major losses among other big donors-is cause for concern among the University's fundraisers. Neither McClendon nor Chesapeake responded to request for comment in time for publication.

"Of course it concerns us," said Peter Vaughn, executive director of alumni and development communications. "It concerns us for Aubrey and Katie's sake, first of all.... That said, Aubrey is a very resilient person. In terms of his loyalty and attention to Duke, that's never been an issue."

Vaughn declined to say whether McClendon had been planning any major gifts to Duke.

Although donations take a hit, the needs of the University remain static or even grow: Salaries must be paid, services must be provided and capital projects already underway must continue. On top of this, financial aid demand is likely to increase when the economy worsens, squeezing budgets even more.

"What it comes down to and the approach that we're taking is that the needs of the institution are still here," said Jeff Coates, associate dean for alumni and development at the School of Law. "The strategy is really quite simple and continues on our course: We're going to do everything we can do to enhance our pledges and our outright gifts to the annual fund."

Vaughn said the number of contributors-as well as absolute gift values-often does not correlate with times of downturn. He said donations decreased during the recession following Sept. 11, 2001, but added that they were worse in 2003-2004, when the market was stronger.

Coates said higher education tended to weather downturns better than other nonprofits.

"This isn't really so much of a problem as what one would think in recessions and downturns-in higher education," he said. "What you see is largely a flat-lining of giving. [In contrast,] charitable giving will go down for a lot of nonprofits."

A weaker economy also may mean that the period for collection of pledges has to be extended. Both Vaughn and Coates said they have not needed to extend a pledge period for all donors in recent memory, although they would discuss specifics with individual donors.

"We understand that it's not going to be business as usual for a lot of people and we're going to listen to their circumstances," Vaughn said. "But the truth is we always do that."

Coates said donors rarely withdraw pledges, but may need the University to be flexible about receiving gifts./p>

"You'll see your donors remain strong," he said. "It's a question of the timing of the gift rather than whether or not it will come in. Patience will persevere."

Even as Duke officials express optimism, McClendon's troubles have raised red flags elsewhere. The New York Times reported Oct. 21 that athletics officials at the University of Oklahoma-where the McClendons pledged $7 million for projects last May-were worried.

The Times quoted Oklahoma Athletic Director Joe Castiglione as saying that he had spoken with McClendon, but declined to say whether the money was received or pledged.

Donor Woes

"I got caught up in a wildfire that was bigger than I was," Aubrey McClendon told the Wall Street Journal last month. McClendon's losses were particularly bad, but he was not alone. What happened to him and other big investors?

McClendon is well-known for being bullish on the prospects of Chesapeake Energy, of which he is president and CEO. Before his sale, he owned nearly 6 percent of the company's stock.

But he bought much of that Chesapeake stock by borrowing-using other Chesapeake stock as collateral on loans. That worked fine when the company's stock was in the $60-70 range in July, but stock prices sank as low as $16.52 Oct. 10, the day McClendon sold his shares.

With the stock much lower, a bank made a margin call to McClendon: Because the backing for the loan was worth so much less, the bank demanded that he either pay in cash for the shares or sell to repay the loan. Without cash on hand, McClendon was forced to sell.

When Chesapeake peaked July 2, his shares were worth $2.2 billion. But after the share price plummeted, he only made $569 million off the sale.-David Graham
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