Briefs refute allegations of “overcharging;” detail $235 million in “undercharges” to the Foundation; raise questions about the conduct of Robertson family trustees
» Excerpts from Princeton's March 13 filings
In briefs filed today in New Jersey Superior Court, Princeton University demonstrated that, over the past 45 years, the University and its designated trustees of the Robertson Foundation have effectively carried out the Foundation’s mission; met their fiduciary obligations in overseeing the Foundation’s assets and expenditures; and contributed to a substantial strengthening of the graduate program of the Woodrow Wilson School of Public and International Affairs. In addition, the briefs underscore that, especially in recent years, the University-designated trustees have significantly enhanced the governance practices of the Foundation despite continuing efforts by the Robertson family trustees “to block every initiative” for reform.
The briefs point out that in contrast with their recent actions, on numerous prior occasions Robertson family members commended the Woodrow Wilson School and the University for their stewardship of the Robertson Foundation mission. For example, “in his January 22, 1981 report to the Robertson Family, Mr. [William] Robertson wrote: ‘The Woodrow Wilson School is the leading educational institution in the world in the field of public and international affairs as a result of (a) its fine faculty and student body and the administration by Princeton University and (b) the great financial capability it possesses as a result of the Robertson Foundation gift by Marie and Charles Robertson.’”
Similarly, “[i]n his April 12, 1991 report to the Robertson Family, Mr. Robertson wrote that ‘[r]elations at … the Robertson Foundation [and another institution supported by the Family] … are excellent. And I have to say, both institutions are achieving the kinds of goals that Mom and Dad would have hoped for. The Woodrow Wilson School continues to be the foremost school in public and international affairs in the world …’”
The briefs point out that “for more than forty years, the Robertson Foundation Board of Trustees (over which Charles Robertson presided for the first two decades) operated by consensus” and that plaintiffs William Robertson and Robert Halligan, who have served on the Board since 1975 and 1982 respectively, “at no point … ever object[ed] to any of the financial statements or Dean’s reports presented in the course of the Foundation’s annual meetings, or to any of the Foundation funding that they now attack in this litigation… In contrast to their decades of seeming approval of the ‘informal collegial enterprise,’ plaintiffs William Robertson, Robert Halligan and Katherine Ernst … since the filing of this lawsuit have voted in virtual lockstep against the vast majority of proposed expenditures or governance motions offered by the University-designated Trustees—and even against the adoption of the minutes prepared by the Foundation’s Secretary.”
Moreover, while raising questions about the commitment of University-designated trustees to meet their fiduciary obligations to the Foundation, “plaintiff William Robertson has (i) publicly attacked and falsely accused Princeton University and its leaders on numerous occasions, (ii) publicly declared that he will never support or work with the University, (iii) dismissed as a “publicity stunt” Dean Slaughter’s most recent and mission-advancing initiative of creating a new scholarship program to encourage students to enter government service, and (iv) raided the private foundation controlled by him and his siblings to fund his salary and this litigation, and to mount a public relations campaign designed to discredit the University and the graduate program of the Woodrow Wilson School. By his actions and words, Mr. Robertson has demonstrated that he is no longer qualified to serve as a Trustee of the Robertson Foundation -- an issue that the Delaware Court of Chancery may have to address in the future.”
“As the University’s briefs make clear, the motions by the Robertson family trustees have distorted the history of the Foundation and have cited materials selectively and out of context to forward their efforts to gain control of the funds that Marie and Charles Robertson committed to the support of the graduate program of the Woodrow Wilson School,” said Douglas S. Eakeley, an attorney with Lowenstein Sandler and the University’s lead outside counsel on the case. “Today’s filings correct the historical record, place the evidence in context, refute many of the allegations of the Robertson family members, and demonstrate the success of the University and the Woodrow Wilson School in advancing the mission and protecting the assets of the Robertson Foundation.
“One misrepresentation among many involves a three-year fellowship program that the Robertsons mischaracterized in several ways in their January filings, resulting in terribly erroneous impressions being presented in the press” Eakeley continued. “Contrary to what the Robertsons and their legal and public relations team claimed, President Shirley Tilghman testified during her deposition in this case that the purposes of the program were consistent with the mission of the Robertson Foundation and that she did not know who decided how the expenditures related to this program should be reported to the Foundation board. But more fundamentally, today’s filing makes clear that these expenditures are not even relevant: The University—not the Foundation—provided all of the funds for this program; the Foundation did not bear any of the costs of these non-Woodrow Wilson School fellowships.”
The expenditures related to a three-year trial program to provide financial support to graduate students in three social science departments with historic ties to the Woodrow Wilson School. The $782,376 cost of the program was funded entirely with income from non-Robertson Foundation endowments, and, in fact, the University over-credited the Foundation by more than $100,000 from those endowments.
Undercharges to the Foundation
Today’s briefs show that the University paid many costs that it could have charged to the Robertson Foundation under the Foundation’s Certificate of Incorporation. As a result, the Foundation was charged some $235 million less than it might have been—an amount greater than all of the “overcharges” alleged by plaintiffs combined. This sum includes:
- $210 million as a result of only charging the Robertson Foundation for the expansion of the graduate program of the Woodrow Wilson School, while the University has covered the base-year costs of the program (adjusted for inflation), even though the Foundation’s Certificate of Incorporation authorized Foundation funding to maintain and support the program that was already in place at the time of Marie Robertson’s gift.
- Over $10 million as a result of applying a simplified method of assessing Foundation indirect costs between 1993 and 2002.
- More than $13 million as a result of the University funding all of the Woodrow Wilson School’s expenses as they are incurred and waiting until the end of each year to obtain reimbursement from the Foundation for its share, thereby allowing the Foundation to earn additional interest and investment returns on its funds in advance of the annual settlement.
- Almost $3 million as a result of charging the Foundation for less than half the cost of constructing Bendheim Hall, even though Woodrow Wilson School activities occupied nearly 95 percent of the space.
The filings confirm that the University is not seeking “restitution for these historic undercharges and over-credits,” but is simply suggesting “that they should be factored into the mix of evidence that will inform the Chancery Court’s assessment of the overall equities in this case.”
Advancing the Foundation’s mission
The University’s filings include a certified statement by Woodrow Wilson School Dean Anne-Marie Slaughter about the programs and activities of the School. They detail the history of the Robertson Foundation and the success of the University and the School in advancing its mission, including reference to “a number of significant mission-enhancing initiatives” under the leadership of Dean Slaughter. The filings also enumerate a number of governance and spending initiatives that have been introduced by President Tilghman and the University-designated trustees who “notwithstanding the ensuing litigation … have done their utmost to fulfill their fiduciary duties to the Foundation, advance its mission and protect its assets.”
Governance and spending initiatives in recent years have included:
- Detailed reporting and formalized advance approval for all future capital construction expenditures.
- Improved financial reporting and presentation of advance budgets that show prospective Foundation expenses in detail.
- Replacement of the Bowen Formula with a modernized funding allocation process and creation of a Foundation budget committee.
- Retention of an independent Secretary-Treasurer for the Foundation who now exercises responsibility to authorize the transfer of funds.
- Review and correction of any improperly or inadvertently calculated prior year charges, with appropriate amounts credited back to the Foundation.
- Negotiation and adoption of a treasury services agreement and an investment management agreement the University, the latter to govern supervision of investment of the Foundation’s assets by the Princeton University Investment Company. In PRINCO’s first 24 months of engagement, the Foundation’s assets grew from $561 million to $695 million, an increase of almost 24%.
The University’s court papers make clear that while the plaintiffs “have attempted to characterize this case as one involving ‘donor intent’ with respect to a ‘restricted gift’ in the nature of a charitable trust … the only restriction imposed by Marie Robertson upon her gift of A&P stock to the Foundation was that the Trustees of the Foundation agree to use its assets in accordance with the Foundation’s Certificate of Incorporation and Bylaws.”
As shown in the filings, the Certificate of Incorporation authorized Foundation support to and for the use of Princeton University and for the entire graduate program at the Woodrow Wilson School. Furthermore, the University also notes that the catalogue for the very first year of operations of the expanded graduate program (1962), retrieved from Charles Robertson’s files, describes a program that already included “both international and domestic affairs—indeed, the distinction here is increasingly hard to draw for there are few ‘domestic’ activities without international implications, and events abroad quickly make themselves felt internally.”
The 1962 catalogue also asserts that “Princeton’s conception of ‘public affairs’ is broad. Anyone whose decisions and actions normally have important consequences for the public welfare is regarded as engaged in public affairs, whether he is employed in the executive or legislative branches of government, and whether his position is appointive or elective, civilian or military, or located in international, national, state, or local fields of action. Clearly a definition of public affairs framed in these terms also embraces some non-government activities, for example, certain types of work in journalism, in private foundations, and in business, labor and consumer organizations.”
The filings underscore that, by contrast, Robertson family members now offer an “extraordinarily cramped definition of the Foundation as a vocational school” that “is at odds with the language of the Certificate of Incorporation and contrary to decades of practice.”
“Plaintiffs posit a disputed and extraordinarily narrow definition of the Robertson Foundation’s ‘mission,’ but do not attempt to reconcile that definition with the words of the Foundation’s Certificate of Incorporation or the actions of the Foundation’s Trustees (including its first President, Charles Robertson) in interpreting and implementing it. They claim that the graduate program of the Woodrow Wilson School ‘is doing a terrible job,’ yet tie that bald assessment to no evaluation whatsoever of the quality of the School’s students, faculty, curriculum, administration, programs and activities. In fact, plaintiffs’ sole academic expert admitted that his opinion was based upon his misquoted and mistaken reading of the Certificate of Incorporation, on a point he admitted was important to a correct understanding of the Foundation’s mission.”
Alleged overcharges
The filings point out that many of the allegations of overcharging by the Robertson family plaintiffs result from misrepresenting how the Foundation’s annual contribution to support the graduate program of the Woodrow Wilson School has been calculated for forty years.
The filings show that the process that was adopted by the Foundation in 1965 when Charles Robertson was president of the Foundation and has been used ever since is known as the “Bowen Formula” for its creator, then-faculty member and later President William G. Bowen. Under the formula, nearly all expenses of the School are initially charged to the Foundation, and then those that do not fall within its mission are offset by countervailing credits. Some of the allegations of overcharging result from looking at the charges without looking at the offsetting credits.
“[The] practice of posting undergraduate expenses and simultaneously offsetting them on the settlement ledger has never been a secret,” the briefs point out, “and the Family-designated Trustees have never objected to it before filing this lawsuit.... It is as if Plaintiffs have counted only the debits on a balance sheet, while entirely ignoring any of the credits.”
The briefs note that at some point after 1985 and ending in 2002 “it appears that the Foundation began being charged for the purchase of certain equipment” while “equipment depreciation continued to be charged as a component of the Foundation’s indirect cost rate.” While the actual amount of erroneous continuation of the depreciation charge is unknown due to a lack of precise historical records, the total amount paid by the Foundation in direct equipment costs is known. It was just under $1.5 million. Yet the plaintiff’s seek to recover over $16 million for equipment depreciation charges—an amount they calculate by annually compounding supposed charges over 40 years, often using the Foundation’s rate of investment return. “By this method … an equipment depreciation charge of $10,763 in 1965 (a year in which there is no evidence of a mistaken double charge) … [is extrapolated] into a current-day ‘overcharge’ of $788,175—a more than seventy-three-fold increase.”
In filing their lawsuit in July 2002, members of the Robertson family asked the court to sever the relationship between the Foundation and its sole beneficiary, Princeton University; claimed that the Foundation’s Certificate of Incorporation limits spending to dividends and interest; and asked the court to reverse the Foundation’s decision to retain Princo.