Even In Death, Lay’s Gift Stirs Controversy

July 1, 2006       Mark Hrywna      

The death last week of former Enron CEO Ken Lay has not quelled controversy involving more than $1 million in an endowment generated from Enron stock, donated by Lay before his fraud conviction.     

The University of Missouri-Columbia received a donation of $1.1 million in stock from former Enron Chairman and CEO Ken Lay, an alum, in 1999 to establish an endowed chair in international economics named for Lay. Offers for the position were extended three times between March, 2000 and March, 2003, according to the university, but each time candidates declined after their universities counter-offered.     

University of Missouri-Columbia Director of Media Relations Joseph Moore said the college is still actively seeking to fill the endowed chair in economics, while the timeline is “to fill the chair with the best candidate as soon as possible.”     

There is nothing in the legal agreement between Lay and the university pertaining to what might happen should the donor be criminally charged or convicted, Moore said. The university’s policy is to sell donated stock immediately, and so the money has been university property well before Lay’s conviction in May. As an endowment, it’s meant to last in perpetuity and matching state funds also are contributed as part of the endowment, he said. The endowment now stands at approximately $1.6 million. The university’s board has a conflict of interest committee, which considers large donations, but Moore said that does not apply in this case, as the donation was made years before Lay’s arrest and conviction, something that could not have been foreseen.     

Lay had asked the university in September, 2005, to release the donation to 14 charitable organizations to assist with Hurricane Katrina relief efforts in the Houston area, where Lay lives and the site of his federal jury trial. Despite a recommendation by Chancellor Brady Deaton to allow the release, the Office of the University’s general counsel — along with administration, outside legal counsel and the Missouri Attorney General’s Office — concluded “there were legal questions concerning the appropriateness of returning the funds.”     

Any change in the use of the funds must be approved by both the university’s board and Lay. For instance, in 2002, upon Lay’s request, the university agreed to change the name of the endowment to the Kenneth L. Lay Chair in Economics.     

“Institutions have struggled with what kind of recognition to give to donors whose behaviors are judged to be somehow inappropriate and reflect poorly on college,” said William Hamm, president of the Foundation for Independent Higher Education, a network of colleges that raises funds mostly from corporations and foundations for private colleges. “It’s a very tough issue.     

“It partly extends to the agreement…do you return funds, or do you have the freedom to act contrary to that agreement?” Moore said the university has received correspondence from concerned people but there has been no overriding message, just “very different suggestions as to what to do with the endowment.”     

In a letter to the editor in the June 1 Columbia Daily Tribune, Matt Lammers suggested “there are many not-for-profit consumer rights and employee rights organizations that can better use the money. At the very least, the money should be earmarked for a chair of business ethics that teaches that legal and profitable does not always equate with moral and ethical.”     

In an editorial a week after Lay’s guilty verdict, Tribune Publisher Henry J. Waters III, wrote, “Makers of top policy at the institution should rethink how, when and why they bestow names of living human beings, a breed known for fallibility and potentially erratic behavior. I suppose the money is worth the risk. At least, that’s been the rule so far.”     

It’s not uncommon to find colleges yanking disgraced alumni’s names off campus buildings that were dubbed well before their convictions or other shenanigans.     

At the request of former Tyco Inc. chief executive Dennis Kozlowski, Seton Hall University in South Orange, N.J., last year renamed Kozlowski Hall, the home of its colleges of business and of education and human services, and also removed his name from the rotunda of its library.     

A 1968 graduate, Kozlowski donated $3 million to his alma mater between 1997 and 2000. He was convicted of larceny and fraud last year after misappropriating millions of dollars in company funds, and sentenced to more than eight years in prison.     

In 2002, the university board voted to remove Richard Brennan’s name from its recreation center, named in 1987 for the First Jersey Securities founder who was convicted of bankruptcy fraud and money laundering. The building, like Kozlowski Hall, was named before the donor was arrested or convicted.