UL school of business
The U of L College of Business will hire two new tenure-track professors as part of the agreement with Schnatter and the Charles Koch Foundation.

The proposed John H. Schnatter Center for Free Enterprise at the University of Louisville will be built on the concepts of academic and entrepreneurial freedom, supporters say. But the contracts to create it allow its two donors — Papa John’s founder Schnatter and the Charles Koch Foundation — the freedom to walk away at any time, leaving U of L on the hook for hundreds of thousands of dollars a year to pay tenure-track professors hired expressly for the center. That de facto veto power gives the donors broad — though indirect — influence over the shaping and execution of the new academic program.

The contracts laying out terms of the recent deal to bring a combined $6.3 million in gifts from Schnatter and the philanthropic venture of conservative activist Charles Koch were provided to Insider Louisville via an open records request. As the university does in any gift arrangement, they provide a basic framework through which U of L and the donors will partner, including a schedule of contributions.

The contracts for the new free enterprise center include proposed salaries for two new tenure-track faculty members, up to two new visiting professors, an outreach director and an administrative assistant. Together, the donors will contribute nearly $1.2 million a year to the College of Business to operate the center for the next five years. In that time, Schnatter has agreed to contribute $4.64 million through the John H. Schnatter Family Foundation. The Charles Koch Foundation, which has contributed to U of L in the past, has agreed to give $1.66 million.

The contracts also allow Schnatter and the Charles Koch Foundation to pull their funding at any time if the center is not living up to its mission, which the contracts say is “to engage in research and teaching that explores the role of enterprise and entrepreneurship in advancing the well-being of society.”

According to the agreements, which were signed by U of L president James Ramsey on March 10, if the donors want to pull funding, they must “make a good faith effort to meet within sixty (60) days to discuss” the reasons with the university. If the donors don’t change their minds, they only have to provide a 30-day notice that they’re pulling funding.

The Charles Koch Foundation has included language in gift contracts with other schools, including Florida State University, that allows it to cut off funding if its mission isn’t being upheld. Some at FSU consider that veto power a threat to academic freedom, as it can influence hiring and curriculum.

U of L officials say they aren’t concerned about undue influence coming from the donors. Last week, before copies of the contracts were released, they characterized the agreements as strong.

“We really feel that we’re not going to have an issue with this at all,” Keith Inman, U of L vice president for university advancement and the school’s top fundraising official, said in an interview with IL on Monday.

He added that it’s common for donors to have an opt-out clause allowing them to walk away if they don’t think U of L is upholding its end of a deal.

“If we do everything that we say we’re going to do, these donors have already been talking about the next phase — the renewal,” Inman said. “Most donors like this will go into a relationship like this for a longer period, so we’re pretty confident that if we live up to everything we say we’re going to do, that these donors are in this for the long haul.”

To establish the center at U of L, the contracts also require that the university hire two tenure-track faculty members at an estimated cost of $375,000 per year. If Schnatter or the Koch Foundation pulled the funding, or if they do not renew their agreement after the contract expires in five years, the university is responsible for those salaries going forward.

In effect, they are lifetime commitments based on a five-year gift proposal.

“The thing that most concerns me is the fact that the contract allows the donors to walk away — really for almost any reason that they choose — and we’re obliged to continue supporting at least the two tenured faculty members that were hired,” said former business school dean Charlie Moyer, now dean emeritus and a member of the faculty. “There’s no even implied notion that this would be continued after five years, and so you’re still stuck with the obligation of those two tenured faculty members with no funding source.”

Inman declined to comment on the possibility that U of L could be left without funding for two tenured professors, calling it a hypothetical.

It is not unusual for high-dollar donors to attach strings to gifts made to public universities. BB&T gave U of L $1 million in 2008 to establish an endowed professorship; as a condition, it required the business school to develop a class called “The Moral Foundations of Capitalism” for which Ayn Rand’s “Atlas Shrugged” is required reading.

The contracts expressly forbid the free enterprise center from engaging directly in politics. However, as with the many other universities receiving funds from one of the nonprofit ventures of the conservative billionaire activists Charles and David Koch, the U of L gifts must be used in support of philosophies that align with their political goals, which include reducing regulation on business and limiting the size of government.

U of L’s arrangement affords the free enterprise center, which current BB&T professor Stephan Gohmann will direct, more say than some other universities that entered into gift agreements with the Charles Koch Foundation. At Florida State University, for example, the foundation was given direct control over hiring in exchange for its donation.

Ramsey brushed aside questions about the Charles Koch Foundation’s influence on the new center at a March 10 announcement of the gifts, saying universities are places where competing ideas are presented and debated.

U of L gift contract with Charles Koch Foundation

U of L gift contract with John H. Schnatter Family Foundation

UPDATE: 12:15 p.m.

U of L spokesman Mark Hebert reached out to IL this morning to say the contracts do not require the free enterprise center to support small-government philosophies that align with the political views of Charles and David Koch, including reducing government regulation on businesses. They require only a general adherence to the center’s mission, which is “to engage in research and teaching that explores the role of enterprise and entrepreneurship in advancing human well-being.”

Schnatter, at a March 10 announcement of the gifts, told IL he supports the Charles Koch Foundation’s small-government philosophies and sought to include them in the gifts expressly for that reason.

“I’m a big fan of free enterprise and voluntary exchange,” Schnatter said. “I think the discoveries of free markets, free enterprise and freedom in general have done as much for civilization as any other discovery among men. The Koch philosophy lines up with those beliefs.”

In addition, Gohmann, the center’s director, told reporters at the event he supports teaching small-government philosophies, and that the center would in some ways be an extension of his current work along those lines.

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Stephen George
Stephen George is news editor of Insider Louisville. He is a former editor of LEO Weekly and the Nashville City Paper, and a former news editor of the Nashville Scene. He has written for various other news and culture publications and is happy to be back in Louisville.