A former Estée Lauder executive wanted to create a Harvard scholarship for students of Armenian descent. The school turned her down.

By Jillian Berman

The case comes as scholarships tied to race and ethnicity are posing challenges to donors and schools in the wake of the Supreme Court's affirmative action decision

The Supreme Court's decision last year to ban colleges from considering race in admissions has sent students, parents, counselors and schools scrambling to determine how it will impact their futures.

One possible implication, a recent court case suggests: fewer scholarships to benefit students from specific racial or ethnic groups.

Harvard University said it couldn't fulfill the posthumous request of Jeanette Sarkisian Wagner, a former Estée Lauder executive, to create a scholarship at its business school for students of Armenian heritage who are interested in social enterprise, according to court documents filed by representatives of Wagner's estate earlier this year. One reason, according to the documents: Harvard "cannot differentiate scholarship recipients based on race or ethnicity and cannot earmark funds for students of 'Armenian Heritage.'"

The filing, which asked the court to allow the estate to redirect the funds in a way that would meet Wagner's charitable objectives, came several months after the Supreme Court declared Harvard's use of affirmative action in admissions illegal. The court's ruling on affirmative action nearly one year ago didn't address financial aid and scholarships. But following the decision, schools began looking more closely at their financial-aid and scholarship programs with an eye toward ensuring they didn't draw scrutiny from the court.

Ray Madoff, a professor at Boston College Law School and the director of its Forum on Philanthropy and the Public Good, said she expects courts to see more of these requests to re-evaluate bequests focused on scholarships tied to race and ethnicity.

"It is possible that the affirmative action decision is influencing Harvard's choice not to accept the gift," she said.

Harvard didn't respond to multiple messages seeking comment on the donation. An attorney representing the executors of Wagner's estate declined to comment on pending litigation.

"If an institution with Harvard's resources, money, people [and] connections feels like they don't want to fight something like this, it feels highly unlikely that other institutions would have the ability," said Dominique Baker, an associate professor of education and public policy at the University of Delaware. "It matters when institutions are saying that they can't take the free money because the fight that they would have to wage in order to use it would be too great."

'A guiding light and role model for women and Armenians'

Wagner, who died in February 2022 at 92, was best known as the head of the international division at cosmetics giant Estée Lauder during the 1980s and 1990s. In that role, she brought the company's lipsticks and perfumes to the Soviet Union and China amid booming sales. Wagner was the daughter of two survivors of the Armenian genocide. While she and her husband were alive, they donated to Armenian causes, according to court documents.

"Throughout her career, the Decedent launched marketing campaigns in more than 100 countries. But whether it was New York, Chicago, Europe, Russia or China, the Decedent held strongly to her Armenian heritage," the court documents read. "For decades, the Decedent was a guiding light and role model for women and Armenians. She was smart, fierce, dedicated and caring - never forgetting her roots and her immigrant parents' bravery and sacrifices."

In her will, Wagner indicated that she wanted to use part of her estate to create a trust to fund a fellowship at Harvard Business School named for her father. Wagner directed the funding to go toward scholarships supporting students at the school who are of Armenian heritage and focused on ethics or social enterprise, or on how companies and other institutions can have a positive impact on society.

Wagner never attended Harvard, but she had a long history of philanthropy to various institutions, which included extensive support of students and children, according to court documents. According to her will, the funds for the program were to come from one-fourth of what was left of her more than $21 million estate after leaving more than $1 million to family and friends.

But communications from Harvard to the estate indicated that Wagner's desire would be "impossible or impracticable," according to court documents. That's because, according to Harvard, the school couldn't differentiate between scholarship recipients based on race and ethnicity and because there are no concentrations related to social enterprise or ethics at Harvard Business School, court documents said. That means "it may be impossible to identify a student who clearly meets these criteria," according to the documents.

Rules on how race and ethnicity can factor into scholarships are not fully resolved

The legal rules surrounding how race and ethnicity can factor into scholarships are not fully resolved. The basic rules of federal nondiscrimination law that apply in the admissions context also generally apply in financial aid, according to Art Coleman, a founding partner of EducationCounsel, a consulting firm that works with colleges and other nonprofit organizations. But certain contextual differences can result in different outcomes, he said.

"As much activity as we've had on the admissions front, we've had virtually none on the financial-aid and scholarship front in court," Coleman said.

Essentially, if a college is going to consider an applicant's race or ethnicity when making a financial-aid award, it must have a compelling interest - or, in layman's terms, a very good reason for doing so.

In terms of how a scholarship is designed, there can be more leeway for institutions to consider an applicant's race when it comes to financial aid than there is in admissions, Coleman said. In the admissions context, a leg up to one student has the potential to take away a spot from another student. With financial aid, getting rid of a race-based scholarship has the effect of reducing the entire pool of available funds, adversely affecting all students, Coleman said.

The Supreme Court's decision last year created a new landscape for what qualifies as a compelling interest in considering race in admissions. Before the decision, courts had viewed that working to enhance the educational benefits of diversity at colleges was an objective that could merit the consideration of an applicant's race.

"This court effectively eradicated 45 years of precedent," Coleman said. "We have, in essence, a blank slate when we're attempting to establish what is a new compelling interest. It's no surprise to see that many colleges and universities are looking as robustly at issues of financial aid and scholarships."

Scholarships related to race and ethnicity generally make up a small proportion of the grant aid colleges provide, Coleman said. But any changes in colleges' approach to considering race and ethnicity in scholarships and financial-aid decisions could impact the landscape of higher education more broadly.

"The message you communicate of welcomeness to underrepresented students over time" through these kinds of scholarships "is critically important, and sometimes having race associated with the scholarship says, 'Here's a welcome mat; we want you,'" Coleman said.

In the year since the affirmative-action decision, financial aid tied to race and ethnicity has come under threat in some states. In Wisconsin, a Republican-backed bill in the state's legislature threatened to bar public colleges and publicly funded scholarship programs from considering race in financial aid.

Shortly after the Supreme Court issued its decision, Missouri's Republican attorney general told the state's higher-education institutions that they couldn't consider race in financial aid. In response, the University of Missouri system has amended grants and scholarships to comply with the attorney general's directive, but that move has soured the school's relationships with some donors, Inside Higher Ed reported.

In this climate, higher-education institutions may be wary of scholarships that use race or ethnicity as a criterion - even if the law isn't clearly settled.

'Other schools might take a totally different approach'

It's not uncommon for colleges and other nonprofits to say they can't fulfill a donor's request, said Philip Purcell, an attorney who advises donors and philanthropic organizations. But in the wake of the Supreme Court's affirmative-action decision, he's receiving more questions about whether it's legal to structure the criteria for scholarships around race and ethnicity.

"They're all worried that the Supreme Court case directly said financial-aid discrimination is a no-no," said Purcell, who is also an adjunct faculty member at Indiana University's Lilly School of Philanthropy. The case didn't answer that question directly, he said; instead, it addressed discrimination in college admissions.

Still, there are other cases he's watching closely to get a sense of how the courts view these issues. For example, in one case, a federal appeals court recently suspended a program by a venture-capital firm that awards funds to Black women business owners.

In the case of Wagner's proposed scholarship, the court can work with the estate to find a different purpose for the funds that appear to meet her objectives. The estate proposed redirecting the money to Columbia University's School of International and Public Affairs to use for scholarships for "exceptional students of Armenian heritage"; donating it to the Armenian General Benevolent Union, a nonprofit that administers scholarships and loans to students of Armenian descent; or the American University of Armenia.

(MORE TO FOLLOW) Dow Jones Newswires

06-24-24 0926ET

Copyright (c) 2024 Dow Jones & Company, Inc.