Why I...believe universities need more awareness of ethics in fundraising

"The moral high ground of the uninvolved" is a term Sir Adrian Cadbury uses to refer to the popular debate on corporate governance. He should know. His Cadbury Report almost invented modern governance. Many universities now need him.

The term also fits the tone of many senior common-room asides on Cambridge University's plan not to return the £2.5 million donated by Tyco and Dennis Kozlowski for a chair in corporate governance. Tyco claims that Kozlowski's charitable donations were "borrowed" from an employee loan scheme.

From colleagues we hear that such shenanigans are inevitable when we embrace the rich to tap their wealth. The evidence is clear. We have a business school named after a Saudi arms dealer and another with a chair in ethics funded by a tobacco firm. Reality is complex and fundraising can go wrong. But is it preferable to a tax-based funding model?

At present, higher education funding equates universities with opera and art - entertainment enjoyed by the middle classes but paid for by everybody. In contrast, Big Brother and Sugababes are entertainments enjoyed by lower-income groups and taxed.

UK universities pay middle-class people to educate middle-class children, reaping them a return of more than 17 per cent, according to the Organisation for Economic Cooperation and Development. In addition, the middle classes dominate the top universities, which, in turn, get most state support.

Spending everyone's money on higher education could be justified if everyone were benefiting. However, we are educating our way to economic decline. Productivity improvement depends upon the deployment of science, technology, information technology and business skills. Yet university science and engineering departments are dying and business research is underfunded.

Does UK higher education justify the level of subsidy paid by those who are not able to participate in it? Fundraising is a more equitable and responsive way of funding higher education than taxation. Experience shows that most funds raised are from rich alumni: 90 per cent of funds come from 10 per cent of donors. So, unlike our negatively redistributive tax system, fundraising takes money from the rich and from those who have benefited from attending university. Fundraising also improves accountability since donors are enthusiastic participants in higher education.

But fundraising raises ethical issues. For example, should universities retain funds raised from dubious sources? This is a decision that universities have to make for themselves, but they must remember that they are moulding the minds of our most able and young. Enron operated by asking its professional advisers what it could get away with, ignoring ethics and the commonsense question of what happened if it got caught.

Cambridge's decision to keep the Tyco money because it had already been ethically scrutinised and approved by the academic community is as problematical as Enron's behaviour. It raises questions such as whether it is ethical to keep money that may not have been the donor's to give; whether funding a chair in corporate governance from questionable income is good business practice; whether it will help attract other donors or staff and students; and whether it will help shape graduates appropriately.

It may be that the Oxbridge brands are strong enough to accommodate some ill-gotten gains. Certainly, the global reputation of these universities is sufficient to attract people who want to boost their morality through such an association. Most professional managers would not risk their brands so. Even if Oxbridge can play such dangerous games, universities with lesser pedigrees should be wary. If wise, they will build their prosperity and reputations on funds from their great and good alumni - not on funds from taxpayers or tax dodgers.

John Saunders Pro vice-chancellor (alumni) and head of the Business School, Aston University