Oprah Winfrey? Martha Stewart? Stephen Phillips explains how a $38 million gift to the Smithsonian sparked a storm over donations.

Businesswoman Catherine Reynolds's decision last month to back out of a $38 million (?26.8 million) pledge to the prestigious Smithsonian Institution, home to America's national treasures, stunned the US academy.

Reynolds pulled the donation, which was intended to fund a proposed exhibition celebrating the lives of distinguished Americans, after clashing with curators and scholars at Washington DC's National Museum of American History.

"The basic philosophy for the exhibit - 'the power of the individual to make a difference' - is the antithesis of that espoused by many within the Smithsonian bureaucracy, which is 'only movements and institutions make a difference'," sniped the former student-loan magnate in a parting shot.

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However, while surprising, Reynolds's conclusion that she could not do business with them may have relieved many in the museum's hierarchy, queasy about the strings attached to the gift.

Reynolds had been granted unprecedented control over the content of the exhibition, with the power to name ten of the 15 members of a panel to select the achievers included. Moreover, the showcase bore disconcerting similarities to the American Academy of Achievement, an organisation run by Reynolds's husband, which hooks up "super-achievers" with schools.

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Her nomination of home and garden guru Martha Stewart and talk show host Oprah Winfrey for the exhibition's pantheon, alongside Nobel laureates, did not go down well.

The Reynolds deal is only the latest flashpoint for its architect, Lawrence Small, whose stormy tenure as Smithsonian secretary has plotted a collision course with many in America's academic establishment.

At a time when cultural institutions are facing a financial crisis, the former business executive has brought a Midas touch to fund-raising for the complex of 16 museums and several research centres. Since January 2000, Small, who declined a request for an interview, has brought in $385 million from private donors.

But many believe such funding has come at a price. Museum wings are now named after General Motors, Fuji Film and Kmart.

The National Museum of American History bears the subtitle Behring Center in honour of an $80 million gift from California real-estate mogul Kenneth Behring, whose personal architect is supervising the museum's modernisation. Another $20 million donation from Behring, who is a keen big-game hunter criticised for killing endangered species, put his name on the Smithsonian's Natural History Museum's centrepiece hall of mammals.

Small's stewardship of America's national museums has ruffled many insiders' feathers. Last May, in a memo to the institution's board, the American History Museum's chapter of the Smithsonian's Congress of Scholars berated him for jeopardising "the integrity and authority of this great institution". "Will the SmithsonianI actually allow private funders to rent space in a public museum for the expression of private interests and personal views?" it asked.

Some employees have even sported "dump Small" stickers on their jackets or posted them around buildings. Five museum directors have quit during his two-year term.

Milo Beach, who resigned as director of the Smithsonian's Freer and Sackler galleries last year, told The Washington Post in January that Small "left the distinct impression that the day of curiosity-driven research was over".

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"Small's mandate to modernise the Smithsonian is perceived by many to be at the expense of its educational basis," says Helena Wright, graphic-art curator and vice-chairwoman of the congress.

Critics also take issue with Small's corporate management style. "It is interested in measurement of activity more appropriate for business," Wright says. "Our mission is qualitative, instead of just counting people coming through the door."

Opposition is not confined to curators and scholars. Conservative business newspaper The Wall Street Journal excoriated the "Enronification" of museums in a recent editorial about the Reynolds's gift, subtitled "The Smithsonian gives up $38m and saves itself".

"The Smithsonian is up for sale," declared the Los Angeles Times last year.

However, Small's fundraising takes place against a backdrop of shrinking government funding and reduced admission receipts from a post-September 11 tourism slump. Meanwhile, the Smithsonian needs to find at least $1 billion to update buildings and exhibitions. The institution receives about 70 per cent of its budget ($484 million this year) from Washington DC, offering little slack for long-term improvement. And proposed cuts to finance increased US security spending would reduce government funding by 8 per cent in 2003.

According to Marc Pachter, acting director of the American History Museum, Small's emphasis on fundraising tackles the most pressing problem facing cultural institutions. "The message he is sending is that museums are in considerable disrepairI this needs to be communicated and he has brought a sense of urgency," says Pachter, whose museum houses 30-year-old exhibitions and needs up to $100 million for renovations.

But, he adds, today's donors are "a generation of doers" who want a more hands-on role, including a say in how their cash is used.

Still, the lesson to be drawn from the Reynolds affair is that museums must ultimately call the shots with benefactors, says Neil Harris, a history professor at the University of Chicago who sits on an academic panel appointed by the Smithsonian's board of regents to look into donor relations.

"The general feeling is that the museum's agenda must be the dominant force in shaping donations - donors are indispensable, but museums' programmes need to be created by their own staff," he says.

Harris notes that commercialisation concerns at the Smithsonian predate Small's arrival and that sponsored curatorships and exhibition collections are pervasive across US cultural institutions.

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The Smithsonian's tribulations reflect questions cultural institutions around the world are facing, Pachter says. "What is the model of management when resources are not as available as before?" he asks.