College Presidents Serving on Boards of Trustees' Companies
An interesting article from behind the Chronicle’s paywall (posted below) regarding how some college presidents are serving on the boards of directors of companies run by their own trustees. Can we say conflict of interest? The most egregious offender is, yet again, Shirley Jackson of RPI. Service on these boards nets college presidents hundreds of thousands—even millions—of dollars a year. If you have access to the article, take a look at the graphic at the end, which looks like something right out of They Rule.
By Jack Stripling and Andrea Fuller
As president of the University of Miami, Donna E. Shalala answers to dozens of trustees, many of whom are captains of industry. But two of those board members also answer to her.
Ms. Shalala’s uncommon role reversal is a product of her lucrative service on the boards of two different companies headed by members of Miami’s Board of Trustees. In effect, her role as a director at a national medical group and at a home-building empire places her in the position of functioning as her bosses’ boss.
While corporate board service is not uncommon for university presidents, Ms. Shalala is among a handful of college leaders who collect hundreds of thousands of dollars each year as directors for companies that are headed by or employ university trustees, a Chronicle analysis has found. Such board service is fraught with potential conflicts of interest, corporate-governance experts say, because a university president may be disinclined to question or oppose an industry executive who has a say in his or her continued employment and compensation. So, too, may a university trustee’s judgment be clouded in evaluating a president who has influence over the trustee’s professional endeavors.
Shirley Ann Jackson, president of Rensselaer Polytechnic Institute and one of the nation’s highest-paid college leaders, also serves on the board of a company where institute trustees hold executive positions. Ms. Jackson’s $1.4-million in earnings from six corporate boards in 2010 was higher than such earnings by any other president examined by The Chronicle.
Given the real or perceived conflicts that may arise, presidents would be well advised to decline directors’ positions on the boards of companies that employ or are run by university trustees, said Jay W. Lorsch, a Harvard Business School faculty member with expertise in corporate governance.
“That’s just a no-no,” said Mr. Lorsch, a professor of human relations. “You want to be as pure as Caesar’s wife. You don’t want to create, as a university president, any appearance of impropriety.”
Presidents who serve on corporate boards have come under increased scrutiny in recent years, as some faculty and company shareholders question whether a college leader can simultaneously fulfill the duties of running a university and helping to guide a publicly traded company. Add to those concerns skepticism about whether a company’s profit-making ambitions are philosophically aligned with a university’s stated mission, and some college chiefs have opted to avoid the whole hornets’ nest that corporate directorship has become.
The flip side of the argument, as many presidents who serve on boards are inclined to point out, is that college leaders can learn valuable management lessons in corporate boardrooms, while also imparting their own wisdom from academe.
High Pay for Service
Among the leaders of the nation’s 50 wealthiest colleges, as measured by endowment, about one in three served on at least one corporate board in 2010, The Chronicle has found. The analysis, which also included 25 other administrators from elite research universities, drew upon a directory of the corporate-board membership of publicly traded U.S. companies compiled by GMI, an independent research firm focusing on corporate governance.
Though most presidents reviewed by The Chronicle served on just one board, several served on as many as three. Among presidents with at least one directorship, those from the 50 wealthiest colleges had median corporate board earnings of $239,998, according to 2011 federal filings, which for most companies capture the majority of 2010.
A significant number of corporations either prohibit their chief executives from serving on any outside boards or limit such activities to a single board, and some colleges have set similar guidelines. Among 300 college leaders who responded to a 2010 survey from the Association of Governing Boards of Universities and Colleges, a quarter said their contracts or university policies set standards for corporate-board participation.
Ms. Jackson, who earned $1.8-million in total compensation from Rensselaer in 2009, has exceeded any reasonable standard by serving on six boards while running a university, several analysts told The Chronicle.
Ms. Jackson declined interview requests, but Rensselaer’s vice president for human resources responded in a written statement that the president was expected to “build collaborative relationships with industry partners,” and that the board’s compensation committee annually affirmed she had done so in accordance with Rensselaer’s conflict-of-interest policies. The policies require Ms. Jackson to recuse herself from votes or discussions on the terms or conditions of contracts involving companies on whose boards she serves.
Ms. Jackson earned $286,835 in 2010 by serving on the board of the International Business Machines Corporation. At the same time, she answered to the Rensselaer board, which includes two IBM senior vice presidents and a retired IBM executive vice president.
The Association of Governing Boards, which consults with college trustees on best practices, discourages presidents from serving on the boards of companies where a college trustee is an executive or director. The practice is not widespread, according to the association’s 2010 report, “Higher-Education Chief Executives and Service on Corporate Boards.” Just 6 percent of the survey’s participants said they had ever even been invited to serve on the board of a company where a trustee was in a leadership position.
“That’s 6 percent more than we’d like,” said Merrill P. Schwartz, the association’s director of research, and author of the report.
Equally taboo for a president is service on a board connected to a major donor, which describes the family of Leonard M. Miller, a former University of Miami trustee, which gave a historic $100-million gift to the university in 2004, after Mr. Miller died. The gift led to the naming of Miami’s medical school in honor of the late Mr. Miller.
Ms. Shalala joined the board of Lennar Corporation, a home-building company co-founded by Mr. Miller, in 2001, the same year she became Miami’s president. The company’s chief executive is Stuart A. Miller, Mr. Miller’s son, and a Miami trustee.
Charles M. Elson, a professor of corporate governance at the University of Delaware, said a president who serves on the board of a company that employs a donor or trustee invites skepticism and even legal repercussions. If a corporate board is thought to have failed in its duties to protect shareholders’ investments, a president who is perceived to have blind allegiance to a chief executive could wind up answering for his or her actions in court.
“You never should go on the board of a donor, past, present, or potential, because it destroys your independence,” Mr. Elson said.
Ms. Shalala and Pascal J. Goldschmidt, dean of Miami’s medical school, also serve on the board of Mednax, a medical group whose chief executive, Roger J. Medel, is a university trustee. Dr. Medel has helped set performance goals and allocate bonuses for both Ms. Shalala and Dr. Goldschmidt, according to company proxy statements.
Ms. Shalala, Dr. Goldschmidt, and officials from Lennar and Mednax all declined interview requests.
Prior to his November firing as Pennsylvania State University’s president, Graham B. Spanier served on the board of U.S. Steel, where the vice chairman of the university’s board is chief executive officer.
The Chronicle’s analysis also found an instance of a president and trustee serving alongside each other on a corporate board. John L. Hennessy, Stanford University’s president, and Jerry Yang, a Stanford trustee and co-founder of Yahoo, are both on the board of Cisco Systems, a maker of networking equipment.
Companies Invite Critics
While board membership for college presidents has attracted greater attention in recent years, it’s old hat for Scott S. Cowen, president of Tulane University. A scholar of corporate governance, Mr. Cowen began serving on company boards well before he became Tulane’s president in 1998.
Mr. Cowen, who earned $634,797 for service on three corporate boards in 2010, said he routinely turns down overtures to sit on more boards because he sees potential conflicts or does not have time.
“There should be virtually no connection between the company and the university,” he said. “That’s one rule of thumb I use.”
Mr. Cowen said he is equally leery of serving companies that seem prone to controversy, as financial institutions have been in the wake of the 2008 economic crisis. Ruth J. Simmons, the departing president of Brown University, took heat for her service on the board of Goldman Sachs, where she joined other directors in approving millions of dollars in controversial bonuses, before stepping down from the board in 2010.
Mr. Cowen has served on as many as four boards at a time during his presidency. Now he is a director at three: American Greetings Corporation, Forest City Enterprises Inc., and Newell Rubbermaid Inc.
Family-controlled businesses, where a single family controls the voting shares of a company, are of scholarly interest to Mr. Cowen, who said he offers such companies expertise as a director. Among the companies where Mr. Cowen is a board member, Rubbermaid is the only one that is not family controlled.
Companies that appoint college presidents as directors often say they are looking for bright people with different perspectives, but some of the nation’s most-prominent college presidents do not serve on any boards at all. Half of the presidents of Ivy League universities, including Drew Gilpin Faust at Harvard University, collect no money from corporate boards.
Nicholas S. Zeppos, chancellor of Vanderbilt University, refuses to sit on any corporate boards and forbids his vice chancellors from doing so, either.
“I’ve got a full plate,” he said. “I don’t want a conflict of interest; I don’t want a conflict of commitment; I don’t want issues to arise in a company that puts Vanderbilt in a light, and people say, Why is Vanderbilt part of that?”
Richard H. Brodhead, president of Duke University, has chosen to stay off corporate boards, too. A university spokesman did not elaborate on Mr. Brodhead’s reasons but noted that Duke employees require presidential approval before serving on corporate boards.
Mr. Brodhead strikes a notable contrast with Victor J. Dzau, who as president and chief executive of Duke’s Health System earned more than $600,000 from three corporate boards in 2010.
Dr. Dzau holds positions on the boards of Alnylam Pharmaceuticals Inc., PepsiCo Inc., and Medtronic, a developer of medical supplies. Duke’s conflict-of-interest policies prohibit Dr. Dzau from making decisions about purchases or research that might involve the companies, he says.
Critics of academics who serve on corporate boards, Dr. Dzau says, fail to understand that health-system administrators are now involved in major mergers and acquisitions that require a level of expertise that can only be gained in a corporate setting. To dismiss corporate board service as inherently fraught with conflicts is foolhardy and naïve, he said.
“We don’t live in a dream world in terms of, This is pure and this is impure,” he said. “Everything is a continuum.”
Posted on 2012-01-16 13:19:31