Serving Two Masters: University Presidents Moonlighting on Corporate Boards

by Kevin Kniffin
The Multinational Monitor
November 1997

 

Judith Rodin is a director of Aetna Life and Casualty and of Electronic Data Systems. In July, she was nominated to become a director of AMR, the holding company for American Airlines. For her service on corporate boards, she received over $123,500 in 1996. Rodin is a busy person, however. While she attended over 36 board meetings in 1996, her day job was service as the president of the University of Pennsylvania. She earns well over $350,000 for this job, in addition to free housing, free housekeeping, an expense account, free Penn tuition (for her child), a personal staff and a car with a driver.

Rodin is not unusual. The presidents of more than one half of the 50 institutions listed on U.S. News and World Report's dubious rankings of leading universities serve on corporate boards, according to a Multinational Monitor investigation. Carnegie Mellon University places atop the rearranged U.S. News and World Report list of universities, ranked according to the sum of fees earned by university presidents for membership on corporate boards. Carnegie Mellon's immediate past president, Robert Mehrabian, took over $105,000 in board payments from four publicly traded corporations in 1996.

None of the presidents on U.S. News and World Report's list of top liberal arts colleges serve on the boards of publicly traded corporations.

The growing presence of university officials on corporate boards is one important manifestation of the increasing corporatization of U.S. universities. The growing links between universities and big business raise important questions about academic integrity and university autonomy.

University officials face two sorts of conflicts from outside positions such as corporate directorships: direct and indirect conflicts of interest, and conflicts of commitment. Members of corporate boards acquire fiduciary duties to advance the interests of the shareholders they represent, and these interests may not be commensurate with what is best for a university. More generally, university officials serving as members of corporate boards may find their worldview (and their financial interests) significantly affected by their corporate ties and obligations, perhaps in ways that conflict with the best interests of the academic institutions they lead. "You can't serve two masters at once," says Lawrence Soley, author of Leasing the Ivory Tower and a critic of close university-industry ties. Officials may also face overwhelming time demands from their commitments to their full-time university job and to their meeting-heavy directorships.

Presidential board games

University presidents come upon their corporate board opportunities in a number of ways. Georgetown's President Father Leo O'Donovan, for example, took a spot on Disney's board after becoming acquainted with Disney CEO Michael Eisner, the father of a Georgetown student. A Lehigh alum and benefactor invited Lehigh's recent president, Peter Likins, to the board of Parker Hannifin, a Cleveland fluid power system company. University of Oklahoma's President David Boren acquired some of his directorships through relationships made as a U.S. senator, says a university spokesperson.

With regard to the increasing number of former politicians at the helm of universities, Soley says it should be no surprise that they are also serving on corporate boards of directors. These politician-presidents have been "taught to shake the money tree for campaigning. Now, they're shaking the same tree but for a different purpose," he says.

University presidents argue that serving on corporate boards broadens their perspective and connections in ways beneficial to their universities. Regarding her directorships, Rodin says that Penn's trustees expect that "what I do, I do for Penn." Rodin believes in joining the two roles so much that she has linked her University of Pennsylvania world wide web page to Aetna's site.

Peter Likins, one of only two of nearly two dozen presidents contacted by Multinational Monitor who was willing to discuss the issue, comments that board service gives him "a competitive edge over presidents who prepared [for the role of university president] only through academic service. I believe the trustees understand that advantage very well."

Trustees may indeed approve of university presidents serving on corporate boards, for, as Soley points out, "CEOs are the largest single group of trustees of universities."

Some university officials are willing to acknowledge that personal aggrandizement has at least something to do with why they serve on corporate boards. Richard Cyert, president of Carnegie Mellon University from 1972 to 1990, admits, "I benefitted a great deal" from service on the boards of companies like First Boston (an investment bank), American Standard (the toilet company), and H.J. Heinz (the pet food and ketchup company). Cyert also admits something else that appears obvious: that university presidents obtain positions on corporate boards by trading on their university position and affiliation. Presidents "have to recognize they probably wouldn't have the job if it wasn't for their role at the university," Cyert says. In an attempt to redress this exploitation of his university role, Cyert made it a practice to donate large portions of his stock gains back to the university.

Georgetown President O'Donovan follows a similar practice, deferring his salary as a Disney director into a student scholarship fund. But this practice is not the norm.

Inquiries were made of several companies regarding the reasons they recruit university officials to their boards of directors, but none were answered.

free to be

University policies regarding outside compensation and outside commitments vary significantly.

New York State, with the passage of its 1987 Ethics in Government Act, appears to have the most stringent screening process. For example, since campus presidents control one-third of the decision-making power over the selection of home banks, State University of New York (SUNY) campus presidents are not allowed to serve on the boards of banks with which the campus has an account. "[We] must conclude that the dual loyalties to the State and to the bank present, at a minimum, the appearance of a conflict of interest which is prohibited under Public Officers Law S74," the New York State Ethics Commission ruled in 1991, in response to a request by a SUNY campus president to serve on a bank board. New York also requires prior approval for university officials to accept outside posts that will pay them more than $4,000 annually. The New York board has also disallowed stock options for SUNY officials asked to serve on the boards of certain companies which do even relatively small amounts of business with the university.

In contrast with New York's explicit bank conflict policy, the University of California (UC) at Berkeley's former Chancellor, Chang-Lin Tien, is a director of Wells Fargo Bank, the institution that handles the estimated $1.5 billion payroll account for the university system. Greg Colley, of the University of California's treasurer's office, declined to comment on the university system's selection of Wells Fargo except to say that the relationship is periodically reviewed and evaluated. Tien has been a director of Wells Fargo since 1990, the same year he took the lead of UC-Berkeley.

University of California officials, like those at many other public universities, must publicly disclose non-university dealings to the UC President's office, and are bound by a conflict of interest code. They apparently take their lead from the University of California President Richard Atkinson, who serves on three boards: Nevada Goldfields, Qualcomm and San Diego Gas & Electric/Enova.

At private universities, it is typically the case that no prior approval is required for contracting personal obligations to for-profit corporations.

presidential double duty controversies

Those presidents and other university officials who serve on the boards of corporations accused of serious wrongdoing have generated the most controversy.

The chancellor of the University of Texas, William Cunningham, recommended that a new molecular biology building be named after a generous alum and his wife -- the Moffett family that founded and operates the mining company Freeport McMoRan, recounts Robert Boyer, a professor at the University of Texas at Austin. Cunningham suggested this honor be bestowed on the Moffetts at the same time he was serving as a director of Freeport McMoRan, a company accused of poisoning rivers and destroying the way of life of thousands of indigenous people in Indonesia [see "The Mining Menace of Freeport McMoRan," Multinational Monitor, April 1996]. Although he refused Multinational Monitor requests for comment, Cunningham told the Dallas Morning News that his building name recommendation was not marred by a conflict of interest since the Board of Regents ultimately needed to approve the name.

A joint student-Oil, Chemical and Atomic Workers campaign is calling for Donald Jacobs, dean of the school of management at Northwestern University, and University of Michigan Professor Marina Whitman to resign from their university positions if they care to keep their positions on the board of Unocal, the oil giant providing crucial financial support to the Burmese dictatorship.

In August, the Sierra Club denounced new University of Missouri President Manuel Pacheco, former president of the University of Arizona, for serving on the board of directors of ASARCO, a mining company which has paid $1.7 million in environmental fines for polluting Missouri's Black River. ASARCO responded with "disappointment" that the Sierra Club decided to "personalize" the issue, while Pacheco told the Chronicle of Higher Education that he serves on the board as a private citizen.

In California, students at Occidental College demanded this fall that school President John Slaughter issue a statement protesting the involvement of Arco -- on whose board he sits -- in Burma. Six students undertook a hunger strike in November to push their demands. In response, Slaughter issued a statement noting Arco's position regarding its investments in Burma and his disagreement with the position. "ARCO is certainly aware of the political divisions, corruption, human rights violations and drug trafficking in Burma and believes sincerely that by being there and by practicing its own high standards of operation it can be helpful in encouraging more rapid evolution of the changes in government behavior that are slowly but, hopefully, inexorably occurring," Slaughter wrote. "Although I am mindful and respectful of the company's rationale, I have conveyed to ARCO leadership my own personal feeling that I would prefer that the company not conduct operations in Burma and that it should withdraw from the country." Slaughter also serves on the boards of directors of IBM and Northrop Grumman.

keen to moonlight

Perhaps no individual more clearly illustrates the dangers of university presidents maintaining corporate ties than Thomas Kean, former governor of New Jersey. Kean has been president of Drew University since 1990. He has been a director of Aramark, a large food services company that is effectively the only competitor with Marriott in the market for subcontracting university dining services, since 1994. Aramark began participating in a multi-million dollar contract with Drew University on May 27, 1997. Kean refused to comment on this matter.

Kean is also a director of Bell Atlantic, United Health Care, Beneficial Corporation, Fiduciary Trust Company International, and Amerada Hess, the petroleum refining company. Kean made a bare minimum of $235,000 from his directorships in 1996, and attended at least 28 meetings.

Though Kean declined to respond to questions, it seems obvious there is not a stringent review process at Drew. In fact, Kean's own secretaries expressed disbelief at the extent of his board memberships -- evidence of the important role that simple disclosure can play.




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