Times: Parlez Vous Cash? Moonlighting Earned Ruth Simmons of Brown University Well Over $4.3 Million

The Times explores the scandals of moonlighting university presidents who sell their institution's credibility for their own personal gain.

Examples abound, but Ruth Simmons of Brown was one of the most outrageous in the Times report. In addition to $576,000 in salary, she pocketed direct compensation of $323,539 from her Goldman Sachs directorship and added to that $4.3 million in other income from Goldman derived from options, while tuition at Brown rose to $49,128.

Simmons was a professor of French, expertise that gained her these positions: Metropolitan Life Insurance Company, director; Pfizer, board of directors; Texas Instruments, Inc., board of directors; Goldman Sachs Group, Inc., board of directors.

No question. University presidents are selling the prestige of their institutions and pocketing the income. This outright compensation laundering makes a mockery of the notion of the non-profit corporation.
The Academic-Industrial Complex
WHAT does Shirley Ann Jackson know about shipping parcels? For that matter, what does Steven B. Sample understand about mutual funds?
James Estrin/The New York Times

Dr. Jackson, who is a theoretical physicist and the president of Rensselaer Polytechnic Institute in Troy, N.Y., has served as an outside director on the board of FedEx since 1999.

Dr. Sample, an electrical engineer and the retiring president of the University of Southern California, sits on the boards of directors of the American Mutual and Amcap mutual funds. He is also a director of another company, and stepped down two years ago from the board of the Wm. Wrigley Jr. Company, the candy maker.

Dr. Jackson and Dr. Sample are part of a cozy and lucrative club: presidents and other senior university officials who cross from academia into the business world to serve on corporate boards.

While academics can often bring fresh perspectives, managerial experience and the imprimatur of a respected institution to a board, they are also serving in an era when corporations wrestling with fallout from the financial crisis (think Bank of America, Citigroup and Goldman Sachs) or very public mishaps (think BP, Johnson & Johnson and Toyota) have raised the stakes for board members expected to guide corporations.

Some analysts worry that academics are possibly imperiling or compromising the independence of their universities when they venture onto boards. Others question whether scholars have the time — and financial sophistication — needed to police the country’s biggest corporations while simultaneously juggling the demands of running a large university.

“It is prestigious for a company to have a major university president on their board,” says Pablo Eisenberg, senior fellow at the Georgetown Public Policy Institute. “But few college and university C.E.O.’s are even qualified to understand the workings of a major public company.”

According to a 2008 survey by The Chronicle of Higher Education, presidents from 19 of the top 40 research universities with the largest operating budgets sat on at least one company board. The trend is more widespread among public universities, but the private ones are catching up: the American Council on Education says that from 2001 to 2006, the proportion of presidents from all doctorate-granting institutions sitting on corporate boards rose to 52.1 percent from 47.8 percent at public institutions, and to 50.9 percent from 40.6 percent at private ones.

Some of the more high-profile and ubiquitous academics include the president of Stanford, John L. Hennessy, who sits on three boards, including that of Google. (Google also has the president of Princeton, Shirley M. Tilghman, on its board.) The chancellor of the University of California, San Diego, Marye Anne Fox, is on three boards.

And then there is Dr. Jackson of Rensselaer, the highest-paid private college president and one of the most prominent black university leaders. In addition to FedEx, she sits on the boards of four other companies, including I.B.M. and Marathon Oil, and she recently stepped down from the board of NYSE Euronext.

THE attractions are clear for the president: lucrative extra pay and useful networking, among other reasons. For a dozen hours or so each month for each board served, in addition to preparation time, and their wise advice, they can receive hundreds of thousands of dollars a year.

Ruth J. Simmons, the president of Brown University and the first African-American woman to lead an Ivy League university, sat on the Goldman Sachs board until she stepped down this year. In 2009, she earned $323,539 from her Goldman directorship, including stock grants and options, as calculated by Goldman, and left the board with stock worth at the time around $4.3 million. This is in addition to her salary from Brown, $576,000 this year.

Dr. Jackson earned $1.38 million from her directorships, comprising both cash and stock. That’s in addition to $1.6 million from her day job, including bonuses and other benefits.

Beyond personal financial benefits, the interchange of ideas between campus and corporation can allow for a fruitful cross-fertilization. For example, Dr. Hennessy sits on the boards of Cisco Systems and Atheros Communications as well as Google. As an electrical engineer and a pioneer in computer architecture, he is well placed to bring industry expertise to the boards he serves.

William G. Bowen was president of Princeton University for 16 years and served on two boards, including Merck’s. It was an experience, he says, that was invaluable in helping him build up Princeton’s then-fledgling life sciences activities.

“It influenced my understanding of how the field was evolving, where new ideas were most likely to appear, where to look for talent,” he recalls. “It was one long seminar in the sciences and molecular biology.”

There are benefits for the company, too.

One obvious advantage is having an outsider who thinks about alternative solutions to corporate problems. Another is diversity.

Indeed, the path from academia to corporate boards began broadening in the late 1990s when companies sought to break up the traditionally white, male composition of their boards. Academia, and in particular university presidents, were a good source of prominent minority leaders and women who were established in their fields and had experience running big organizations.

Phyllis M. Wise, the provost of the University of Washington, is on Nike’s board. Nike said it hired Dr. Wise, an Asian-American, “because of her impressive accomplishments and her record of independent thought, and we believe that through the exchange of ideas, both Nike and the University of Washington will benefit.”

But according to James H. Finkelstein, a professor in the George Mason School of Public Policy, probably the biggest reason companies have sought out academics is the prestige they bring. Universities are among the few institutions trusted by the public, he says, and companies believe they can associate themselves with this quality by installing an academic on the board.

“Corporations think this is a way of enhancing their prestige and legitimacy, especially in the case of Ivy League presidents,” he says. “I suspect that’s the principal motivation. It’s probably not for their business sense.”

John Gillespie, who has written a book on corporate boards, “Money for Nothing,” says academics are often selected for another reason — because they are less likely to rock the boat than directors from the business world.

Academics may be trained to ask tough questions in their own fields, but when confronted with tricky business issues far above their level of expertise they “often become as meek as church mice,” he says.

MOST corporate governance experts think that a president serving on one board brings benefits to both the company and the university, but the situation becomes problematic as these academics serve on more boards. There may be diminishing returns to the university and less time to be an effective board member.

Nell Minow, editor of the Corporate Library, an independent research firm focusing on corporate governance, says Goldman Sachs was hurt having Dr. Simmons as a director because she lacks financial expertise and was focused more than she should have been on other things like the firm’s philanthropy. She was chairwoman of the advisory board for a Goldman initiative, 10,000 Women, that provides women outside the firm with business and management education.

“That seat could have been held by someone who understood derivatives,” says Ms. Minow. “What we have learned from the financial crisis is that boards of directors have failed miserably in their No. 1 task of risk management. You don’t go on a board for networking, seeking contributions or working for minorities. You go on a board for one purpose — to manage risk for the long-term benefit of the shareholder.”

Samuel Robinson, a Goldman spokesman, said that “Ruth Simmons’s contribution to our board was deep and also wide-ranging.” He added: “Ruth brought invaluable perspective on leadership, people and decision-making, and her direct work with students was of great value to a firm that recruits hundreds of young people every year. Her personal story and perspective on diversity speak for themselves.”

Dr. Simmons declined to comment for this article. In an interview early this year after she announced she was retiring from the Goldman board, she said filling boards with specialists was “exactly the wrong direction.”

“You need people close to the industry to provide depth of experience, but you also need people with perspective,” she says.

In the case of Dr. Jackson and her five board appointments, Ms. Minow says, “it is just physically impossible to do the work necessary to be a good director” on so many boards. The Corporate Library estimates that board members must invest 240 hours a year, including meetings and preparation, to do the work properly. But it can become a full-time job if the company runs into trouble.

Charles M. Elson, a corporate governance specialist at the University of Delaware, is highly critical of university presidents who serve on several boards, although he is reluctant to single out particular directors or companies. “If you see a university president on multiple boards, that’s a problem,” he says. “There is no way you can do the job. Someone has got short shrift.”

Some of the companies these presidents served make a different assessment, however.

Marathon Oil said it was proud to have Dr. Jackson on its board. “She is a valued contributor, with a keen attention to detail and breadth of knowledge that serves Marathon well,” a company spokesman says.

FedEx said her broad array of commitments had not interfered with her work on its board and that she had recently been selected to be chairwoman of its nominating and governance committee. “We consider the breadth of her experience — in academia, government service and as a member of other public company boards — to be a tremendous asset to our company,” says a FedEx spokesman.

I.B.M. said that Dr. Jackson, who is a member of the President’s Council of Advisors on Science and Technology and a former chairwoman of the Nuclear Regulatory Commission, was re-elected to the I.B.M. board this spring by more than 93 percent of shareholder votes cast. “It is clear that the overwhelming majority of I.B.M.’s stockholders appreciate her contributions to the company,” says an I.B.M. spokesman.

Dr. Jackson would not comment for this article. A Rensselaer spokesman, William N. Walker, said she regularly worked on her board duties through vacation and on weekends. As proof that she was not being distracted from her Rensselaer duties, he cited the hiring of more than 270 new faculty members, $700 million in construction and renovation including four new centers on campus, and a $360 million anonymous donation in 2001 as part of a $1.4 billion capital campaign. Her networking at I.B.M. paid off by helping to bring a $100 million supercomputer to the campus in partnership with I.B.M. and New York State, he said. In June, Rensselaer’s board of trustees voted to give Dr. Jackson another 10-year term.

Dr. Hennessy of Stanford could not be reached to comment for this article. Dr. Sample, who is retiring as president of U.S.C. this month, has worked as a director for about a dozen companies over the last three decades. One of them, Intermec, a manufacturer of supply chain tracking devices, praised his energy and commitment, and said his roles on other boards helped the company because he brought perspectives from other businesses. Dr. Sample declined to comment, as did Dr. Fox.

AS academics serve on a greater number of boards, there is also an increased chance of reputational risk if a company runs into difficulties.

“Woe to the university president who would sit on BP’s board,” says Richard P. Chait, a professor at the Harvard Graduate School of Education.

Erroll B. Davis Jr., chancellor of the University System of Georgia, was on the BP board for 12 years, though he stepped down in April, just days before the Deepwater Horizon rig exploded, causing the massive oil spill in the Gulf of Mexico. His retirement, however, wasn’t enough to protect him from being named, along with other directors, in a small number of lawsuits filed against BP over the disaster.

“There is a big risk to academics when they serve on boards. They especially attract criticism when a company gets into trouble,” said James Kristie, editor of Director & Boards, a trade publication. “They are more harshly criticized because they are supposed to be the smartest guys in the room.”

The risk of a damaged reputation seemed to be an issue when Dr. Simmons announced in February that she was stepping down from the Goldman board.

At the time, Goldman was being battered by questions about its involvement in the financial crisis and the lucrative pay it doled out to executives and employees even after the firm had received a huge taxpayer bailout. As a director, Dr. Simmons was partly responsible for approving Goldman’s bonuses during the boom years — including the $68 million pay package awarded to its chairman, Lloyd C. Blankfein, in 2007, the largest ever on Wall Street.

Early this year Dr. Simmons said the criticism directed at Goldman was not the reason she gave up her position. She would not comment on whether the salaries the board had approved over the past decade were appropriate, except to say, “The environment for salaries on Wall Street has evolved over a period of time, and the environment today is different.”

She also said that the job had become harder and more time-consuming. The financial crisis, in particular, added to the burden.

Dr. Simmons has cut back on her corporate service, and now sits on the board of only one company, Texas Instruments. In that respect, she is emblematic of a movement to limit the number of boards each president serves. In the University of California system, for example, the Board of Regents voted in January to restrict board membership for its chancellors to three.

Raymond D. Cotton, a partner at the Washington law firm Mintz Levin who specializes in presidential contracts and has represented about 250 institutions, says he recommends to universities that they write into contracts that the president can serve on a maximum of two boards.

There can be outliers like Dr. Jackson, who seems to have done a “terrific job at R.P.I. especially in fund-raising,” he says. “But in general, at some point in time a university board has to say enough is enough.”

A HOST of separate questions come into play when a college or university has some other relationship with the company.

Can a president be independent?

At the University of Washington, Dr. Wise’s appointment to the Nike board, where she sits on the social responsibility committee, had become controversial on the campus in Seattle. Some questioned whether she should be drawing $50,000 in cash and $70,000 in stock options from Nike, in addition to a $559,000 salary, for a role she won mainly, they say, as a consequence of her position as head of a public university.

In July, however, Dr. Wise announced that she was donating her income from Nike to student scholarships.

Others have questioned whether she will be able to do her job properly on the board at the same time Nike has a contract to give $35 million in cash and athletic equipment to the university over 10 years. The apparel company also pays the university around $110,000 a year for the right to sell Washington shirts.

As a further sign of how complicated the issue can become, some academics at the University of Washington protested that Dr. Wise’s presence on the board meant they would not be able to criticize Nike over its labor policy, in particular the treatment of workers at factories in the developing world.

“She is the chief academic officer of the university, to whom all faculty report, and her affiliation with Nike creates incentives for faculty to be less vocal about Nike’s human rights record,” said Angelina S. Godoy, director of the university’s Center for Human Rights. However, Ms. Godoy said a recent landmark agreement between Nike and unions in Honduras made her less concerned about the university’s relationship with Nike.

In an interview before Nike announced the Honduras agreement, Dr. Wise rebutted the idea that her presence on the board would make her colleagues less critical of Nike. She says she can manage any conflicts of interest and will recuse herself from university decisions involving Nike. She says she accepted the seat because it would give her decision-making and commercial know-how to put into practice on campus.

“Many years ago, academicians tended to be dreamers,” she says. “We assumed somebody else would figure out where the money was going to come from. That notion is no longer the case.”

As for what she brings to Nike, she says, “I know a little bit how students think, what might drive their desire to look into Nike products.”

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