American University’s Board of Trustees on Friday unanimously approved a sweeping set of recommendations to improve the board’s inclusiveness, accountability, and oversight. The overhaul was conducted in response to the heat trustees have taken from students, faculty members, alumni, and the U.S. Senate over their role in the spending scandal involving American’s former president, Benjamin Ladner, who was ousted in October.
Experts on university governance said the effects of the board’s reforms could extend well beyond American University.
“They were in the spotlight,” Richard D. Legon, president of the Association of Governing Boards of Universities and Colleges, said of American’s trustees. The board’s approval of “rather robust policies,” he said, is a welcome development that “really is crucial, not only for higher education, but for the whole nonprofit sector.”
The controversy at American has been exceptionally high profile, with a loudly fractured board, titillating details of Mr. Ladner’s lavish expenses, and proximity to Capitol Hill and the Washington news media.
Many people in academe have fretted that the scandal could draw unwelcome Congressional oversight for universities. That worry was heightened last October when the Senate Finance Committee’s chairman, Sen. Charles E. Grassley, announced an investigation of American University and called the board a “poster child for why review and reform are necessary” for governing boards of nonprofit organizations (The Chronicle, October 31, 2005).
In a letter he sent to the trustees last week, Senator Grassley, an Iowa Republican, said he may propose federal legislation that would require changes in the board’s structure and governance (The Chronicle, May 18). American, although private, is chartered by Congress. But trustees said the changes approved on Friday should deal with all of Senator Grassley’s concerns.
“We have put our own house in order,” Thomas A. Gottschalk, the board’s vice chairman, said on Friday at a news conference.
Deans of the university’s six colleges and three members of the Faculty Senate released statements praising the board overhaul. Those statements and additional information are available on a university Web page about the governance reforms.
Phyllis Palmiero, director of the Institute for Effective Governance at the American Council of Trustees and Alumni, said the planned reforms at American were “steps in the right direction.” However, she said the board must follow through by fully putting the recommendations in force. At a June meeting, the board is scheduled to formally adopt the reforms, which require amendments to the university’s bylaws.
Ms. Palmiero said the overhaul, and the magnitude of the board’s mistakes that spawned it, would serve as a useful lesson.
“It’s a wonderful case study,” she said. “I think a lot of boards can learn from this example.”
The recommendations that were approved on Friday, during a two-day board meeting held at American’s campus, are described in a 30-page report to the board from a “Special Committee on Governance.”
The wide-ranging proposals include the appointment of a student and two faculty members as nonvoting trustees, performance evaluations of trustees, and channels for board oversight of the contract, expenditures, and performance of American’s president.
In a written statement, Senator Grassley said on Friday that the addition of student and faculty trustees “could be a very positive step” if their participation was meaningful.
“Will they be made to leave the room when important issues are being discussed?” he asked.
The trustees also recommended taking away the university president’s voting rights on the board. Historically, the president has been a full member of the board. Critics charged that Mr. Ladner had at times improperly influenced board proceedings.
Additionally, the recommendations add seven new voting members to the board, bringing its membership to 25. The new trustees, who were identified in a statement released by the board on Friday, include a retired public-relations executive, two former college presidents, and two chief executives of technology companies.
In his letter last week, Senator Grassley chastised board members, particularly 13 trustees who formed an “ad hoc committee of the board,” accusing them of ignoring audit findings and disregarding possible sanctions by the Internal Revenue Service, at least in the past. But with the board’s expansion and after two recent departures, the 11 remaining members of the ad hoc committee will no longer constitute a majority of the board.
Mr. Gottschalk, responding on Friday to Senator Grassley’s harsh criticism of some board members, said, “We do believe that each one of us was acting in good faith.”
Among the legislative measures Senator Grassley threatened to introduce was a provision to give the board authority to fire its own members, who serve three-year terms but do not have term limits. However, the report clarified that, under university bylaws, trustees may be fired by the board.
The report also establishes a process for assessing the performance of trustees.
Jeffrey A. Sine, a trustee who is co-chairman of the committee that wrote the reform report, said in an interview that trustees had considered “blunter instruments” than performance reviews, such as term limits or a mandatory retirement age. But Mr. Sine said the reviews, which include scrutiny of trustees by a committee every three years, would be rigorous and effective.
“We were prepared to live with the results that might not be pleasant,” Mr. Sine said.
The board reforms include several new measures to make trustees more open to outside suggestions. In addition to adding student and faculty trustees, the board will hold two town-hall meetings each year.
The meetings will be open forums, Mr. Sine said, “where anyone can ask questions of trustees without filters.”
Although Mr. Legon, of the governing-boards association, said it was too early to predict whether the board’s reforms would satisfy the Senate, he said he “would certainly hope that American University and its board be given positive recognition.”
Background articles from The Chronicle: