Entertaining? Technically, It’s More Like Corruption

A few years ago, a colleague of mine resigned from his job as president of a small private college in the South. As he described it, the Trustees considered the college its private property; it was there to serve their interests and the interests of their cronies, which included some senior administrators. So entrenched was the culture of using the college for personal gain that he gave up trying to steer the college for the benefit of, umm, students and society, and left.  

Now along comes NYU under President John Sexton, who has become somewhat of a poster boy for grandiosity in higher education, and the reports of funding luxurious second homes for execs and some “star” professors. The meaning of star professor is very hard to pin down. Mostly, it seems to mean that you are paid a great deal of money; it can be a baffling exercise in futility to try to figure out why.

Which brings us to the idea that an executive of a non-profit institution of higher education receiving “loans” amounting to more than $5 million is chuckle-worthy.  The former president of another very expensive private institution, GWU, called the practice “entertaining,” and that he had a “good sense of humor” about such things. Not exactly at the top of the list of what you want in your chief executive, who owes a fiduciary duty to the institution. He did go on to say that maybe such things should be able to pass the “red-face test,” presumably the shame test. Oddly, a very individual way of thinking, and not so useful when you have people with, well, no shame. But tests are very important in ethics. This doesn’t pass the smell test, the appearance standard, and now, thanks to the NYT, the publicity test. Somehow, it feels like no one at NYU cared (the no-shame people).

I wonder what you all think about this. I’ll tell you how it strikes me, looking through my usual lens of organizational function and institutional integrity.  First and foremost, “loans” that are forgiven or have 0% interest are not loans: they are compensation, perhaps even gifts.  Why not just pay people more if, looked at on a competitive basis, they are demonstrably worth more? That is a rhetorical question, obviously, but at least it raises the question of taxes, and of recruiting criteria, and perhaps the question of whether universities are operating as banks, a regulated industry, or are otherwise authorized to make large personal loans from institutional funds. When considered in the context of the past many, many years of very low mortgage rates, it seems a rather transparent means of providing income without calling it income. Channeling it through a foundation may make it legal—for now. Alums and donors, be careful what you give: really, who wants to be a booster for a law professor so he can have a summer home on Fire Island?

Possibly it made sense to subsidize primary, not secondary, housing in cities like New York and Boston when interest rates were high (I lived for more than 25 years in Boston, and my first mortgage was something like 13.5%) for, say, new assistant professors out of school who had no money. Maybe even still for those starting out; that NY and Boston real estate are expensive is inarguable, although most city dwellers rent, and those determined to buy do so within their means—go smaller, or go to less-expensive neighborhoods, the boroughs or suburbs. But the idea of subsidies for those who are already making very high salaries and have equity from prior home sales is rather odd; market wages accommodate regional differences, if those exist. And certainly not just so you can buy a townhouse in the ultra-pricey West Village: that is a life-style choice for the wealthy. We may want to live there, just as we might want a Ferrari, but does that mean we have it? And here is where I really wonder the same thing I wonder about when it comes to nepotism in higher education, of which this practice seems to be an extension: where does this sense of entitlement—to jobs for their spouses, to second homes they would not otherwise be able to have—come from? Has higher education come to seem like a place to go to gain access to resources—a kind of private bank—for some? These questions matter, because deal-making creates deeply dysfunctional, political, and inefficient organizations, where mistrust and waste are rampant.

And it makes no sense: while cities like New York and Boston are expensive, they are also places where talent is not exactly scarce, and where so many are eager to live. You do not have to bribe people to come, or to stay, if you pay them fairly, and, guess what, you do not have to go there if you are not willing to make some trade-offs to reap the many benefits of the locale.  It is also internally inconsistent, a key feature in examining whether justifications are credible or not. Higher education claims they have to pay extra and hire people’s spouses in both non-urban areas and urban areas: we can’t otherwise get them to come or stay! It’s too rural!  It’s too urban! It’s too boring! It’s too expensive! It’s the Midwest! It’s the East!  As my English teacher used to say, horsefeathers. You can’t have it both ways.

I should say I have no problem with high compensation overall when it is justified. The presidents of major research universities are overseeing highly complex institutions, and are responsible for their performance and function. But universities are fast becoming like many corporations, where the wage gap between the highest and lowest paid is nearing 300% on average, and in individual corporations may be much higher (or, of course, lower). Issues like the second-home boondoggle raise the question of, on whose backs are large wage and benefit gaps being created? This is a leadership, not just a "performance" question. And when it comes to tenured faculty, a dramatic wage gap is groundless because there is no accountability for performance; only the nontenured and adjuncts can be fired if they do not perform—or even if they do.

What would be really interesting is to see how many of those receiving special treatment from NYU and others are “friends-of” or otherwise noncompetitive hires versus those who came in through competitive searches. My money is on the former. I really wish someone would prove me wrong. But either way, it looks increasingly as if some institutions of higher education have lost all sense of proportion and that the scales need recalibration.