Aug. 4, 2005

How Much Is Too Much?

What do a French chef, presents for the kids, trips to Europe, and $200,000 worth of drainage work and landscaping have in common? If you are a college president and you bought them with university money, they can land you in hot water.

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The Washington Post reported Wednesday that the American University Board of Trustees is investigating President Benjamin Ladner’s use of university funds. According to The Post, the probe was begun after board members received an anonymous letter alleging inappropriate spending by Ladner and his wife over the past five years, including the purchases above, and an engagement party for their son. American University officials declined to comment on the report.

According to Internal Revenue Service records, Ladner’s salary was $633,000 last year, not including the home provided for his use.

The Ladner case is the latest to raise the question of how much is too much when it comes to perks for college presidents.

One way to prevent problems is to set up a perpetual system of checks and balances. “The way many universities do it is to have the board pre-approve the president’s budget with X amount for donor cultivation,” said Jan Greenwood, president and CEO of Greenwood and Associates, a search firm. “Then at the end of the fiscal year, the board’s audit committee reviews the expenditures.”

The committee may determine that some expenses that appear on their face to be inappropriate, may actually be OK, she said. “There have been some examples through the years of question marks on things that look on the surface like they are personal, but turn out to be donor cultivation,” Greenwood said. “You might have a big wedding party, but maybe 70 percent of the guests are major donors.” She added that the spending habits that pass muster vary from institution to institution. “If the board budgets a French chef, then the president can have a French chef. If it’s just for the benefit of the president, then that is something the president gets taxed on.”

Greenwood said that presidents can get into gray areas when they travel. “A lot of presidents, when they do business trips, will pay for their own golfing or whatever,” she said. But other times, golf might be the center of the business.

“Some presidents are good at golf, and the raise a lot of money on the course,” said Raymond D. Cotton, a Washington lawyer who specializes in presidential contracts. Cotton said he recently received a question about a president who likes to entertain, with the university footing the bill, on a yacht. “I said, ‘what’s he doing?’ ” Cotton was told the president was fund raising. “Well, then he’s on the yacht for university purposes.”

Something like the $200,000 that The Post reported Ladner spent on drainage work and landscaping on his campus house may or may not be crossing the line. “With regard to a home owned by the university, generally speaking all expenditures for the home itself; painting, groundskeeping, are properly within the realm of the university paying,” Cotton said. He added that the campus house can be treated like any other campus building, and the benefits to the structure benefit the university even beyond the president’s tenure. However, he said, “the sky is not the limit.”

Cotton recalled the 1997 case of Adelphi University in which the board bought the president a multimillion dollar apartment for fund raising trips to New York City when simple hotel rooms would have done the trick. Both the president and board were ousted and the university faced serious financial difficulties. “We are not in the for-profit world,” he said. “If there is some unusual perk, it has to be justified.”

He added that the board cannot just give the president a blank check, even if the gesture is part of an effort to recruit the president. “The board is required to not spend the resources of the university in an excessive manner, including executive compensation.” Cotton added that excessive spending simply to maintain the president’s image “as some potentate,” is also an inappropriate use of non-profit funds.

John Curtis, director of research for the American Association of University Professors, said that as more presidents are compensated like private sector CEOs, the presidents often reflect their compensation in their management of the institution. Curtis pointed to AAUP’s “Annual Report on the Economic Status of the Profession,” and said that the rapid growth of presidential compensation has become a morale crusher for other staff and faculty members.

Andy Brantley, CEO of the College and University Professional Association for Human Resources, said benefits like country club memberships and car allowances often come standard in presidential contracts. He added that it is “important for universities to clearly define the purpose of a particular membership. Is it associated to business, or truly a perk?” He added that many presidents now have bonuses if certain fund raising goals are met.

The safest way to spend university money, according to Cotton, is “if the president is even thinking about an expenditure of a large sum, he or she should have the sense to call the board chair or the finance committee. That ought to be second nature.”

— David Epstein

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