Does USC Need More Housecleaning?

Scandal-plagued University of Southern California has a new president coming in, but many believe the institution can't really change without a true overhaul of its large and quarrelsome Board of Trustees.

May 21, 2019
 

Over the past two years, as scandals and controversies have plagued the University of Southern California, the institution’s divided and, some argue, unwieldy Board of Trustees has been afflicted with its own array of problems.

While the university’s difficulties played out in public, the board turmoil largely took place behind the scenes, as is the norm in the usually staid culture of private university boards. But internal disagreements on the board -- replete with biting insults, leaked emails and accusations of conflicts of interests and ethics violations -- have spilled into public view in recent months.

The infighting has highlighted institutional governance challenges and prompted calls for a major restructuring and shrinking of the 56-member board. It turns out some reforms are already underway or under consideration. And despite the deep divisions on the board, many members agree a major transformation is sorely needed.

“There are significant changes being discussed, dozens and dozens of changes we're going to be bringing to the board,” said Rick Caruso (at right), chair of the Board of Trustees. He said reducing the size of the board is among several modifications being considered based on the recommendations of a committee created to address the board’s many challenges.

“When you look at different universities across the country, there are a wide range of numbers of board members,” Caruso said, adding that no decision has yet been made on the final composition of the USC board.

While it's true that university governing boards are of varying sizes, the average private university board had 29 members in 2016, according to the Association of Governing Boards of Universities and Colleges. Stanford University's board has 31 members, for example.

“A number of changes that are equally if not more important than the size of the board” are also under discussion, Caruso said. “What’s important is to get it right.”

Getting it right seems more consequential than ever at USC. The push for change is occurring as the university itself is in the midst of transition, with a new president set to take over in July and several top administrators already gone. The fallout from the national college admissions bribery and cheating scheme, in which employees, students and parents connected to USC predominated, is still unfolding.

The admissions scandal further hurt the already damaged reputation of the university, making it the butt of jokes on late-night talk shows and embarrassing and cutting skits on Saturday Night Live.

Students, faculty members, alumni and others with a stake in the future of the university are not amused. They say merely tinkering with board structure won't lead to real change without considering broader issues -- a culture of secrecy many say has discouraged confronting problems, a willingness to look the other way when money or athletics are involved, and a failure to seek adequate faculty input.

Ariela Gross, a professor of law and history at USC, who is on an Academic Senate task force on shared governance, considers the current composition of trustees “a board for a different era.”

"And as the current board leadership recognizes, it can’t stay this size and this composition and function the way it has in the past if it is to move forward,” she said. “I think the question is how quickly change will happen, not whether that change will happen.”

William G. Tierney, a professor of higher education and co-director of USC's Pullias Center for Higher Education, agrees the focus should be on the future.

“The real issue is to look forward, not to look backward,” he said

Tierney wrote a widely discussed op-ed in which he endorsed the idea of a reconfigured board and called on the incoming president, Carol Folt, to “convince the USC Board of Trustees … to radically restructure itself” as one of her first acts as president.

Tierney also urged Folt to work with Caruso “to convince the trustees that they should resign en masse to allow USC to build a new, smaller board tasked specifically with oversight and aligned more with the university’s future than its past.”

Reshaping the Board

Caruso said the executive committee of the Board of Trustees is in fact focused on the university’s future. Committee members attended a retreat in March to discuss changing the board's structure and came up with a list of recommendations that were “significant, meaningful and frankly necessary to govern this institution that has changed dramatically over the past 30 years,” even as “the formation and operation of the board has not changed in that time,” he said.

“There a number of ways to do it and we’re looking at many options,” Caruso said. “We haven’t taken votes yet, but I can tell you that everybody wants a change; everybody wants an effective board.”

He said the changes will occur in stages, with the most significant one taking place in the next academic year.

In the interim, the board members are still working out their personal problems.

Like any large body of individuals with various views and allegiances, the trustees sometimes disagreed, but they usually resolved differences privately. Things shifted soon after Caruso, a longtime trustee and billionaire developer, was elected chairman of the board in May 2018.

At the time, faculty members were calling for the removal of the university’s then president, C. L. Max Nikias, in the wake of a shocking sexual assault scandal involving numerous instances of abuse of students by a campus gynecologist.

The faculty members and many students and administrators believed the scandal, among the worst of several at USC, was badly mishandled by Nikias, a prolific fund-raiser popular with the trustees, many of whom did not want him removed. Critics of Nikias blamed him for fostering a campus culture where administrators and others did not report wrongdoing.

Although the effort to oust Nikias was ultimately successful, the Los Angeles Times recently reported that Nikias, who sits on the board and maintains close relationships with other trustees, continues to wield influence on campus and on the board. Some faculty members voiced concerns that his participation in board decisions may potentially undermine Folt’s ability to reform the university and may further fuel perceptions of the board as being insufficiently concerned about the best interests of the university.

Among Caruso’s most visible actions as the board's leader was his support for, and pushing through of, a highly controversial move by the interim president, Wanda Austin, to demote the dean of the university’s Marshall School of Business. The decision sharply divided business school faculty, students and, perhaps most critically, alumni, many of them wealthy donors and a few of them members of the Board of Trustees.

The dean’s removal made Caruso a lightning rod for blistering criticism about his leadership style. Trustees that supported the dean, Jim Ellis, condemned Caruso in interviews with local and national news outlets, and in bluntly disparaging letters they sent to him and made public.

Caruso was unapologetic about supporting the dean’s removal.

“The decision that Dr. Austin made was within her authority, and we approved it,” he said.

To be very honest, there was a handful of people that did not want to see change. They were not the majority; it was tough for them. Change is tough but change has to happen. From time to time, I became the focus of their frustration and that’s fine. As chair, you have to lead.

Before long, a small but vocal contingent of die-hard supporters of Ellis, including some board members, were calling for Caruso’s resignation and orchestrating a negative public information campaign against him. This prompted a trustee who supports Caruso to call on colleagues to show more civility.

“I must take this time to state that the attacks on our chairman and the challenges to his leadership and the direction of this leadership simply should stop,” Ron Tutor, chairman and chief executive officer of Tutor Perinni Corporation, one of the largest general contractors in the United States, wrote in an email to fellow board members on Jan. 21. (Two buildings on campus are named for Tutor.)

“Whether you agree or disagree with the termination of Dean Ellis, I perceived it as one of the many unfortunate products of the times where, because of many past practices that were lax, the university’s management reacted aggressively and strongly. Whether or not it was the wise thing to do is not the issue. It is done, direction is clear and we simply cannot be in an attack mode against our leadership with all of the issues facing us going forward. We must close ranks and we must accept the fact that the chairman and this Board of Trustees going forward must take a much more aggressive role than in the past and must be more supervisory over our presidents and staff so that the sort of issues that took place will not occur again.”

“I ask all of you to refrain from any further attacks, communicate in a civil manner within the board, and support our leadership going forward. If there is to be disagreements, let them be on a closed basis within the executive committee and abide by the general consensus of that committee and the board itself.”

Ming Hsieh, another trustee and major USC donor -- a cancer research institute and a department of electric and computer engineering are named for him -- responded by email that same day.

"I strongly disagree with your statement that there should be no more challenges to either Rick's leadership or the current direction of USC's leadership. How can you possibly say that?" Hsieh wrote. "It is due to the very fact that the direction of this administration is clear that we must speak up, because the direction this university is currently headed is down, not up."

“You say we should ‘close ranks’ and be ‘more supervisory over our presidents and staff so that the sort of issues that took place will not occur again,’ but these issues continue to occur, which is why this board must act to change USC's flawed leadership now.”

Hsieh also noted financial ties between Tutor and Caruso -- Tutor’s company was the general contractor on two major Caruso projects, the Rosewood Miramar Beach Resort and the Palisades Village Center -- and implied that their business relationship posed a conflict of interest and could influence or compel Tutor to vote in favor of Caruso initiatives as board chair, or in “any upcoming votes of confidence in this leadership team.”

Hsieh also called on other trustees to disclose if they have any business relationships with Caruso and recuse themselves from voting on certain matters before the board.

Relations between the trustees and the board president were further complicated by news reports connecting a USC student whose parents were implicated in the admissions scandal to Caruso. The student, Olivia Jade Giannulli, a friend of Caruso's daughter, was on Caruso's yacht in the Bahamas during spring break, along with other friends of his daughter, who is also a USC student, when the news broke of the indictments in the federal probe. Giannulli's mother, the actress Lori Loughlin, is accused of participating in the admissions scheme and paying $500,000 in bribes to get Giannulli and her sister accepted into USC. Caruso's critics cited the yacht incident as yet another example of his personal and professional ties intersecting with his role as board president and creating possible conflicts of interests.

According to the Los Angeles Times, Caruso said he personally knew two families in which parents were charged.

Caruso "declined to name the families, but said they never asked him for help in gaining admission," the Times article stated. The newspaper also reported that at least two of the parents charged socialized with USC trustees or top administrators. One parent, a wealthy financier, even bragged in a wiretapped phone call that "half the board knows me" and said he planned to seek their help to get his son admitted.

These revelations reinforced the image of the board as being the clubby bastion of rich and powerful, and sometimes famous, mostly white male donors -- movie director Steven Spielberg is on the board, for example -- on a campus dotted with buildings and departments bearing the names of several trustees, including the USC Caruso Catholic Center and the USC Caruso Department of Otolaryngology at the Keck School of Medicine.

Putting Controversies Behind Them

Caruso dismissed any suggestions that he had potential or actual conflicts of interests with Tutor or others on the board.

“There is no conflict of interest that I have. None,” he said. “Ron Tutor was the contractor on two projects of mine. My business is a small fraction of the multiple billions of dollars in business that he does. I don’t know anybody who could influence Ron -- he’s his own man.”

Caruso said business ties between trustees do not pose conflicts of interest challenges for the board.

“The conflict occurs if I’m doing business with the university,” he said, adding that such conflicts would have to be formally disclosed. “I have a fiduciary duty to the university.”

Caruso said the allegations “are all falsehoods, stirred up by one trustee, maybe two” and that accounts of widespread backbiting, finger-pointing and distrust between trustees was overstated. He also said the board had put an end to “inappropriate behavior” by certain trustees intent on tarnishing the reputation of fellow trustees.

“The board does not tolerate that anymore,” he said. “And we have made that very clear. The board has moved past these controversies and is overwhelmingly united.”

Caruso, a 1980 USC alumnus and founder and CEO of Caruso, one of the country’s largest privately held real estate companies, is intent on moving the board forward.

He laid out his vision for the board in a long memo to “Members of the USC Family” last August. Among other measures, he announced the establishment of a Special Committee on Governance Reform made up of five trustees tasked with examining “all aspects of the Board of Trustees’ structure and operations to ensure that USC is a world leader in higher education governance.”

The committee also reviewed best practices at peer institutions and involved others on campus in its efforts, according to the memo.

“As a board, we recognize that the university has grown dramatically over the past few decades,” Caruso wrote. “That success includes a fast-growing budget, staff and student body in addition to operating one of the region’s largest medical enterprises. However, the Board of Trustees is organized in much the same way as it was 30 years ago. That needs to change.”

Caruso’s detractors believe the change should start at the top of the board.

“I think if he really cared about USC, he would step down,” said a critic who did not want to be identified because of the risk of reprisal. “He speaks as if the board is one big happy family that sings ‘Kumbaya’ together. It’s not a happy family at all. This board is broken -- he can say what he wants, but the board is broken.”

The critic said Caruso makes decisions for the board without collaborating with members and instead simply presents his decisions and asks them to vote on it. The critic cited the demotion of Dean Ellis and the selection of Folt as prime examples. Trustees who questioned those decisions or wanted to discuss the decision making behind them were sidelined or silenced, he said.

For example, the critic said, the selection of Folt was announced to the board on the same day she was presented as the finalist for the job by the selection committee, whose members were handpicked by Caruso. Caruso was the chairman of the committee.

No information was provided about Folt in advance of the meeting, the critic said. Instead, the search committee members spoke highly of her, and then there was a vote.

“That’s not a choice, that’s a fait accompli,” the critic said. “He’s made the board his own fiefdom and that’s not an example of good governance.”

Not so, according to Caruso.

He said in the past when the board considered presidential candidates, the board’s personnel committee reviewed applicants and recommended finalists to the executive committee, which would then make a recommendation for a final selection to the full board for a vote.

“This time the whole board listened to the discussions of each committee,” Caruso said. “They heard the same info at the same time and were able to ask questions. And everybody involved in the decision-making process was, in turn, being accountable.”

As a result, the selection of Folt was made by “unanimous voice vote,” he noted.

“In the old days, only the executive committee would have heard the information and made a recommendation, and then the full board would have voted,” he said. "That isn’t, to me, an example of best practices. There’s a role for the executive committee to play, no doubt, but the goal here is to have the whole board engaged and acting like a fiduciary.”

Caruso said when he became president of the board, he started talking and meeting with deans, students and professors to better understand what was happening on campus.

“It was incredibly helpful,” he said.

He said he came away from those conversations with a consistent message for the board: “We have to be more engaged, more involved and more visible.”

“We can’t be accountable unless we know the facts,” he said.

Gross, the law and history professor, is chair of Concerned Faculty of USC, a group of about 360 mostly tenured professors representing about a third of all tenured faculty members on campus. She said she’s impressed with Caruso’s follow-through on his commitments to change the board, including his promise to make public the identities of the board’s executive committee, which until recently were kept secret.

The committee turned out to have 17 members, which, Gross noted, is “almost as large as university boards in their entirety.”

“Fourteen of the committee members are older white men almost entirely drawn from business, heavily in real estate, very homogenous,” she said. “Now that we know who they are, there’s a pretty wide understanding of why that has to change.”

Caruso concurred.

“Under the old system, we were not visible. Deans and faculty members were not allowed to talk directly to trustees; I was told it was taboo for them to speak to trustees,” he said. “We got our information through the president. Big, critical decisions were made by the executive committee.”

Now more decisions are made by the whole board, he said. There’s also more direct communication with the interim president, more collaboration and more hard questions asked. The trustees also have a better sense of the decision-making process.

“This board, in a very short period of time, has transitioned from not being very engaged to this past year being very engaged and very in tune,” he said.

The Caruso critic who did not want to be named believes the other trustees have simply capitulated to Caruso's demands.

“This board lacks a backbone,” the critic said. “The board rules need to be rewritten, and the members need to be more engaged than just rubber-stamping the president’s decisions and allowing him to continue making the board in his image.”

That consensus is certainly not universal on the USC campus. Tierney and other professors say they approve of the changes taking place under Caruso's leadership.

Moving Forward

Paul Adler, a professor of management and organization, sociology, and environmental studies at USC’s Marshall School of Business, was on a faculty task force created to identify some of the roots of the recent scandals and met, in that capacity, with the leaders of the Board of Trustees’ special governance committee.

“I was impressed,” Adler said. “They were very thoughtful and open to radical restructuring on the board and quite aware of the need to remake the board.”

He said he was not aware of any significant opposition to Caruso or disagreement among board members.

“From what we hear on the grapevine, there’s pretty broad contentment within the board now and consensus on the direction for change,” he said. “While there's a lot of agreement on where we need to go, there remain unresolved issues about how to get there. Many of us, but not all, feel that we need a stronger faculty voice, primarily by strengthening the Faculty Senate. Strong faculty governance is a hallmark of a world-class university.”

He said more transparency is also needed.

“USC's leadership has long had a very defensive attitude -- when bad things happen, the reflex seems to be to duck and wait for the storm to pass. A university that is confident of its place in the top tier would be more open to both its internal and external stakeholders about its failures.”

Tierney agreed and alluded to those failures in his op-ed column.

“The next set of trustees must have duties beyond giving generously, attending football games and meeting at the 11th hour to fire the president when the university is in crisis,” he wrote. “Given the egos of many board members, and their genuine affection for the university, making such a sweeping change will be no easy task, but it is crucial.”

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