Learning From American U.'s Mistakes

October 28, 2005

Nobody wants to be the next American University. After weeks with its now ex-president, Benjamin Ladner, under a barrage of fire for his lavish spending habits and benefits package, universities are making sure that they don’t face similar vulnerabilities.

Given all the publicity in Washington over American, it’s not surprising that George Washington University is among those institutions, creating a new position to monitor executive compensation and conducting an in-depth audit.

In recent months George Washington President Stephen Joel Trachtenberg – the highest paid college executive in the nation’s capital – has worked closely with the university’s board to have an audit conducted of his and other top administrators’ expenses. The audit, managed by a firm not affiliated with the university, found that there was no wrongful spending by Trachtenberg or other administrators. In fact, the audit showed that the president had donated approximately $250,000 back to the university over the past 3 years.

Last Friday Charles Manatt, chairman of George Washington’s board, announced that the university would soon hire an additional financial assistant to monitor the spending of administrators.

"It’s a matter of adding a second compensation consultant,” said Tracy Schario, director of media relations with the university. According to Schario, this assistant will aid in examining salaries and spending of top administrators.  More details on the position were not available.

Raymond D. Cotton, a consultant who advises several college boards on their contracts with presidents, said Thursday that trustees from nearly 20 different private universities have reached out to his Washington law firm for advice since the American University scandal ensued.

A source closely familiar with various trustee and administration relationships also confirmed that many trustees are “rethinking and double-checking” their financial agreements with top administrators.

Due to attorney-client privilege, Cotton said he could not divulge specific institutions that he’s currently consulting, but he did offer some thoughts on George Washington University, where he has served as an adjunct law and medical school faculty member.

“I believe that there has been a reaction over there to the plethora of newspaper articles about [American University],” he said.  “I would say that because [George Washington University] is located in Washington, D.C., the president and board don’t want negative optics to get in the way of the mission of the university.”

According to Cotton, trustees nationwide would be wise to follow the course set out by George Washington.  “There needs to be a regular review of all presidents’ expenditures -- not by the internal CFO because the internal CFO reports to the president,” said Cotton. “It has to be done by a committee of the board with independent accountants.”

Cotton said that in the aftermath of the American University scandal he is hopeful that trustees will be more cognizant of their responsibilities in running their respective universities. “It’s wonderful to have confidence in a president,” he said. “But they have to remember that checks and balances are very important.”
       

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