An Order From Congress

Powerful senator threatens to intervene at American University if governance reforms aren't enacted.
May 18, 2006

Sen. Charles E. Grassley, an Iowa Republican and chairman of the Senate Finance Committee, emphatically reprimanded American University’s Board of Trustees for ignoring warnings of overspending by former President Benjamin Ladner, in a letter to the board Wednesday

An internal audit while Ladner was in office found that he was spending university money excessively, and Grassley chastised board members for not acting swiftly to remedy the problem.

Grassley also expressed outrage at the secretive culture of the board, and at e-mails that threatened to punish whoever leaked information about Ladner’s spending. Grassley offered a threat of his own: “I do want you to know that I am considering proposing federal legislation that would require changes in the structure, composition, and governance of the AU board, as Congress has done previously,” Grassley said in the letter. He added that he would specifically consider legislation that would allow the board to force a member to resign.

As the uproar over Ladner grew, it became clear he had strong supporters on the board, even as more of his expenditures came into question. Ladner was eventually fired in October after an investigation found that Ladner’s spending of university funds -- on items including: a personal chef, vacations in Europe, and an engagement party for his son -- was out of control.

Grassley’s letter comes just before the board is about to meet to vote on governance reforms that are the result of months of collecting input from faculty members, students, staff members and alumni.

On Tuesday, Gary Abramson, chair of the board, sent a letter to the Finance Committee updating it on efforts to reform governance at American. The letter said that the board has already adopted “improved oversight of presidential expenditures,” and “initiated a new era of openness with the AU campus.”

Sheldon E. Steinbach, vice president and general counsel of the American Council on Education, questioned whether it was necessary for Grassley to “enflame passions” when the board is “obviously working to fix this,” and is on the verge of announcing changes. With regard to Grassley’s threat to intervene, Steinbach said he hopes the senator isn’t rushing to judgment, and that he will review in depth whatever changes the board makes.

In response to Grassley’s letter, Abramson issued a statement that said he believes the recommendations currently under consideration by the board will address the Senate’s concerns. “The Board of Trustees reform recommendations will address many of the issues raised in the letter from Chairman Grassley, including better transparency, accountability, board structure, and inclusiveness of the faculty and students,” Abramson said.

Grassley wrote in his letter about Ladner's compensation, which was negotiated in 1997, “that in calling for a salary for Dr. Ladner higher than that recommended by outside consultants, some AU board members appear to have rejected concerns about complying with the laws passed by Congress” simply because the penalties are not great. “Do you believe this is the appropriate message AU should send to students -- it is all right to violate the law if the penalty is de minimis?” Grassley wrote. He requested a response to that and other questions within two weeks.

The Ladner fiasco prompted the Finance Committee and Congress to consider tax provisions that would increase penalties for nonprofit board members who approve excessive compensation for their organizational leaders and require greater public disclosure of nonprofit groups’ informational tax forms.

Grassley went on to rail against the board’s approach to the Ladner whistleblower -- who turned out to be Reginald Green, once Ladner’s chauffer.

Grassley excerpted an August e-mail sent by David Carmen, a trustee, to other trustees: “You are right in citing a Nixon era example. People do not tolerate leaks any more,” the e-mail read. “No one is so naïve anymore to think that unidentified ‘whistle blowers’ are public servants.”

Grassley said in his letter that whistle blowers are “public servants, they are often heroes -- saving lives and taxpayers billions.”

Carmen, in his e-mail, strikes down the idea of “electronically monitoring” phone calls to try to catch the leaker, and instead proposed informing potential whistle blowers that there could be legal consequences and perhaps getting employees to “out the offender just like you get your 7 year old to admit” they know who did something.

In a response e-mail to Carmen, Thomas A. Gottschalk, former acting chair of American’s Board of Trustees, suggested not devoting energy to investigating the source of the leak.

Grassley thanked Gottschalk and another trustee “for taking a strong line against any effort to bring the Salem witchcraft trials to northwest D.C.”

In his statement yesterday, Abramson said that “we are working for a stronger university and on closing the past difficult chapter for American University.”

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David Epstein

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