June 1, 2006 | Read Time: 4 minutes
In a move that charity leaders hope will head off new federal regulations, American University’s Board of Trustees unanimously approved a sweeping set of recommendations to improve the board’s inclusiveness, accountability, and oversight. The overhaul was conducted in response to the heat the trustees have taken from students, faculty members, alumni, and the U.S. Senate over their role in the spending scandal involving American’s former president, Benjamin Ladner, who was ousted in October.
An aide to Sen. Charles E. Grassley, the Iowa Republican who has led the Senate investigation of American University, said the senator wants to hear from students and faculty members as well as the board. If they agree that the board’s changes respond completely to their concerns, “that would weigh significantly” in whether Senator Grassley goes ahead with legislation to force the American University board to make other changes, the aide said.
Many nonprofit observers have worried that the problems at American University could intensify Congressional interest in regulating all types of nonprofit groups. The controversy at American has been exceptionally high profile, with a loudly fractured board, titillating details of Mr. Ladner’s lavish expenses, and proximity to Capitol Hill and the Washington news media.
In announcing the investigation last year of American University, which is a private institution chartered by Congress, Senator Grassley called its board a “poster child for why review and reform are necessary” (The Chronicle, November 10, 2005).
Performance Reviews
The proposals approved by American’s board include the appointment of a student and two faculty members as nonvoting trustees, the addition of performance evaluations of trustees, and channels for board oversight of the contract, expenditures, and performance of American’s president.
In a written statement, Senator Grassley said that the addition of student and faculty trustees “could be a very positive step” if their participation is meaningful. But he questioned, “Will they be made to leave the room when important issues are being discussed?”
The trustees also recommended taking away the university president’s voting rights on the board. Historically, the president has been a full member of the board. Critics charged that Mr. Ladner had at times improperly influenced board proceedings.
And the trustees approved the addition of seven voting members to the board, bringing its membership to 25. The new trustees have already been selected and include a retired public-relations executive, two former college presidents, and two chief executives of technology companies.
In a letter to the board sent two days before the changes were approved, Senator Grassley chastised board members, particularly 13 trustees who formed an “ad hoc committee of the board,” accusing them of ignoring audit findings and disregarding possible sanctions by the Internal Revenue Service, at least in the past. But with the board’s expansion and after two recent departures, the 11 remaining members of the ad hoc committee will no longer constitute a majority of the board.
‘Right Direction’
Experts on governance said the effects of the board’s changes could extend well beyond American University.
Phyllis Palmiero, director of the Institute for Effective Governance at the American Council of Trustees and Alumni, said the planned changes at American were “steps in the right direction.” However, she said the board must follow through by putting the recommendations fully in force. The board is scheduled to formally adopt the changes, which require amendments to the university’s bylaws, in June.
Ms. Palmiero said the overhaul, and the magnitude of the mistakes that spawned it, serve as a useful lesson.
“It’s a wonderful case study,” she said. “A lot of boards can learn from this example.”
Deans of the university’s six colleges and three members of the Faculty Senate released statements praising the board overhaul.
“We have put our own house in order,” Thomas A. Gottschalk, the board’s vice chairman, said at a news conference.
Responding to Senator Grassley’s harsh criticism of some board members, Mr. Gottschalk said, “We do believe that each one of us was acting in good faith.”
Jeffrey A. Sine, a trustee who is co-chairman of the committee that drafted the recommendations, said in an interview that trustees had considered “blunter instruments” than performance reviews for board members, such as term limits or a mandatory retirement age. But Mr. Sine said the reviews, which include scrutiny of trustees by a committee every three years, would be rigorous and effective.
“We were prepared to live with the results that might not be pleasant,” Mr. Sine said.
The board also plans to adopt several new measures to make trustees more open to outside suggestions, including requiring the board to hold two town-hall meetings each year.
The meetings will be open forums, Mr. Sine said, “where anyone can ask questions of trustees without filters.”
Paul Fain is a staff reporter at The Chronicle of Higher Education. Elizabeth Schwinn contributed to this article.
