Should Presidents Moonlight on Corporate Boards?

The debate started over a specific kind of corporate board: that of a for-profit education company.

Linda P. B. Katehi, chancellor of the University of California at Davis, resigned last week from the corporate board of the DeVry Education Group, which operates DeVry University. The company had just announced that Katehi had joined the board. Katehi left the board amid criticism from consumer groups and legislators, some of whom noted that the U.S. Federal Trade Commission is suing DeVry over allegations that the company made false claims about its job placement rates and its graduates' earnings.

Katehi's resignation did not end the debate. On Thursday, The Sacramento Bee reported that Katehi had received $420,000 in pay and stock for three years of service on the board of Wiley Inc., which sells textbooks and other education materials. Katehi earns about $425,000 annually from UC Davis, so the funds from Wiley were a significant share of her total income.

That news prompted several legislators to call for hearings and for one -- Assembly Member Kevin McCarty -- to call for Katehi's resignation. The hearings are being promised to look for other presidents with board memberships. Prominent legislators are saying that college presidents who earn close to half a million dollars a year (or more) should focus their time on their campuses.

"Chancellor Katehi receives a taxpayer- and tuition-funded salary of $424,360," said a statement from McCarty. "It is unseemly for the chancellor to be moonlighting side deals to fatten her bank account, especially when it runs contrary to the interests of our students that are strapped with decades of student debt to pay the high costs of textbooks and other education expenses. Therefore, today I am calling for the resignation of Chancellor Katehi and am announcing legislative hearings to look into this matter across all three segments of higher education.”

Legislators said they weren't mollified by an announcement Katehi made Friday that she was donating all the money she earned from Wiley.

"I take my responsibilities as chancellor of UC Davis, and to the entire University of California, very seriously and sincerely regret having accepted service on boards that create appearances of conflict with my deep commitment to serve UC Davis and its students," said Katehi. "I have resigned from the DeVry board and intend to donate all the stock proceeds I made from serving on the John Wiley and Sons board to a scholarship fund for UC Davis students."

Despite the criticism of Katehi's board memberships, many college and university presidents serve on corporate boards. The Wiley board for which Katehi has been criticized for having joined currently has another university president, Laurie A. Leshin of Worcester Polytechnic Institute, as a member.

The DeVry board does as well. President Ann Weaver Hart of the University of Arizona joined at the same time at Katehi, but without the same criticism.

Leshin, via email, said that there have not been concerns at WPI about her membership on the Wiley board. "When considering the board appointment, I confirmed both with Wiley leadership and the WPI community that I am not currently involved in institutional decisions at WPI involving Wiley, nor would I ever be while serving on their board, and that Wiley would have no vendor advantage for WPI work," Leshin said.

In many cases, college and university administrators serve on the boards of companies farther afield from higher education. But that doesn't mean that such board membership is free from controversy. And these days colleges and universities have lucrative contracts with all kinds of companies with the potential to create conflicts of interest.

In 2009, Phyllis Wise, then provost of the University of Washington, was criticized for joining the Nike board a year after the university signed a multimillion-dollar contract with the company. In 2010, the then president of Brown University, Ruth Simmons, was criticized for being among the 10 people on the Goldman Sachs board who determined the bonus for Lloyd C. Blankfein, the bank’s chairman and chief executive. The $9 million payout struck many people -- inside and outside higher education -- as wretched excess.

Susan Resneck Pierce, who formerly worked as a search consultant and is president emerita of the University of Puget Sound and author of Governance Reconsidered and On Being Presidential, both published by Jossey-Bass/Wiley, said she views board memberships as having the potential to help presidents and their institutions.

"Such service may well lead to relationships that will be of value to their institution (e.g. donations, internships for students, introductions to others who might be helpful)," she said via email. "Service on another board may also give the president valuable experience in finance, governance and planning."

Ray Cotton, a Washington lawyer who advises college presidents and boards on contracts and who does not count Katehi among his clients, said that he always recommends that presidential contracts include a specific provision on whether outside board memberships are permitted and, if so, who would need to sign off on each one.

Cotton said that he recommends stipulating that the board chair or an executive committee of the college or university approve every board membership, but that some contracts require full board approval. (The Los Angeles Times reported that Katehi did not receive required approval from Janet Napolitano, president of the University of California system, before accepting the DeVry board seat, but that Napolitano believes that Katehi's apology and resignation from the board resolve the matter.)

Cotton said that it is rare for presidential contracts to bar corporate board service, but that it does happen, most often with religious colleges.

The reason most boards are comfortable with or even encourage presidents to serve on corporate boards is that it is "generally accepted by businesspeople on colleges' boards" that this is good practice, Cotton said. "If you look at the leaders of for-profit companies, many of them serve on boards of other companies, and they have found that they gain insights on issues faced by companies on the boards they serve on that they can apply back on their own company."