Academics on board

Academe, Sep/Oct 2001 by Goldschmidt, Nancy P, Finkelstein, James H

University Presidents as Corporate Directors

It can be very profitable for university presidents to serve on corporate boards. Are they seeking personal gain or trying to help their schools?

Over the past two decades, institutions of higher education, particularly research universities in the United States, have responded to the demands of the global political economy by changing some of their traditional practices.1 They now prepare more professional and technical workers, have closer ties with business and industry leaders, and pursue applied knowledge with commercial applications with greater zeal than they had in the past. In other words, they are becoming more entrepreneurial and market driven. Perhaps one of the best indicators of these changes are the royalties universities now collect from the inventions of their faculty members. In 1999 the top one hundred research universities in the United States collected over $641 million in such royalties, more than $146 million above what they earned only four years earlier.

Some observers claim that universities serve the interests of industry at the expense of liberal arts, curricular integrity, and intellectual freedom. Others suggest that institutions of higher education can ensure their survival by adapting to the new environment. Much of this discussion has focused on the entrepreneurial activities of professors, such as their entering into agreements with companies that want to turn the professors' research into commercial products. Our recent research shows, however, that university presidents are also involved.

Today, a university president's activities are more closely linked to the outside world than in the past. Twenty-five years ago, college presidents reported spending about one-third of their time in contact with individuals external to the university. Now presidents devote considerably more time and effort at the boundaries of their institutions: attending social functions to raise financial gifts from alumni and other potential donors; meeting with leaders in social, business, and political circles; and serving on external advisory boards. Most college presidents participate on at least one of these boards, and nearly a quarter are on some type of corporate board, the form of service that is the focus of this article.

To shed light on corporate-university connections, we examined the relationships between presidents of elite universities and the boards of publicly held firms in the United States. We determined the proportion of such presidents who sat on corporate boards, which firms elected the presidents to sit on their boards, and the personal financial benefits to the presidents. In our ongoing research, we are investigating others who benefit from these connections, the public and educational interests served by them, and the gains for the university and the corporation.

We conducted two separate studies, one in 1998 and the other in 2000, both of which we restricted to the "top universities" as ranked by two different sources. Each sample included the institutions (excluding medical universities) ranked by the National Science Foundation according to total research and development expenditures and the institutions cited as the "best national universities" by U.S. News and World Report. In 1998 there were 129 institutions in this pool, and in 2000 there were 117 institutions (the numbers differed because in each year some institutions appeared on both lists). Most of the institutions in both studies were classified as Research I or Research II universities according to the 1994 Carnegie Classification of Institutions of Higher Education, which groups American colleges and universities according to their institutional missions.

The primary sources of data for the corporations in our studies were the proxy statements filed with the U.S. Securities and Exchange Commission (SEC). All publicly held corporations are required by law to make full disclosure of material facts about issues on which shareholders will vote. In addition, they must provide information about the compensation and stockholdings of corporate executives. These documents are available online through the Electronic Data Gathering, Analysis, and Retrieval System (www.edgaronline.com/people). We excluded board memberships held in private companies, investment trusts, foundations, nonprofits, and start-up companies, all of which may compensate their directors, because the SEC database does not contain this information.

About one-third of the presidents in both of our studies served on from one to five corporate boards; more than half were presidents of public universities. We found that in 1998, 25 percent of the presidents served on only one board, 68 percent served on two boards, and 13 percent served on from three to five boards. In 2000, 60 percent of the presidents served on only one board, 24 percent on two boards, and 15 percent on from three to five boards.

Although the presidents were appointed to the boards of all of the major types of firms, most served three types: finance (22 percent), industrial manufacturing (23 percent), and technology (15 percent). The corporations for which the presidents worked were (and are) listed on several stock exchanges-the New York Stock Exchange, NASDAQ, and the American Exchange. Many of these corporations were listed on other major indicators as well, including the Fortune 500. Just over half of them reported revenues of more than $1 billion in both studies, and 40 percent had more than 10,000 employees. Some were multinational corporations.