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Trusteeship Magazine

Higher-Education Chief Executives and Service on Corporate Boards

By Merrill P. Schwartz
January/February
2011
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College and university chief executives as well as board leaders have sought advice from AGB concerning whether presidents should accept positions on corporate and other external boards, what limitations might apply, and whether and how to codify board decisions in either a contract or additional policy. To answer those questions, AGB conducted a survey of 1,298 chief executives of member colleges, universities, and systems regarding their service on for-profit corporate boards. Of those, 293 chief executives participated—about one-third from public institutions and two-thirds from independent ones.

The survey focused on service on for-profit corporate boards for several reasons:

  • In 2008, Sen. Charles E. Grassley, the top Republican on the U.S. Senate Finance Committee, investigated and criticized the service of research university presidents on corporate boards, recommending that boards consider whether the costs in terms of time away or conflicts of interest were worth potential benefits;
  • Presidents have been disparaged in the press for serving on multiple corporate boards and earning compensation for their service that rivals or exceeds their university salaries;
  • Whenever compensation is involved, the potential for conflicts of interest increases; and
  • Volunteer service on nonprofit boards doesn’t provoke the same level of controversy.

Who Serves on Corporate Boards? What Do They Earn?

Fewer than one-third of chief executives (30.5 percent) served on the board of a for-profit corporation: 16.5 percent served on one, 8.2 percent served on two, 3.1 percent served on three, 1.7 percent served on four, and 1.0 percent served on five or more. More than two-thirds of respondents did not serve on any corporate boards. More chief executives of public institutions (38.4 percent) than independent institutions (26.7 percent), and more chief executives of research and doctoral universities (51.6 percent) served on at least one for-profit board.

Serving on for-profit boards was more common among presidents with more years of service. Among respondents who served on one or more for-profit boards, 9.3 percent had served in their current position as chief executive less than three years, 33.7 percent had served three to six years, and 57.0 percent had served seven or more years.

Among those who served on at least one for-profit board, about one-third received no compensation for their service in the prior year, about one-third earned less than $50,000, and about one-third earned $50,000 or more. Of the latter, 15.3 percent received $50,000 to $99,999, 13.0 percent received $100,000 to $299,999, 2.4 percent received $300,000 to $499,999, and 1.2 percent received $500,000 or more. (About 6 percent declined to answer.)

What Guidance Is Provided to Chief Executives?

More than half of respondents’ institutions did not have a policy that addressed service on corporate boards. We included a model policy from Presidential Compensation in Higher Education (AGB, 2008) and asked whether their institutions had a similar one. Of the respondents, 53.4 percent did not, 30.1 percent did, and 16.4 percent had a related policy with different provisions.

One-quarter of respondents reported that their contract or employment agreement established guidelines for service on boards of outside organizations, and about the same number reported that the governing board must approve outside directorships or that they discussed such service with the board. About one-fifth of respondents reported they had received no guidance from any source at their institution.

Costs and Benefits of Service on Corporate Boards

Chief executives found great value in service on corporate boards, including enhanced understanding of board members, improved governance practices for their institution’s board, opportunities for fund raising and university advancement, and better management, finance, and investment strategies. Some developed a broader perspective of social and economic conditions that informed planning at their own institutions. They also found interaction with leaders outside of higher education complemented their professional-development opportunities. Many also used the opportunity to raise the visibility of their colleges and universities.

Chief executives also noted pitfalls: real, potential, or seeming conflicts of interest; time away from a demanding job; exposure to personal liability; reputational risks associated with a potential corporate scandal; and negative public opinion about the time spent on or money received for such service.

Suggestions for Best Practice

  • Employment agreements and board policies should address terms for outside service of chief executives.
  • Chief executives should seek board approval before committing to service on boards of outside organizations and disclose any related compensation and potential conflicts of interest.
  • Chief executives should use personal leave for time spent on compensated directorships.
  • Boards should discuss the costs and benefits of outside commitments with chief executives as part of annual performance reviews.
  • Board members should refrain from inviting the chief executive of their institutions to serve on a board of a for-profit organization where they currently serve as a director or executive.

Complete results of the survey on “Chief Executives and Service on Corporate Boards” are available at https://www.agb.org/reports.

 

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