Higher Ed | Daily Report

What happens when university trustees also do business with the university?

Led by reporter Paul Fain, the Chronicle of Higher Education revealed in an investigation this week that one of four private colleges has "financial ties with trustee-affiliated companies."

Trustees bear responsibility for making decisions in the best interest of the university. Because of that spending power and influence, some, like Richard P. Chait, a professor at Harvard University's Graduate School of Education, say universities should avoid doing business with trustees.

"It doesn't set the right ethical tones," he told the Chronicle.

The magnitude of the transactions appears to vary widely. In some cases, such as at St. Olaf College in Minnesota, trustees' companies signed multimillion-dollar construction contracts to build new structures on campus. In other cases, such as at Hope College in Michigan, a trustee provided legal services totaling a few thousand dollars.

The Chronicle surveyed 618 private colleges and universities and pored through tax filings to figure out how common it is for trustees to be affiliated with companies with which the college does business.

The story took a close look at one California school, National University:

According to tax records, the San Diego-based institution paid trustee-affiliated companies more than $3.7-million from 2005 to 2007. Those companies provided services that included debt collection, architecture, consulting, public relations, and real estate.

In most cases, says Michael W. Prairie, the university's general counsel, those trustees had business relationships with the university before being asked to join the board. After joining, he says, they were pressed to give the university the best possible price on those services – and also to make donations. 'Once they're on the board, the chancellor squeezes them for money,' Mr. Prairie says. He also points out that, according to National's conflict-of-interest policy, no more than six members of the 25-member board can have business dealings with the university at any one time.

According to National University's "Self-Dealing Statement," part of its IRS Form 990, several trustees did business with the school in 2007-'08:

• Trustee Felipe Becerra, managing partner and owner of Creditor Iustus Et Remedium LLP: Received $173,461 for collecting accounts for the university.
• Trustee Jacqueline Townsend Konstanturos, CEO of Townsend, Inc.: Received $173,540 for marketing services.
• Trustee Michael Wilkes, CEO of Delawie Wilkes Rodrigues Barker: Received $569,675 for architectural services.
• Trustee Jay Stone, Vice President of Van Scoyoc Associates Inc.: Received $113,613 for public policy monitoring and consulting services.
• Trustee John Bucher, President of John Bucher Real Estate Co.: Received $90,000 for real estate services.

The document also says "disinterested board members" approved hiring each of the trustees after surveying market rates and rates charged by different firms. The trustees with business links "were excused from board sessions during which transactions in which they had a financial interest were discussed, and abstained from voting on other transactions."

According to an audio interview with reporter Fain, some colleges divulged the full details of trustees' potential conflicts of interest in their IRS Form 990s, naming names and dollar amounts and describing how the school manages those relationships.

In other cases, the reporters checked out a given college's top contractors and had to "Google around" to find connections with trustees, Fain said.