A University President, But No Longer a Goldman Sachs Director

A frequent topic on Health Care Renewal is how leaders of not-for-profit health care organizations now frequently value their "margin," that is, revenue generation more than mission.  (One good example here shows how medical school leaders value faculty most for how much money they bring in, rather than the quality of their teaching, research, or patient care.) 

"Masters of the Universe" as Leaders of Academic Medicine

As we have cast about for reasons behind this important and unfortunate transformation, we noticed that many of the members of the boards of trustees of some of the most prestigious universities that house medical schools, medical schools, and teaching hospitals seemed to be leaders in the finance industry. The importance of that finding became more relevant after the global financial collapse, aka "great recession," became evident.  Since then, we noted the influence of finance leaders on the leadership of Dartmouth College, Harvard University, Yeshiva University, and the Hospital for Special Surgery.

Although it seems that the complex relationships between various "masters of the universe" and academia, particularly academic medicine ought to have generated considerable discussion, they remained almost as anechoic as many of the other issues discussed on Health Care Renewal.

Therefore, with some regret, I will take up the latest example of such relationships from my own alma mater, Brown University.  ((Full disclosure: I am an alumnus of the College at Brown, and of the Medical School. I am a former full-time Brown faculty member, and currently a voluntary Clinical Associate Professor in the  Alpert Medical School.)  (Also note that here we discussed some of the questions about the financial dealings of a prominent member of Brown's Board of Fellows, the inner circle of the Brown Corporation, the equivalent of its board of trustees, who was also the very wealthy leader of a prominent hedge fund.  We noted then that his connection to Brown was not noted in current media stories about the controversy.)

A Goldman Sachs Director as University President

Last week (9 February, 2010), the Brown Daily Herald published an interview with the President of Brown, Ruth Simmons, about her service on the board of directors of Goldman Sachs, one of the most prominent, profitable and controversial investment banks.  Some of the main points were:

- President Simmons seemingly denied responsibility for any of the company's past actions that have inspired criticism:

"There are lots of things in a complex institution that go on." So, "you're not in charge of everything that your friends do and every policy that organizations that you're affiliated with issue."

- She also implied that she joined the board expressly and only to advocate for women and minorities in finance:

"We had a big push to think about how we could improve the knowledge and ability of women to manage their financial affairs." Also, "at the same time, there was a good deal of interest in the fact that women have not done so well in the financial sector and on Wall Street."

The goal was "to make certain fields more accessible to women and minorities through her service on the boards of Goldman, Texas Instruments and Pfizer."

"She called her work with women and minorities on boards meaningful to her in 'a way that a lot of people won't understand.'"

She stated "the seniority she now enjoys on Goldman's board allows her to advocate for programs to help women and minorities."

- She implied that she served on the board to learn something about economics, "her service on Goldman's board gave her the economic savvy to take certain risks...."

So in summary, in her role as a member of the board of Goldman Sachs, one of the most important financial companies in the world, which had major involvement in the events that lead to the global economic collapse, or "great recession," President Simmons claimed that her major role was to advocate particular political positions on the board, implied that she did not know much about the company's core business when she joined the board, and took no responsibilities for any actions of the company which might have inspired criticism.

Presdient Simmons' responses might have made sense were she just a member of an advisory board on diversity.   However, she is was a member of the board of directors.

In this interview, she seemed to ignore her fiduciary duties as a board member to show "unyielding loyalty"  to the stockholders of the company and their interests  [Per Monks RAG, Minow N. Corporate Governance, 3rd edition. Malden, MA: Blackwell Publishing, 2004. P.200.]. She in particular seemed to disavow any responsibility for overseeing the actions of hired Goldman Sachs management. 

It is a testament to the power of the anechoic effect that an interview showing a member of the board of directors of one of the most important and controversial finance firms involved in the global financial collapse seemed to dodge responsibility for the firm's overall direction and financial practices seemed to inspire only one piece of commentary beyond Brown.  Felix Salmon opined

In all the bellyaching about the governance of the biggest banks, and the fact that their boards were spectacularly unqualified to provide any kind of oversight of what they were doing, Goldman Sachs has gone largely unmentioned. But what’s true of Merrill Lynch and Bank of America is true of Goldman too: its executives need some kind of adult supervision, seeing as how they work for their shareholders, rather than just for themselves.

He then noted,

this interview with one Goldman board member, Ruth Simmons, hardly instills in me the confidence that she can or will understand what Goldman is doing, stop them from acting in a reckless manner, or keep a close eye on compensation as she wears her hat as a member of the compensation committee....

A Rapid Resignation


However, what happened next does suggest maybe the times they are "a-changing." On 13 February, 2010, per Business Week

Goldman Sachs Group Inc., the most profitable securities firm in Wall Street history, said Ruth Simmons will leave its board after 10 years because of 'increasing time requirements' in her role as Brown University president.

This despite the small fortune that President Simmons had made learning to develop "economic savvy,"

According to a Feb. 5 filing with the U.S. Securities and Exchange Commission, Simmons owned 27,386 restricted stock units in Goldman Sachs, worth $4.2 million at yesterday’s closing share price of $153.93. According to the filing, the units convert to shares on the first trading day in the third quarter of the year following her retirement from the board.

Simmons also has 10,000 options that she can exercise on the date she ceases to be a director, according to the filing.

Felix Salmon then commented,

I said after Tuesday’s interview with Simmons was published that she seemed to think about her membership on Goldman’s board much more in terms of what it could do for her and her pet causes than in terms of being a shareholder representative tasked with overseeing senior management, and I called for a revamp of the board. Friday’s news is exactly the step in that direction that I was looking for: maybe Simmons took my comments to heart!

Summary

So in the end, the complex relationships among academic, and academic medical leaders and the finance industry are at least less anechoic.

The issue is likely not over at Brown. While the initial Brown Daily Herald interview focused on whether President Simmons' position on the Goldman Sachs board might have lead to a direct conflict of interest, he did not ask whether her position in the leadership of Goldman Sachs had any relevance to the prominence of financial leaders on the Brown Corporation.  In fact, the same day that the Brown Daily Herald published the interview, it published an article on the legal travails of a Brown Corporation who has become one of the richest hedge fund leaders in the world.  The 2008-09 Brown Corporation (webpage no longer works here, but cached here) included three other current or retired Goldman Sachs leaders, a former partner, head of merchant banking, and former leader with less specified responsibilties.  It also included numerous other leaders of various other finance companies. 

In the aftermath of the global economic collapse, and in an ongoing health care crisis, it seems reasonable to hypothesize that some of the problems of academia, and particularly the problems of medical academia, may have been at least enabled by leadership more used to working in an increasingly amoral marketplace than to upholding the academic mission.  I hope that Brown's latest travails will inspire more interest in who now leads academia, especially medical academia, how they got there, and what they have wrought.  Academic medical institutions and other not-for-profit health care organizations need leaders who value their missions more than the money they may bring in.