For-Profit College Boards Tap Leaders From Government and Nonprofit Higher Education For-Profit College Boards Tap Leaders From Government and Nonprofit Higher Education
Ohanian Comment: I wonder how these college presidents and college deans are collecting as much as $372,166 to serve Apollo's interests (Ann Kirschner, Dean of the Macaulay Honors College of the City U. of New York). Don't miss the payment chart.
Apollo's highest payment to a board member in 2010 went to Samuel A. DiPiazza Jr: $528,850. DiPiazza is former CEO of PricewaterhouseCoopers.
Total compensation in 2010 for the founder and Executive Chairman of the Board of the Apollo Group, Dr. John G. Sperling, was $6,963,239. This included salary, various stock options and "other compensation." Prior to his involvement with Apollo Group, from 1961 to 1973, Dr. Sperling was a professor of Humanities at San Jose State University where he was the Director of the Right to Read Project.
In 2009, Charles B. Edelstein, the Principal Executive Officer, received $29,997,135. You can see for yourself on their Schedule 14C. Before joining Apollo, Mr. Edelstein spent more than 20 years with Credit Suisse, where he most recently served as Managing Director and ... headed the Global Services Group within the Investment Banking Division, as well as the Chicago investment banking office. In addition to his managerial responsibilities, Mr. Edelstein founded and oversaw Credit Suisse’s leading advisory practice in the Education industry and also sits on its GIS Management Committee. He is a Director of Apollo Global, Inc. Mr. Edelstein sits on the Chicago board of directors for both Teach for America and Junior Achievement.
By Kelly Field and Paul Fain
The last time the Education Department cracked down on for-profit colleges, Leslie T. Thornton was the one doing the cracking. As chief of staff to former secretary Richard W. Riley, she oversaw the ouster of hundreds of "bad actors" from the federal student-aid programs in the 1990s. Most of the colleges closed, unable to survive without taxpayer support.
These days, she is on the other side of the table, defending the for-profit sector against regulation that could cut off aid to hundreds of programs and force another round of closures. Last fall, Ms. Thornton, a member of the board of directors at Career Education Corporation, met with former colleagues at the department to urge them to reconsider the proposed "gainful employment" rule, which would tie federal aid to students' loan-repayment rates and post-graduation earnings. Diane Auer Jones, an assistant secretary of postsecondary education under President George W. Bush, and now Career Education's vice president for external and regulatory affairs, also attended the meeting, one of 50 the department held to solicit feedback on the rule.
Ms. Thornton, who became a director in 2005, is one of at least 14 people with government experience and some 20 retired and current leaders in higher education or other nonprofits who have served recently on boards of the largest publicly traded companies that own for-profit colleges. They include Lee C. Bollinger, Columbia University's president, a director of the Washington Post Company, which owns Kaplan Inc.; Harold T. Shapiro, former president of the University of Michigan and Princeton University, a director of DeVry Inc.; and Timothy J. Sullivan, a former president of the College of William & Mary and a director at Corinthian Colleges Inc.
In addition to Ms. Thornton, several other government heavyweights are on the list, including Leon E. Panetta, a long-serving U.S. congressman who resigned from Corinthian's board in 2009, when he became director of the Central Intelligence Agency, and William E. Brock III, a former U.S. secretary of labor who is a director of Strayer Education Inc.
The Chronicle examined the backgrounds of 130 directors as part of a review of board composition at 15 management companies of for-profit colleges. (See table.) The directors, many of whom hail from finance or higher-education technology companies, play a key role in hiring and firing executives, setting broad policies, and monitoring the performance of career colleges, which have come under increasing scrutiny by federal regulators and lawmakers.
Corporate boards generally stay out of day-to-day company management. As a result, directors probably won't be blamed for trouble at for-profit colleges. But they do have a say in shaping the industry's controversial business models, and they share responsibility with officers for preserving company value for shareholders.
Related Content
* Table: Directors of 15 Companies That Own For-Profit Colleges
* Columbia U. Students Call On Their President to Reform Kaplan or Quit Its Board
Directors with regulatory or legislative experience sometimes represent their companies at meetings with agency officials or members of Congress; others actively lobby on behalf of the colleges. For example, John R. McKernan Jr., a former congressman and governor of Maine, who is now chairman of the board of Education Management Company, wrote an essay in the Washington newspaper The Hill urging the department not to "discriminate against proprietary colleges." Mr. McKernan, who also met with Education Department officials last fall, is married to Senator Olympia Snowe, Republican of Maine.
The Chronicle's analysis, which was based on corporate filings with the Securities and Exchange Commission, includes board members who served in 2009, or, in a few cases, stepped down in recent years. It does not include company officers, who often serve on their own boards.
Few board members were available or willing to talk about their role for this article. Two who did said they and their fellow directors were committed to helping their companies comply with regulations, and that the colleges they oversee offer a quality product.
After having conversations with directors at Career Education, Ms. Thornton concluded that, while the company hadn't gotten everything right, its directors really cared about helping underserved populations, which mattered to her as a black woman.
After she accepted, she sent a note to Daniel T. Madzelan and David Bergeron, the top career officials in the department, to let them know she had joined the board.
She said her ties to the department have made her a more effective advocate for the company.
"It helps in that you understand how the department works," she said. "And you understand how those guys think."
Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, sees no problem with leaders from nonprofit higher education serving on the boards of for-profits, other than resistance from their colleagues. For-profits have a "different reputation," he says, and the unflattering attention may be a stigma that has kept college presidents and others on the nonprofit side away.
Compensation and Lawsuits
Corporate directors of for-profits are not as visible as company executives, who have been busy defending the colleges' quality, recruiting tactics, and student-debt loads. As the industry has faced criticism and proposed government changes in aid policies, which could make it difficult for some for-profit colleges to survive, the companies' enrollment growth has slowed, and their share prices have dropped.
After Enron's collapse and other corporate scandals, Congress stiffened requirements for corporate boards. Regulators can impose penalties on directors when something goes wrong at a company, although that rarely happens. The most common personal risk for directors is being named in shareholder lawsuits.
Last fall two shareholders of the Apollo Group, the parent company of the University of Phoenix, the nation's largest for-profit college, demanded that the company investigate and "commence proceedings" against each of the company's directors and some of its officers for violation of any laws in connection with a critical report released last year by the Government Accountability Office. The report found possible deceptive and unfair student-recruiting practices by Phoenix and other for-profits. The company is evaluating those shareholder demands, according to a corporate filing.
And in 2004, two shareholders of Corinthian Colleges sued the company's officers and directors, alleging a breach of fiduciary duty, mismanagement, and wasting company assets. Those lawsuits were dismissed last year, and the company's insurer agreed to pay the plaintiffs' legal fees.
Directors often hire lawyers to defend themselves against legal challenges. But most directors have insurance to cover those costs, fines, or other penalties.
Unlike board members of nonprofit colleges, for-profit directors are paid for their services. At Apollo, nine nonofficer directors received total compensation of $3.6-million in 2009, or about $400,000 each. Career Education also paid all of its independent board members more than $360,000 each in total compensation. More than half of the current directors in the sample were paid more than $100,000.
Board compensation in this sector, as is typical in the corporate world, includes cash fees, stock awards, and stock options. The stock payments mean total compensation amounts often include estimated payouts that directors have not yet earned, and may not be able to earn if the company's share price drops.
Compensation levels among for-profit directors are generally average for companies of their size, says James H. Finkelstein, a professor of public policy at George Mason University, who has tracked college presidents' service on corporate boards.
Annual compensation for directing similar-size companies tends to be about $60,000 to $80,000, he says, which is similar what Strayer Education and the Washington Post Company pay their directors.
He says anything over $200,000 is a "rarified atmosphere."
Business Experience
The composition of for-profit governing boards is similar to that of boards of nonprofit colleges. But nonprofit college boards are larger. Public colleges have an average of 12 voting members, while private nonprofits have 29, on average, according to the Association of Governing Boards of Universities and Colleges. The sample of for-profit boards had an average of nine directors.
Hank Adler straddles the divide between for-profits and their nonprofit peers. An assistant professor of accounting at Chapman University, Mr. Adler also serves on the board at Corinthian Colleges (he earns $232,912 a year for his service). He's a former partner at Deloitte & Touche.
Corinthian's colleges offer quality programs, often to an underserved population, Mr. Adler says. And he speaks with some personal knowledge, as his daughter attended Everest College, one of Corinthian's institutions.
Ms. Thornton, the Career Education director, says she used her regulatory knowledge to help the company improve and centralize some of its operations, and to bring in new executives.
Her time on the board also overlapped investigations of the company by the U.S. Justice Department and the Securities and Exchange Commission; an Education Department examination of the company's compliance with federal financial-aid regulations; and the placing of one of its major institutions, American InterContinental University, on probation by its accreditor. Those investigations have since been resolved, and the university shifted its accreditation to another body, but Career Education still faces several lawsuits by former students who say it lied to them about the value of some of its educational programs, and American InterContinental's new accreditor has recently raised questions of its own about the university's credit policies.
Ms. Thornton, however, believes Career Education has become a better company in the past six years. "The company has really grown in terms of its commitment to compliance and institutional integrity," she says. "It's a different company than it was."
Andrea Fuller and Derek Quizon contributed to this article.
— Kelly Field and Paul Fain
Chronicle of Higher Education
2011-02-13
http://chronicle.com/article/On-For-Profit-College-Boards/126338/?sid=at&utm_source=at&utm_medium=en
INDEX OF OUTRAGES
