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Monday April 21st 2014

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Fourteen Prominent Alumni Send Open Letter, Claim BOV Breached Corporate Duties

Fourteen prominent alumni released the following letter to the Board of Visitors this morning. The letter cites that the Board “breached its corporate duties of due care and fair dealing” in their handling of the ousting of President Teresa A. Sullivan.

The alumni express their concern for the Board’s unsatisfactory resolution following the June crisis of President Sullivan’s firing. They explain, “essential working relationships within the University’s leadership are still impaired and remain in limbo, and damage continues to the University’s reputation and operations.” The letter timely arrived to the Board of Visitors one week before their much-anticipated retreat on August 15-16. The group details the Board’s mishandling of Sullivan’s ousting, calling the decision “in intention and effect, a boardroom coup.” The lengthy letter continues as it urges the Board to evaluate their role, procedures and how to reestablish both trust and legitimacy with the University community. The letter concludes, “Sedulous attention to corporate due care and fair dealing is a first benchmark. It goes hand-in-hand with dedication to comprehensive consultation with all the University’s constituents.” Full text of the letter below:

 

August 8, 2012

Open Letter

Via Electronic Mail to the Board (sgh4c@virginia.edu)

Members of the Board of Visitors
Board of Visitors Office
NW Wing, The Rotunda
University of Virginia
Charlottesville, Virginia 22904-4222

Dear Members of the Board:

We write as concerned alumni/ae who have been active volunteers on behalf of the University.  We write this letter now, with some urgency, because the crisis the Board created by firing President Teresa Sullivan is not reconciled satisfactorily, essential working relationships within the University’s leadership are still impaired and remain in limbo, and damage continues to the University’s reputation and operations.

As you prepare for the Board’s retreat on August 15-16, we offer a framework for analyzing the crisis based on legal principles of corporate governance.  This framework is useful retrospectively as well as prospectively, to understand what took place and why, and to chart next steps for the Board.  It can be applied internally at the University and externally by alumni and other donors whose trust in UVa’s leadership may be at risk because of this still-unexplained and unresolved episode, and by bodies such as Virginia’s General Assembly, which faces policy and budget issues that the crisis highlights.

Both the Senate and House of Delegates must consider whether to approve the Governor’s recent re-appointment to the Board of the Rector, Helen Dragas, and other Board members.  Members of each house may be considering hearings to explore events leading to President Sullivan’s firing in order to evaluate the merits of Board members’ continued service.  Hearings may be the only opportunity for the General Assembly and the public finally to learn the reasons for the Board’s actions and why no satisfactory explanation has yet been given for them.  In all events, a corporate governance analysis furnishes standards that the General Assembly can apply to help guide its evaluation.

Reconciliation, Public Perception, and Analytical Rigor

The Board’s reinstatement of President Sullivan was of course both welcome and necessary.  Events then and since, however, and particularly the Governor’s re-appointment of Rector Dragas, raise continuing doubts about the University’s corporate governance, specifically the Board’s procedures, substantive decisions, and ultimately its competence to furnish advice and oversight to UVa’s administration.

Recent critical press reporting about these ongoing questions heightens our concern and, we believe, that of the public.  Articles in prominent local and national publications have been critical, sometimes scathing.

The Board’s efforts at public relations obfuscate the state of governance at UVa to the point of insulting readers’ intelligence; these attempts have been clumsy and self-defeating.  They convey window-dressing and cover-up, not reconciliation.  Perversely, they highlight impaired working relationships between the Board and the rest of the UVa community, particularly the faculty and administration, and extending to students, alumni, a range of other potential benefactors, and the public.  All are burdened by the state of the University in the aftermath of the crisis, because the crisis is not over.  It will not end until the Board acknowledges publicly that UVa suffered a significant failure of corporate governance; and it will not end until Board members finally explain candidly, to satisfy common sense, what really motivated them to act so precipitously.

A satisfactory resolution is essential for more than reasons of restoring operational efficiency.  Reputation substantially affects retention and recruitment of eminent faculty (at a time when UVa must replace many retiring senior faculty) and top students; and reputation is critical to alumni involvement and philanthropy.

The alumni’s loss of confidence in the Board’s capacity for oversight, if allowed to fester, threatens alumni giving and other essential participation in University affairs.  It also will impair UVa’s success with other donors and funding sources such as foundations and government agencies.  The pernicious effects are a long list.  For potential donors, the underlying causes cannot go unspoken, un-examined in frank detail, or unresolved without the University’s paying a heavy price.

We agree with Governor McDonnell that this is a time for reconciliation at UVa.  An eminent historian notes the following prerequisites to reconciliation: “a scrupulous, penetrating, forensic look at the past that investigates and acknowledges buried and suppressed aspects of history.”

Understanding the nature, extent, cause, and self-inflicted quality of the Board’s damage to the University’s brand and business is thus essential.  It must precede efforts to re-establish and strengthen corporate governance standards and processes at UVa.  A formal retrospective works best while events are fresh in everyone’s mind.

Consequently, open and dispassionate analysis of UVa’s corporate governance now is compelled, discomforting though it may be.   The process must be painstakingly fair and civil, because individual reputations may be affected.  When failure at the Board level is so palpable, however, and directly causes avoidable damage to the corporation’s brand and business, concern for individual reputational interests cannot override the imperative to pursue open analysis.  Rehabilitating the Board’s legitimacy for the long term and for its immediate working relationships is at stake.  The Board and President Sullivan’s administration can succeed only if the doubts remaining after June’s unprecedented events are addressed fully.

Fiduciary Responsibility, The Board, and Standards of Corporate Governance

We believe that corporate law standards are the appropriate starting point.  The benchmarks of corporate governance furnish an analytical context for understanding the crisis, the Board’s precipitating it, and the Board’s subsequent functioning throughout.

UVa is, by statute, a Virginia corporation.  Its Board is held to corporate governance standards of due care, fair dealing, and loyalty.  These foundational requirements are often referred to together, somewhat colloquially, as “fiduciary duty.”

The corporate governance standard of due care requires that Board processes be used to vet important decisions, especially those with obviously important ramifications.  The Board is obligated to gather information systematically and comprehensively, and with the administration’s full advance knowledge and participation.  Shortcuts are intolerable, especially when no emergency exists.

The Board breached its corporate duties of due care and fair dealing.  The breach was not confined to the procedural.  The breach also includes significant failures of substantive decision making.

Adherence to open corporate governance procedures on public issues is essential because the University, as a public corporation and unlike a business corporation, has no shareholders whose interests and voices are primary.  Normally the Board should represent the interests of all the University community, including students, faculty, administrators, alumni, and indeed the general public.  When the Board is in crisis, the Governor and General Assembly stand functionally in shareholders’ stead.  Then the Governor and General Assembly represent all constituencies who have an interest in the University and its vital mission.

University Professor William Wulf, no stranger to corporate boards, described the Board-initiated debacle this way:  “In my opinion the BOV has perpetrated . . . the worst example of corporate governance I have ever seen.”  We think it inarguable that the Board failed to apply corporate governance standards in June.  Apparently, the Rector and a group of colleagues on the Board, while hewing to technicalities of the Board’s bylaws, nevertheless intentionally stifled debate on a major Board issue in order to reach a pre-determined result – in intention and effect, a boardroom coup.

James G. Cosby, President of the Thomas Jefferson Society of Alumni, and Dewey B. Morris, the Immediate Past President, critiqued the process this way:

[O]ur experience in government, business and life in general tells us that these matters should first have been raised with the president, administration, faculty and deans as explicitly as they are now raised in defense of the Board’s current action. President Sullivan should have been put on notice in writing that her tenure as president was in jeopardy and given a reasonable time to correct the alleged deficiencies. Two years as president is a very short time indeed in which to alter the course of an institution as large and complex as this University. From the facts publically reported, it appears that no such performance review was done or documented, and that President Sullivan was taken completely by surprise. As attorneys in our professional lives, this offends our sense of fairness and due process.

Reports during the crisis suggest that a small Board group decided they might lose a vote to oust UVa’s President if they followed regular information-gathering and voting procedures.  The Board, for instance, could have thoroughly inquired into the Rector’s repeatedly stated concern that UVa’s leadership and faculty lagged behind other leading institutions in understanding and using digital technology for instruction.  A spate of articles and analyses since shows that UVa is in fact a leader in these areas, and that the administration already had bold initiatives underway to move further into digitally based instruction.

Had the Board, for example, asked President Sullivan for an inventory of UVa’s achievements in digital instruction and for UVa’s planning in this area, all this information could have been gathered and distributed to the entire Board as a matter of normal procedure.  Would that have avoided the harm inflicted in June?  Would it have elevated the Board’s ability to advise President Sullivan and her leadership team, and to furnish appropriate oversight?

For a corporate board, full debate can produce a very different result than a process of contacting board members serially and in isolation from each other.  For UVa’s Board in June, deviating from regular Board process prevented essential information-gathering and deliberation.  It assured that no minimally adequate consideration could occur until well after the decisive act of dismissal – with no Board meeting and no Board vote – and its announcement as accomplished fact.

Other reports, yet to be confirmed, suggest that these core tactics may have included withholding from some Board members President Sullivan’s crucial 12-page strategic memorandum dated May 3.  The question remains whether this was a tactical complement to the Rector’s isolation of Board members through serial contacts.

Consequently, the Board as a body failed to learn of President Sullivan’s progress in laying the groundwork to address the very challenges the Rector identified in various statements she issued to justify demanding the President’s resignation.  Thus, it is hardly a surprise that Board members who supported dismissing the President did not understand what the faculty, administration, and students saw:  a leader who, by objective standards, was doing an outstanding job in the face of difficult external circumstances, making rapid progress, and earning the admiration and loyalty of faculty, students, staff, and alumni.

Professor Wulf, in his open letter, adverted to “the proper conduct of academic administration and the proper oversight of that administration by a board . . . .”  His admonition covers both due care and fair dealing in an institutional academic setting.  In all likelihood, had the Board competently evaluated these issues of substance, its approach to President Sullivan, her administration, the faculty, and UVa’s strategic planning would  have been very different.

The Rector and her colleagues’ admitted surprise at the University community’s fierce hostility to these maneuvers is ample evidence of how fundamental advance consultation is to fair dealing in a university setting.  That surprise also proves how out of touch the entire Board was with essential constituencies of the University community.

Satisfying the duty of care at each Virginia public university extends to protection of that university’s reputation in order that it may effectively recruit outstanding faculty and students and raise funds.  Adherence to this duty is no mere adjunct; it is at the heart of Board responsibilities.  Therefore, the board of each Virginia public university is constituted to take action only after fully exploring major issues collectively and in advance.

No one charges that any Board member failed to have UVa’s best interests at heart.  The duty of loyalty is not in question.  The offense is misfeasance – incompetent stewardship – not malfeasance.  However, shying away from conclusions about incompetent stewardship in the name of reconciliation cannot succeed.  Attempting to do so has all the earmarks of cover-up.  (A July 15 Washington Post article, for example, called post-“disaster” relations between the Board and UVa’s administration a “charade” based on a “batty pretense.”)

Reconciliation that does not analyze Board operations openly and comprehensively, in order to permit fundamental changes in the Board’s operation and committee structure, and possibly the Board’s composition, will ultimately reconcile nothing.  Facts should and will come out, and the public and General Assembly, among others, should and will draw appropriate conclusions.

The hard-learned lesson – one perhaps that should have been obvious in a public university corporation but inexplicably was not – is that the boardroom at UVa is no place for behind-the-scenes maneuvering that might be acceptable in a commercial business corporation.  “Due care” and “fair dealing” take on unique meanings when the enterprise is a state public university, and they are as essential as faithfulness to the duty of loyalty.

In summary, the current mode of reconciliation is unconvincing.  It is doing more damage and extending the crisis.  The public, informed by the press, requires us to follow the facts where they lead.

UVa’s Board in the Digital Age

What do we make of this repeated observation in reporting and commentary:  that UVa’s Board crisis was a clash between whether UVa would operate as a business, facing market realities, or as an institution upholding traditions of academic freedom, but risking obsolescence in the Digital Age?

This is a false choice that misses how President Sullivan, her team, and the faculty have been positioning UVa for the digital decades ahead.  No one – certainly not President Sullivan and her top lieutenants, any more than President John Casteen and Executive Vice President Leonard Sandridge before them – asserts that universities generally, and UVa in particular, should not be run as businesses.  The challenge is to assess the unique business attributes of great research universities and to tailor business analysis and management practices at each one.

As Professor William Wulf observed, understanding academic culture is part of the job.  That means, among other things, avoiding abrupt pivots absent an emergency.  Faculty recruitment and retention, student recruitment, fundraising and donor relations, and preserving the University’s reputation are Board responsibilities.  They demand considered, well-tailored business policies.  In the words of Danielle Allen (Washington Post, June 27), this counsels:

thoughtful, deliberate moves across the whole of the institution that are intended to evolve, not shake up, the fundamental model. . . .  Deliberate incrementalism is exactly the method to employ when you are at the top. Aggressive, visionary experimentation makes more sense when one is trying to get back to the top. . . .

Importantly, neither [strategy] can get an institution anywhere if it does not have a solid intellectual core with the mechanisms and standards necessary for prioritizing intellectual accomplishment. As president, Sullivan’s signal contribution has been to work hard and fast to rebuild those foundational components.

President Sullivan set out just such a plan in her insightful, candid – and courageous – May 3 Academic Strategy analysis (furnished to the Rector and Vice Rector before the firing) and her June 18 statement to the Board further outlining strategic direction and process.  The two documents explain how and why President Sullivan speedily, yet with due care, re-designed UVa’s budgeting and other systems.  They show how UVa now is prepared to lead in using digital technology to deliver high-quality instruction.

With digital strategy consultatively developed and defined, UVa is already in rapid execution mode.  Elements of the University have been evolving and utilizing broadcast and digital technology successfully since the mid-1980s, and UVa faculty members are among the pioneers at integrating digital technology into effective learning in higher education.

Crafting a digital technology strategy ranks prominently among UVa’s challenges, and President Sullivan’s agenda already addresses it.  Meanwhile, hyperbolic press reporting on digital initiatives at some leading universities suggests a stampede.  We prefer President Sullivan’s approach of inventorying UVa’s considerable existing strengths in this area, and devising long-term, sustainable ways to integrate new media technologies into a variety of UVa’s instructional and research activities.

This approach is preferable to rapid expenditures of time and money pursuing trends that offer only a hint of useful, long-term approaches.  Offering free courses over the Internet can spawn experiments and may yield public relations advantages, but it is neither a business plan (and universities involved do not claim it is) nor a panacea.  Experience across higher education also teaches that aspects of digital classroom instruction are as difficult to monetize into revenue streams as is elevating information flows into collaborative educational experiences.

State Policy and Budget Issues

UVa faculty will continue pioneering digital technology to augment and enrich the undergraduate experience.  At the same time, nothing substitutes for first-year students’ opportunities to learn in seminars taught by full professors.  Preserving UVa’s commitment to this quality of learning demands faculty recruitment and retention, and depends too on total faculty headcount.  This translates first into funding.

President Sullivan’s strategic papers and her success to date emphasize this reality.  Her negotiations with the General Assembly to have the Commonwealth pay the full cost of expanding undergraduate enrollment is a prominent example of that clear focus.  Indeed, students and faculty already on Grounds need and deserve more funding.

In future, both the Board and the Administration must succeed in convincing the General Assembly that no reasonably foreseeable expansion of undergraduate enrollment at UVa can quell political pressures around Virginia (and particularly in Northern Virginia) for easier or significantly wider admission to UVa.  Those answers lie elsewhere.

If UVa does not develop and successfully advocate for those answers in Richmond and throughout Virginia, the consequences will indeed pose a long-term threat to quality at UVa.  A new, University-wide dedication to this reality, particularly involving the Board, may actually be among UVa’s greatest challenges.

The Commonwealth cannot realistically expect to maintain the extraordinarily high quality of public higher education it has enjoyed to date if state financial support continues its precipitous reductions.  Among other things, UVa’s Board crisis signals that the Commonwealth has reached a funding and policy threshold beyond which educational quality will enter an observable decline.  Only the dedication and creativity of administrators, faculty, and past Boards of Visitors over the past two decades have forestalled adverse consequences from the state’s steady, shocking erosion of public funding.

Virginia’s public colleges and universities are the envy of many other states.  The General Assembly cannot continue turning away from higher education, yet expect a thriving state economy.  The General Assembly cannot expect private philanthropy (and out-of-state tuition payments) to make up for governmental neglect.  Our University, as the capstone institution, must become a leading voice for reversal of the erosion in funding – while the Board becomes a guardian against re-imposition of bureaucratic and political strings.

UVa’s capacity to renew its instructional, research and service capacities requires developing new programs and eliminating others.  This is part of the plan.  UVa’s new budget process is a key, giving deans the management authority and tools to direct investments in the most effective way and to involve department chairs and other line managers in these unrelenting decisions.

The Board, of course, will review the budget and other administrative systems regularly.  Those systems will be tuned over time.  But the Board’s understanding of and support for President Sullivan’s revamped, quality-focused management process is a prerequisite to success.

Reestablishing the Board’s Legitimacy

During the recent crisis, the Rector asserted:

The Board of Visitors exists to make … judgments on behalf of all the constituencies of the University. . . . [T]he Board is the one entity that has a unique vantage point that enables us to oversee the big picture of those interactions, and how the leadership shapes the strategic trajectory of the University.  Simply put, we have the responsibility, on behalf of the entire community, to make these important and often difficult calls.

Events exposed this overstatement.  No doubt, Virginia statutes constitute the Board and vest it with a final power in many circumstances.  The University cannot run effectively otherwise.  Yet final power does not confer knowledge, wisdom, inquisitiveness, the trust and confidence of constituents, or legitimacy.  Moreover, once all those attributes are cast in question or lost, suspicion reigns.

Members of our group earlier joined publicly in urging a course that “preserves trust among the University community, gives priority and focus to urgent strategic action, and honors the traditions and heritage of this great University.”  UVa’s Faculty Senate spoke of the immediate challenge of restoring trust.  So did students, other alumni, and many commentators.

With President Sullivan in office, restoring an initial modicum of trust is everyone’s hope.  It is not, however, a given; nor is it sufficient, even in the short run.

Beyond trust lies reestablishing the legitimacy of individual Board decisions and overall Board policy.  Both tactics and strategy will be in the spotlight, for the Board has earned, and surely can anticipate, widespread, unprecedented scrutiny.  It must prepare for unprecedented legislative scrutiny of the Governor’s Board appointments.  For a previously obscure corporate body used to operating, and designed to operate, in the background, the change will be a systemic shock.

How well can the Board work, how fairly will it be judged, and what will light its path?  Sedulous attention to corporate due care and fair dealing is a first benchmark.  It goes hand-in-hand with dedication to comprehensive consultation with all the University’s constituents.

With best regards,

Richard P. Bartley, College ’73                                  James B. Rouse, College ’66
Walter G. Birkel, College, ’69                                    Barbara D. Savage, College ’74
Richard C. Bradley III, College ’66                          William Scanlan, Jr. College ’63
Margaret Ann Brown, College ’74, Law ’77             Andrew Stuart, College ’82
Jack M. Coe, College ’67                                             Edward C. Swindler, College ’76,
Mary Bland Love, College ’74, Law ’78                           Grad. A&S ’82, Darden ’84
Richard D. Marks, College ’66                                   Stephen A. Taylor, College ’74
Gay Outlaw, College ’81

 

[For full disclosure, Andrew Stuart and Edward C. Swindler are members of the board of directors of WUVA, Inc., and Richard D. Marks is its general counsel.]