What Didn’t Work: Tongue-Tied at the Top
Spring 2009, Stanford Social Innovation Review — Over the past few years, Washington, D.C., has witnessed two explosive nonprofit scandals. In 2005, the board of American University received a letter from an anonymous whistle-blower alleging that the university’s president, Ben Ladner, was abusing his university expense account. A subsequent audit found that Ladner had indeed spent more than $500,000 of university funds on lavish personal expenses, including a $5,000 vacation in London and a $15,000 engagement party for his son. Already concerned about Ladner’s compensation—which was higher than those of all Ivy League college presidents—the board split over whether to reduce Ladner’s pay. The fracas filled newspaper gossip columns for months, sparked a congressional inquiry, and eventually led to Ladner’s termination. The board then required two years to rebuild itself and to name a new president.
Meanwhile, trouble was brewing at the Smithsonian Institution. In 2006, Sen. Charles Grassley of Iowa asked the Smithsonian to justify the compensation and spending of its secretary (that is, its chief executive), Lawrence “Larry” M. Small. In response, the busy Smithsonian regents trusted Small to oversee his own audit, and then passed resolutions that retroactively approved his spending. Displeased, Grassley issued another missive demanding change at the organization. The press soon buzzed with rumors of excess and impropriety at the nation’s premier museum system. The board eventually dismissed Small, but not before the mudslinging damaged the reputations of both the institution and the regents overseeing it.
Both scandals invited embarrassing publicity and congressional scrutiny. Both exposed the governance flaws of experienced and well-intentioned board members. And both could have been avoided.
As a trustee of American University from 1999 to 2005 and a member of the independent review committee that evaluated the governance issues at the Smithsonian, I watched as these organizations weathered their governance crises. In both cases, practices that discouraged frank and frequent communication among board members left the greed of executives unchecked. And in both cases, changes to these systems put the organizations back on track. Yet the Smithsonian righted itself more quickly than American University because its regents ultimately reacted decisively and cohesively.
