What Didn’t Work: Tongue-Tied at the Top
After Mercer reached the same conclusion as did Towers Perrin, the American trustees quarreled bitterly over whether to reduce Ladner’s compensation. One group pushed for the reduction, while the other argued that Ladner was doing such a good job running the university that his earnings and expenses were reasonable.
During this debate, the whistle-blower’s letter arrived, forcing the board to examine Ladner’s expenses. The trustees hired an independent auditor who uncovered the president’s extensive spending of university funds and questioned his use of university staff for personal duties. Ladner countered that most of the expenses were necessary for his position as the president and chief fund raiser. Some board members continued to support him.
The deep division between pro- and anti-Ladner board members then turned destructive. With the board unable to agree on what to do about Ladner, the anti-Ladner camp leaked the audit findings to The Washington Post. Almost daily for the next few months, the Post published increasingly embarrassing reports about Ladner’s compensation and spending. Eventually, on Oct. 10, 2005, the board asked for Ladner’s resignation. Several board members also resigned over the controversy. Meanwhile, the board’s bitter public disagreements dimmed the interest of several candidates who might have succeeded Ladner, as well as alienated some very generous donors. It took the fractured board two years to find Ladner’s successor.
A SMALL PROBLEM
The Smithsonian Institution’s board of regents similarly failed to rein in its spendthrift executive. But when called to task for their oversight, the regents repaired their governance more quickly and completely than did American University’s trustees, providing an excellent lesson in crisis management.
When the Smithsonian regents hired Larry Small to be the institution’s secretary in 2000, they were departing from a tradition of leaders with strong backgrounds in science and education. The regents believed the complex and growing institution needed management discipline. With a long banking career that included terms as vice chairman of Citibank and chief operating officer of Fannie Mae, Small seemed to offer just that.