Goldin said to question trustees' ties to BU deals
By Patrick Healy, Globe Staff, 10/31/2003
Several influential Boston University trustees who will vote today on whether to fire incoming president Daniel S. Goldin have financial ties to the university that Goldin has questioned and has suggested might amount to conflicts of interest, said sources close to Goldin and the Board of Trustees.
According to BU's most recent tax filings, the university paid $30 million in 2001-02 to companies and nonprofit groups in which BU trustees were involved, usually as executives or board members. These deals range from $5.6 million for insurance to trustee Frederick H. Chicos's company, the Chickering Group, to $75,996 for consulting from trustee James M. Howell's company, the Howell Group.
Goldin discussed these and other BU business arrangements with trustees recently, as part of his interest in overhauling the management practices of the BU board, sources said. Goldin did not say he would stop trustees from doing business with the university, but said he wanted to take a look at those deals, the sources added. Yet, the sources close to Goldin said, he believes that by raising the issue he lost support among BU trustees and the conflict-of-interest issue became one of the reasons that the 41-member board will consider firing Goldin at a meeting today.
None of the $30 million in transactions involving trustee affiliations violate conflict-of-interest laws, BU officials said yesterday. Many top private universities have powerful trustees who also sit on hospital and other nonprofit boards that do business with the campuses. Less common, higher education specialists said, are universities doing business with companies that employ a trustee as an executive or board director. About $18 million of the BU transactions were with for-profit companies.
In an interview this summer, BU lawyer Robert Popeo said the transactions were legal, yet acknowledged that universities' policies on conflicts of interest are changing. In the aftermath of the Enron and Tyco scandals, university trustees are carefully reviewing direct or indirect business dealings involving board members. Popeo talked about this during a presentation to BU trustees in April, for instance; Harvard University, among other schools, is actively reviewing its 28-year-old policy on conflicts of interest involving top officials and board members.
Goldin, who accepted the BU presidency in August and is scheduled to take office tomorrow, has alienated top BU trustees and outgoing leader John Silber, sources have said, because he planned to let some of the current trustees go, appoint new ones, sideline Silber from university affairs, and overhaul business practices on the board of trustees -- major changes after 32 years during which Silber, as president and then chancellor of BU, appointed close allies to the board and largely crafted BU's current management and business policies.
"Goldin made clear that he intended to transform the management of the place, and to sweep aside the web of personnel and business deals that John and the trustees had developed," said one of the sources close to the BU trustees. "The new panic about Dan Goldin isn't just on Silber's part -- it's wider and deeper among the trustees."
Among Goldin's concerns were that some of BU's business transactions involve Silber's longtime coterie on the board and that some of these deals might not be prudent at a time of evolving conflict of interest law. In 2001-02, for instance, BU paid $3.6 million for unspecified "financial services" from Lehman Brothers Inc., where trustee Howard L. Clark Jr. is vice chairman of the board, and $146,165 for unspecified legal services from the Boston law firm Masterman, Culbert and Tully, where trustee Edward I. Masterman is a partner. The university also spent $12,310 on asset-management services from Freedom Capital Management Corp.; its former chief executive, Dexter Dodge, is vice chairman of the BU board.
BU also has a longstanding relationship with Barnes & Noble College Booksellers, which operates the campus bookstore in Kenmore Square. The university paid $3.8 million for books and supplies in 2001-02; BU trustee John Battaglino is a senior vice president for marketing at the company. A Barnes & Noble spokeswoman said yesterday that Battaglino abstains from BU board decisions involving the bookstore.
Most university boards set their own rules on conflicts of interest for trustees and top officials. Bowdoin and Dartmouth colleges, for instance, require trustees periodically to sign a form stating that they have no financial dealings with their school. Yet in light of recent scandals at several major US companies, often involving chief executives and board members, many university boards have started reviewing their own business practices and conflicts policies.
BU trustees adopted a new code of conduct at their April meeting that further clarifies that campus trustees, officials, and others may not benefit financially from the school.
Last year, Congress passed a law known as Sarbanes-Oxley, designed to protect company stakeholders from conflicts of interest and fraud by board members and executives. While Sarbanes-Oxley does not apply to nonprofit universities like BU, many higher-education lawyers say that the legal tenets could someday extend to campuses.
Popeo, who advised BU trustees about the Sarbanes-Oxley law last spring, said BU's financial transactions do not represent conflicts of interest for trustees. Instead, Popeo said, BU "probably has gone over the edge in trying to look like a public company" by being clear about relationships involving trustees.
Yet some longtime observers of university governance expressed surprise that BU had $30 million in transactions with trustee-related entities.
"That's a shocking amount of money between BU and its trustees, just shocking," said James O. Freedman, a lawyer and former president of Dartmouth and the University of Iowa.
BU's $30 million in transactions declines to about $25 million when deals are excluded for individuals who were trustees at the time of the tax filing in 2002, but no longer are.
Other transactions involve BU trustees who are also board members of nonprofit entities. BU pays $10.1 million for rent, utilities, and salaries to Boston Medical Center, one of its teaching hospitals -- a transaction that involves BU trustee Melvin B. Miller, according to BU's tax filings. BU spokesman Kevin Carleton said yesterday that he believes Miller is a board member at the hospital; Miller, when asked by a reporter yesterday, hung up the phone.
"This is a subsidy that we put into BMC in order to save the hospital that serves the poor in Boston," Carleton said. "To suggest that any of these transactions are inappropriate is wrong -- it's just skullduggery."
Carleton said most, if not all, of the transactions were initiated before the individuals at issue joined the BU board. He said he did not have information about conversations between Goldin and trustees about the BU transactions.
Reached yesterday, Goldin declined to comment on the conflict of interest issue and the trustees' meeting today, which is set to begin on campus at 10 a.m.
Patrick Healy can be reached at firstname.lastname@example.org.
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