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Board Games

When college presidents become corporate directors, do they compromise academia?



Korn Chatikavanij, the finance minister of Thailand, was hotter than a dish of his country's famous chili-infused cuisine last week.

He demanded that the Thailand Tobacco Monopoly give him facts about allegations that Universal Corp, a Richmond-based tobacco seller, paid bribes to the monopoly, along with being implicated in bribery scandals in Malawi and Mozambique, according to the Bangkok Post.

Universal's subsidiaries agreed to pay fines totaling $8.98 million. George C. Freeman III, the company's chairman, president and chief executive, said in a news release that the payments to the monopoly were “contrary to the policies and standards” of his company.

Yet there's another big question surrounding the bribery scandal. Eugene P. Trani, the former president of Virginia Commonwealth University, now a professor and founder of a new think tank to explore Richmond's future, has been a director on Universal's board since 2000.

As a member of the board's audit and pension-investment committees, he makes key decisions about the company's policies and strategy. According to its latest proxy statement, Trani received total compensation last year of $159,032 from the tobacco company, which doesn't include more than $660,000 in stock. Trani did not respond to a detailed e-mail request seeking comment on the bribery scandal and other board-related matters.

The bribery scam is just one of several cases involving highly regarded academics in Virginia who serve on corporate boards. Directors are the ultimate authority in any publicly held company. They're responsible for the company's financial performance, the returns paid to stockholders and its responsibilities to uphold laws and ethics.

While having academics serve on corporate boards is a respected practice that often offers the company the benefit of the academic's expertise, the relationship between leading academics and board service — particularly presidents of public universities — has raised questions concerning ethical, and political, conflicts of interest. 

In 2009, for example, E. Gordon Gee, president of Ohio State University, stepped down as a board member of Richmond-based Massey Energy after college students and environmentalists protested his involvement with a coal company they said has an unacceptable reputation for safety and environmental concerns.

In addition to Universal, Trani was lead director of Henrico County's LandAmerica Financial Group, a major title insurer that went bankrupt in 2008, erasing millions of dollars in investors' money. He'd been a LandAmerica director since 1993.

John Casteen III, the outgoing head of the University of Virginia, was a director of Wachovia, the one-time North Carolina banking giant with a reputation for conservative, reliable service. But during the go-go years in finance five years ago, Wachovia stumbled by buying companies such as Gold West, which were heavily leveraged in subprime mortgages. By October 2008, Wachovia was in dire straits after reporting losses of $23.88 billion. Wachovia was bought by San Francisco's Wells Fargo National Bank in part with $25 billion in federal bailout money. Later, Casteen was among Wachovia directors named as defendants in a massive lawsuit alleging violations of federal securities laws.

Wachovia's meltdown wasn't the only hot potato Casteen had to deal with as a Wachovia director. Earlier this year the company, by then part of Wells Fargo, agreed to pay $160 million to settle a federal probe of laundering illegal drug profits through Mexican currency exchange houses. In 2007, Casteen had a total compensation from Wachovia of $243,500 and at the time owned 35,740 shares of stock, according to the proxy statement for 2007. Casteen did not respond to an e-mail seeking comment.

Meanwhile, Casteen was appointed earlier this year to the board of Altria, parent of giant cigarette maker Philip Morris USA. Compensation figures for Casteen, who left the presidency of U.Va. this summer, were not available, but former Gov. Gerald Baliles, another Altria board member, had total compensation of $261,500 last year and owned 12,905 shares.

Anti-smoking activists say that prominent public figures should avoid associating with the tobacco company. “Associations with the tobacco industry … send the wrong message, especially to children, that it's acceptable to use deadly and addictive tobacco products,” says Vince Willmore, a spokesman for Campaign for Tobacco-Free Kids in Washington, in a statement. “In addition, they provide support for tobacco companies' harmful efforts to disguise themselves as responsible corporations.”

Still, corporations maintain that there's a place for such people on boards. Henry Stoever, a spokesman for the National Association of Corporate Directors, says that “We think that academics can add incredible value to a board.”

Aside from the moral issues, there's an issue of how much time board service takes away from an academic's primary job. Throughout the past decade, for instance, directors reported that overwhelming demands on their time, especially to deal with the Sarbanes-Oxley law to improve financial reporting.

Some college presidents decline to serve on corporate boards. Ed Ayers, president of the University of Richmond, for instance, is not on any corporate boards, but serves as a director for such nonprofits as the American Council on Education, Venture Richmond, the Virginia Historical Society and the National Humanities Council. VCU's new president, Michael Rao, does not list any corporate board directorships on his resume.

Board service for college presidents can offer them extra prestige, not to mention a lot of extra jingle in their pockets. But as public outcry grows over the sluggish economic recovery and government bailouts of companies too big to fail, extra-curricular corporate service may become more of a liability.

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