I Think that We Have Identified the Problem

In an article about cuts colleges are making in response to Covid-19, we have the case of Johns Hopkins cutting retirement contributions.

The details include a list of overpaid and underperforming executives at the University that goes a long way to explaining why higher education has become ridiculous expensive over the past few decades.

The management of the university is increasingly a part of MBA culture, which involves overspending on non-teaching executives, who have bullsh%$ jobs, and who in turn make the people who actually have productive work generate endless reports instead of actually doing their f%$#ing jobs:

My university, Johns Hopkins, recently announced a series of exceptional measures in the face of a coronavirus-related fiscal crisis. Suddenly anticipating losses of over $350 million in the next 15 months, the university imposed a hiring freeze, canceled all raises, and warned about impending furloughs and layoffs. Most extraordinarily of all, it suspended contributions to its employees’ retirement accounts. "Many of our peers are grappling with similar challenges," wrote our president, Ronald Daniels.

That is true. The University of Michigan recently announced anticipated losses of at least $400 million this calendar year. George Washington University likewise anticipates losses in the hundreds of millions of dollars. Stanford University, meanwhile, predicted a $200 million reversal in its consolidated budget. But while many colleges face challenges, no major research university moved with as much haste or revealed as acute vulnerabilities as Johns Hopkins did.

How does a university with a $6-billion endowment and $10 billion in assets suddenly find itself in a solvency crisis? How is one of the country’s top research universities reduced, just a month after moving classes online, to freezing its employees’ retirement accounts?

………

For years, the AAUP and other faculty critics have wrung their hands as norms of shared and deliberative governance disappeared, replaced by the consolidation of administrative power in the hands of corporate executives. With little appreciation for transparency or inclusiveness, and little understanding of the academy’s mission, these managers increasingly make decisions behind closed doors and execute them from above.

………

Consider the process that led to Johns Hopkins’s decision to freeze employee retirement contributions, which came as a surprise to nearly everyone affected. In his announcement, the president explained that the decision had been taken after consultation "with our trustees, deans and cabinet officers, and a subcommittee of the Faculty Budget Advisory Committee." There was no mention of consulting employee unions, staff associations, or other institutions of faculty governance. There was no mention of possible alternatives, or of careful, deliberative assessments about who should bear the financial sacrifices. Certainly, there were no meaningful faculty votes. (The faculty budget committee is composed of a small number of members hand-picked by administrators, and lacks formal authority.)

………

This administrative centralization has come at a serious cost to the university’s sense of community. In the last few years, decisions taken by the upper administration have generated a series of controversies over policing, the power to grant tenure, and government contracts, to name a few. Last spring, students frustrated with the university’s governance occupied the university’s central administration building.

………

The president’s cabinet is a curious body — one that has proliferated throughout higher education, as the values of corporate America infiltrate university administrations. One would hardly think, based on the cabinet’s makeup, that it comprises the senior leadership team for an eminent research university. It looks much more like the C-suite at a public corporation, with two senior vice presidents, 12 vice presidents, an acting vice president, a vice provost, a secretary, and three senior advisers. Of the vice presidents, it seems that only the provost has significant classroom and research experience. Good as he is, he can hardly provide a counterweight to the rest of the cabinet members, who mostly have government, business, finance, or law backgrounds. Collectively, the number of J.D.s and M.B.A.s far exceeds the number of Ph.D.s.

(emphasis mine)
Gee, if you assume that each of these people, excluding the secretary, gets AT LEAST $½ million a year, you are looking at $9million a year in remuneration.

Maybe this is why college is so expensive these days, particularly when you consider that each of the these folks probably have (at least) 3-4 Evil Minions^™ in their offices who also have to be paid, so we're talking serious bucks, and not a penny of it goes to actually educating the students.

As with most universities, the president reports to a Board of Trustees. But this body, like many across the country, has become a funhouse mirror of corporate America. At Johns Hopkins, 36 members sit on the board, almost all hailing from outside academia.

Johns Hopkins executives are paid much like their counterparts in the corporate world. According to the latest available public information, from 2018, the university’s president earned $1.6 million in salary plus $1.1 million in deferred and other compensation for a total of $2.7 million. That tidy sum doesn’t include the money he receives for serving on other boards, including the $310,000 he received that year from T. Rowe Price — whose chief executive happens to serve on the Johns Hopkins Board of Trustees.

But the president is hardly alone. That same year, the university’s senior vice president for finance earned $1.2 million, its vice president for development made over $1 million, the vice president for investments made over $950,000. Even the president’s chief of staff earned over $670,000. Although he earns a salary high in the six figures, the provost, ostensibly in charge of the university’s academic mission, did not rank even in the top 10 earners at the university.

Like I said, not chump change, and an interlocking series of boards of directors/trustees so that it's all one big game of, "You scratch my back, and I scratch yours."

It's self dealing and corruption:

All told, the compensation of the 28 key employees reported to the IRS in 2018 amounted to over $29 million. That sum alone exceeds by nearly 50 percent the costs of the pay raises the university would have granted this year to all of its employees.

And note that this does not including the direct reports to those "Key Employees".

Like said, not chump change.

Then there is the issue of deferred compensation for top executives. According to the university’s latest audit, total liabilities related to deferred compensation amounted to over $130 million — or $30 million more than the institution will save by suspending contributions to its thousands of employee retirement accounts this year.

………

Alas, we now learn that Johns Hopkins’s managers failed to position the institution to weather unanticipated disruptions in its revenue streams.

And if there is ANY sort of expertise that MBA types should bring to their management positions, it's basic finance and accounting.

I guess that makes me naive.

………

If a president and his leadership team have one principal responsibility, it is to ensure that the university is on sound enough financial footing to weather unanticipated crises. Ours have not.

By the way, not everyone was unprepared. Dozens of scholars right here at Johns Hopkins have spent years studying and preparing for events like the ones we are now experiencing. So good are these people at their jobs, millions of people today turn to them for data and guidance about how to navigate the pandemic. The Johns Hopkins Hospital has had an Office of Critical Event Preparedness and Response for nearly 20 years.

………

The university set virtually nothing aside in anticipation of these or any other risks. Instead, the leadership began recklessly expensive building projects, including the purchase of a $372.5-million building in Washington, D.C., — a white elephant that had already brought a large foundation to the brink of collapse.

And I f%$#ing guarantee you that someone in the university president's cabinet or the board of trustees personally benefited from both of these decisions.

Perhaps that is to be expected: university leaders, like their corporate counterparts, are rewarded for their splashy acquisitions and grandiose construction projects, not for cautious stewardship. In this short-term thinking, university executives resemble the airline executives who spent years buying back their own company’s stock only to find they had no cash on hand when a crisis arrived. People are told to set aside money to cover six months of expenses in case of emergency. It took just one month for Johns Hopkins to launch its dramatic cuts.

What about that $6-billion endowment? "Unfortunately, we cannot rely on our endowment or philanthropic support to fill the breach," Daniels wrote in his announcement. Much of it is held in illiquid investments. But exceptional times call for exceptional actions. Is it really better to fund current deficits with employee retirement accounts than to damage the university’s credit rating with further borrowing? Do those in a position of power even bother asking what the purpose of an endowment is? Shouldn’t it serve as a bulwark of financial stability? Or did that idea disappear with the gradual accumulation of financiers on university boards and in senior management?

I would note that even if these investments are unbelievably illiquid, they could still be used as collateral for a loan to make sure that there was sufficient cash on hand, and since interest rates are so low that many businesses are moving from shorter term loans to longer term loans to lock in those rates, it would also make sense from a finance or accounting perspective.

They are f%$#ing their workers instead because they think that real managers screw their employees, as opposed to doing their damn jobs.

Today, university endowments all too often function like giant casinos, putting more than 75 percent of their capital in risky and illiquid assets. Some wealthy universities pay far more in fees to investment managers than they do in scholarships to students. We’ve entered a world where, instead of having an endowment to support a university, the university serves as a tax shelter for the endowment.

Johns Hopkins does not publicly reveal its investments. Available IRS filings do, however, show that over nine years it paid more than $88 million in fees to an investment firm whose founder formerly served as chair of the university’s board. Quite possibly, our endowment pays out more to its investment managers than our university contibutes, annually, to employee retirement accounts. Was there ever much doubt which would be cut in a crisis?

Again, self-dealing and corruption.

The problem is not, as the writer suggests, a narrow set of decision makers who don't understand the mission of a university.

The problem is control fraud.  These executives are acting in their own personal interest, and not that of the organization, and it's not only tolerated, but considered normative behavior.

H/T Atrios.