Roy Poses has the remarkable story of the resignation of Brown President Ruth Simmons as a Director of Goldman Sachs. She took $4.2 million in stock units with her and 10,000 additional options. Roy also has some provocative comments on the increasingly intertwined relationships between academia (especially elite academia) and Wall Street.
I’ve noticed (partly educated by Roy’s prior comments on this) the interesting phenomenon that has arisen over the the past decade or so of this relationship between academia and Wall Street. That Wall Street bankers write big checks to buy board seats is now pretty widespread. But concerning as well is the increasing service by university presidents on corporate boards. At many universities today this simply seems to be an accepted perk of the job–either explicit or implicit. One wonders whether these close relationships between Wall Street and elite academia can actually be good for the academic mission in the long run.
Observer says:
I too am very much concerned by the “increasingly intertwined relationships between academia (especially elite academia) and Wall Street.” This is the kind of relationship that can only cause Wall Street to cease focusing on building wealth and instead to adopt a narrow political agenda.
February 17, 2010, 8:46 pmCurt Fischer says:
I know its not popular to be optimistic, but what about potential upsides? Who would these directors be if they were not academics? How do we know if Wall St. is corrupting the academics or if the academicians’ “honest broker” credentials help tweak the direction of Wall St. ever so slightly toward the greater good? Or both?
February 17, 2010, 8:50 pmMaryG says:
How do we know if Wall St. is corrupting the academics or if the academicians’ “honest broker” credentials help tweak the direction of Wall St. ever so slightly toward the greater good?
The proof is in the pudding, friend.
Looking back at Goldman Sach’s actions these past years, can you point anything positive in there at all which show how the BrownU president helped make advances “toward the greater good”?
Re. ” One wonders whether these close relationships between Wall Street and elite academia can actually be good for the academic mission in the long run.”
If you’re a cynic and presume that the mission of academia these days is to teach grads how to make money and “get mine”, then I’d say Ms. Simmons done good for herself.
Still, the Brown University president on the Goldman Sachs board — blows the mind. This is the uber liberal school where granola crunching kids of the upper upper classes go to get educated, right? (JFK Jr is the first to spring to mind…)
I can’t believe the student body didn’t protest that, even with these feeble rationalizations from Ms. Simmons:
President Simmons seemingly denied responsibility for any of the company’s past actions that have inspired criticism:
“There are lots of things in a complex institution that go on.” So, “you’re not in charge of everything that your friends do and every policy that organizations that you’re affiliated with issue.”
- She also implied that she joined the board expressly and only to advocate for women and minorities in finance.
Heh. I’m sure she’s going to put all those millions and stock options into “serving” the financial needs of women and minorities. Do-gooders who bank on liberal impulses always give back 100% and then some, right?
February 17, 2010, 9:13 pmq.e.d says:
if the market supports it, it must be good.
February 17, 2010, 9:18 pmMark N. says:
One heuristic reason to not like this sort of thing is simply that having multiple sets of elites is somewhat safer for everyone else, as opposed to having one overarching elite that is in charge of everything.
February 17, 2010, 9:22 pmButternut says:
Whores hanging with whores, who’d a thunk?
February 17, 2010, 9:40 pmMaryG says:
Whoopsie — just looked her up. Turns out Ruth Simmons is a black female, which I didn’t know. So I guess she indeed met her self-defined goal:
She also implied that she joined the board expressly and only to advocate for women and minorities in finance.
Heh.
February 17, 2010, 9:44 pmEarly Bird says:
It’s interesting to see concern shown over academics serving on corporate boards on this blog, of all places. This is the same blog (though IIRC not necessarily the same person) that tells us that the republic is in danger if we don’t let corporations make unlimited campaign contributions to political candidates. I think corporate involvement is going to be far, far more consequential for society on all levels than is even an epidemic of academics serving on corporate boards.
February 17, 2010, 10:04 pmL says:
Early bird: The concern is about corporate involvement in academic, not the other way round. This may be undesirable, and a definite matter of concern to academics. Note that there is no constitutional question here — of course wealthy donors may have influence on private universities, and that includes seats on the board. Having the university run by rich former undergraduates leads to all kinds of problems. At least my concern is not that the bankers would try to change university policy to benefit themselves personally (the usual concern with their political influence), but that they would change university policies to disproportionally benefit undergraduate students and varsity sports teams at the expense of the research side of the university.
Corporate involvement in politics is very different. The question facing the Supreme Court wasn’t if the involvement was a good idea, but whether it could be prohibited by Congress. The argument made here is that Congress did not have the power to prohibit this even if bad outcomes would arise.
February 17, 2010, 10:33 pmRicardo says:
If the shareholders think that’s a risk they can always put a stop to it. But I’m not sure I buy the chain of reasoning here anyway. Elite universities have billions of endowment money that is managed by the institutional asset management arms of Wall Street banks. Additionally, many educators have pensions or retirement accounts through TIAA-CREF which is also a major Wall Street client. Neither professors nor administrators want Wall Street to cease focusing on building wealth when it comes to their own.
February 17, 2010, 10:39 pmClarence says:
A mixture of academia and Wall Street won’t turn out well. Academics and businessmen are usually focused on two different goals: The former philosophy and political agendas, the second actually making a profit. In fact, we often find academics vilifying corporate profits.
Businessmen should be running companies — not academics who spent 99% of their time with classroom theories and pushing a political agenda. The focus at the top of a company should be on the profit.
February 17, 2010, 11:01 pmTatil says:
What does granola have anything to do with liberalism?
February 17, 2010, 11:23 pmCurt Fischer says:
Hi friend!! You’re the one doing the worrying, so why is the burden of proof on me? Can you point to anything negative that Goldman Sachs did in the past years and show how the BrownU president was corrupted by her presence on the GS board?
Also, it’s not the flavor of the pudding but the marginal change in flavor that comes from adding academicians as directors that is important.
February 17, 2010, 11:32 pmbrad says:
Most concerning to me is her acknowledged total failure in her duty of competence to shareholders.
February 17, 2010, 11:44 pmBrown President Resigns as Goldman Director: | Liberal Whoppers says:
[...] reading here: Brown President Resigns as Goldman Director: [...]
February 18, 2010, 2:09 amMaryG says:
You’re the one doing the worrying, so why is the burden of proof on me?
You asked the question, dude. Is it a “burden” to think where you’re at? If so, please disregard my answer to your question. (I’m not at all worried, btw.)
Can you point to anything negative that Goldman Sachs did in the past years
Read a newspaper about their profits, pre bailout. And read the newspaper with your “optimistic” setting dialed down?
how how the BrownU president was corrupted by her presence on the GS board?
Corrupted? Simmons cashed out her chips, at a great rate. Keep reading my comments downthread, as it appears she fulfilled her self defined goal precisely.
Also, it’s not the flavor of the pudding but the marginal change in flavor that comes from adding academicians as directors that is important.
Back at you then: you’re saying without Simmons on that board adding value these past 10 years, Goldman Sach’s business practices might have led to even less tasty pudding whipped up and served to the AMerican public by GS?
That’s a back-handed endorsement if I ever heard one… And surely even Ms. Simmons is not claiming to be proud of her positive contributions to Goldman Sachs’ business practices, else why would she be cashing out now, unless she figures she’s ridden that self described goal ’bout as far as she can at this point in time… so she’s getting out while her gettings still good?
(See Brad’s comment above.)
February 18, 2010, 6:15 amMark N. says:
It’s a stereotype based on the popularity of granola with 1960s hippies, who largely brought it back from obscurity. It’s culturally the opposite kind of left from the upper-class, prep-school-attending, Ivy-League left, though, so the poster you were replying to seems to be getting his/her stereotypes confused.
February 18, 2010, 7:06 amUniversity Diaries » UD’s Friend Roy Poses… says:
[...] that Simmons has quit the board, Volokh Conspiracy wraps things [...]
February 18, 2010, 7:31 amDavid Nieporent says:
Sigh. Once more: Citizens United has nothing to do with campaign contributions.
February 18, 2010, 7:40 amDavid Nieporent says:
Exactly. As the linked post suggested, she didn’t seem to grasp that a director has a duty to shareholders, not to push her own political agenda on a corporation.
February 18, 2010, 7:41 amMick says:
Right, especially when Larry Summers cost Harvard 100s of millions on CDS investments. Yes those are the same ones that his boss villifies in his “Republicans were slack on Regulation” screed. Larry Summers, his Economic Advisor, was one of the ones calling for repeal of Glass-Steagle. Such snooty hypocrite liars.
February 18, 2010, 7:52 amMaryG says:
so the poster you were replying to seems to be getting his/her stereotypes confused.
I stand by my stereotyped observation that Brown University is a haven for granola-crunching liberal hippie children. I don’t think those kids in the flip flops playing frisbee with no worries for their trust fund futures are cooking themselves up hot plates of ham and eggs before they head off to work in the morning…
Who knows though. Maybe this economic downturn has changed some habits?
February 18, 2010, 10:13 amDan says:
I didnt realize granola was expensive
February 18, 2010, 10:31 amfrankcross says:
Well, Goldman has done pretty well by shareholders. And it’s hard to complain about political agendas vs. shareholder interests, because directors are elected by shareholders.
But I do think that a practice of taking academics as directors is probably worse for shareholders than academia. I suspect they are generally figureheads who don’t monitor management as they should. Of course, that would not be unique to directors from academia.
February 18, 2010, 10:31 amSeaDrive says:
Maybe you can re-run this thread when a white male university president walks away from a corporate directorship with a few million.
As handed down to me, the stereotype was that Brown was a good Ivy League choice for students a little too free thinking for the uptight ranks of Harvard and Yale. I suppose this accounts for about 5% of the variation in the student body, i.e. a minor factor.
Full Disclosure: M.S. Mathematics, Brown University, 1972
February 18, 2010, 10:38 amUnethical U Presidents says:
The President of the University of Maine sits on the Board of Fairpoint Communications. No big deal, right? Well: here’s a conflict of interest:
Would you believe he’s still on the Board of Fairpoint and still President of the University of Maine?
February 18, 2010, 10:42 amCurt Fischer says:
MaryG:
Dude, one point is that you haven’t identified which of Goldman’s supposed evils stemmed from Simmons’ presence on the board.
Friend, another is that I thought we were talking about academicians on boards in general. After all the OP said “One wonders whether these close relationships between Wall Street and elite academia can actually be good for the academic mission in the long run.“
February 18, 2010, 10:52 amJoseph Slater says:
Pudding, granola, ham and eggs . . . this thread is making me hungry.
February 18, 2010, 11:34 amMAM says:
It is interesting reading some of the criticisms of Ms. Simmons’ role as a university president and board member of Goldman Sachs on this board. I think it’s fair to assume that Brown’s trustees were aware of her directorship. Doesn’t she answer to Brown’s board just like any other President of an instituion? If the Board, which is vested with overseeing the President and the workings of the University was not troubled by her directorship, why should we?
As far as her duty to Goldman, I don’t think Goldman has done too bad lately. As one of the most storied financial institutions in world history, I would posit that Goldman’s shareholders and other boardmember’s are quite pleased with Ms. Simmons. Unless someone can show there’s been a shareholders revolt or, at minimum, an insurgency, the pertinent people who are in the best position to criticize her directorship are shareholders.
February 18, 2010, 11:37 amSarcastro says:
I hate acedemics AND I hate teflon CEOs! This synergy of populism and anti-intellectualism could cause some kind of out-of-control hategasm all over the conservative internets!
February 18, 2010, 11:38 amMaryG says:
Simmons is not evil. She done good for herself, all things considered.
Granola is not expensive. Though it’s not exactly protein-packed to get you through a tough day at work.
Where do you fellas come up with this stuff, anyways? It’s like you want to eat your cake, and then redesign the pretty message on the frosting too.
*gratuitous dessert reference inserted for Joseph Slater*
February 18, 2010, 12:23 pmMaryG says:
I don’t think Goldman has done too bad lately. As one of the most storied financial institutions in world history…
Why, it’s a story still being written.
Is there a moral at the end of our tale? Probably not, if the annals of history are any guide.
February 18, 2010, 12:27 pmjpe says:
The idea is that boards are filled w/ people w/o any understanding re: the business or time/commitment in order gain that understanding. Rather, these sorts of “honorary” board members are just attempts to get some halo effect from being associated w/ the non-prof. (FTR, there are papers out there on the halo effect and corporate association w/ non-profs)
re: granola: as one could imagine, most kids at Brown aren’t granola trust-fund lefties or hippies; rather, the loudest ones are.
February 18, 2010, 1:30 pmManju says:
there’s long been a cultural connection between the ivys and wall st, ie the exceter to yale to havard biz to morgan stanley track. back in the day wall street was almost exclusively sell side, and sales is cultural. you wanted to hire bankers who emerging from the wasp elite if you were gong to bank the fortune 500. the dept most likely to have ethnic minorites was muni bonds, since the client was usually the democratic machine.
but a revolution occurred at soloman bros under john meriwether. JM was the first to hire the scientific elite, who traded complex derivative securites purely on a quantitative basis. trading floors began to look like the mit campus. the most important financial institution no one knows off–renaissance technologies (a hedge fund–literally does not hire mba’s. larry summers, with his relationship to de shaw, falls into this category.
it here that the relationship is most intimate, with people going back and forth between wall st and academia, like Nobel Prize Laureates Myron Scholes and Robert C. Merton. the venture capital industry probably has even more ties, especially on the biotech side, where technologies are financed by the NIH at the university level until there is a proof of principle, then VCs finance it until there is human efficacy in clinic, at which point it is then sold of to pharma or ipo’s. academics and VCs sit side by side on biotech boards and both use their tremendous power to influence regulators.
February 18, 2010, 2:59 pmneurodoc says:
You are assuming that since Goldman did well, its shareholders did equally well. I don’t have any links to offer, and am not going to go looking, but I do believe that there has been grumbling by Goldman shareholders in recent months that they haven’t seen as much of those profits as they should have, since compensation, especially bonuses, has been excessive. Indeed, I believe that one of Goldman’s largest (the largest?) and most influential shareholders, Warren Buffet, has grumbled about this. And Ms. Simmons’ role on the board was as a member of the compensation committee.
You think that because there is a ritual in which shareholders get to ratify management’s chosen slate of candidates, shareholders really “elect” the directors? There are from time to time fights between management and corporate raiders like Carl Icahn over seats on the board, but the outcomes are rarely determined by ordinary shareholders, and truly contested elections for the board must be a rarity.
Any data to back up your stereotyping of Brown students as exceptionally well-off financially, that is more so than students at other private colleges? While Brown has its own character to be sure, with the offspring of many celebrity types (JFK Jr, Fonda-Vadim’s, Spielberg’s, Steve Wynn’s), and a willingness to take the academically unqualified if suitably connected, I am not aware that the economic profile is much different than other Ivies, Potted Ivies, MIT, Stanford, etc. And I expect student aid data, in particular the % receiving aid, would bear me out. (Before Brown went co-ed and became popular for very various reasons, notable among them the abandonment of academic standards, Brown was known as a school for “gentleman.”)
February 18, 2010, 7:57 pmMaryG says:
Any data to back up your stereotyping of Brown students as exceptionally well-off financially… and a willingness to take the academically unqualified if suitably connected,
Nope, no “evidence”.
Just that uber liberal reputation that travels.
(Not an East Coaster myself, so no “inside baseball” knowledge here on any of the Ivies. Just that Brown has that rep for being faaaarrrrr left, presumably due to the affluence that isolates, and allows for special privileges like you described above.)
You a Brown grad, neurodoc? From the “gentlemen” days? Sadly, we have short memories in this country, and the more recent splashes tend to override any historical accuracies.
Maybe young Kennedy’s admission didn’t add as much value to the brand as the admissions officers had speculated?
February 18, 2010, 10:42 pmneurodoc says:
No, not a Brown alum. I am a product of the same institution that turned out Aafia Siddiqui, the shared alma mater not a fact in which I take any pride. I doubt that there is an elite school in the country that has never allowed some favoritism or non-academic considerations to affect admissions decisions, but I don’t think there can be any school in which they have had less influence, if only because there is no place there for weak students to hide. Brown is a school which has taken some students for no other reason than that they might bolster the school’s endowment (e.g., the son of Steve Wynn, the gambling casino mogul). I don’t know “uber liberal…faaaarrrrr left,” because I don’t know what exactly that means, especially when compared to other elite schools. I expect Brown is more liberal/left than MIT, but MIT stands apart for various reasons, and I doubt that it is much, if any, more liberal/left than most of the others, however one would go about measuring these things.
I think JFK, Jr. added the glamor that he was expected to bring as a Kennedy scion. And like a winning basketball or football team brings more applications, he may have brought Brown more.
February 19, 2010, 12:01 amRicardo says:
Interestingly, one exception to that rule (at least “back in the day”) is Goldman Sachs. The guy who who helped establish Goldman Sachs’ modern position in investment banking was Sidney Weinberg, a working class Brooklyn Jew who never graduated from high school. As a Democrat, he joined FDR’s administration during WWII and got to know many of the future leaders of industry while managing the war industries and those relationships helped Goldman to get many of its future investment banking clients.
February 19, 2010, 12:59 amManju says:
True. Goldman was established in part b/c of the glass ceiling facing jews on wall st. Ditto for Sollie, Bear, and Lehman..all of whom also had CEOs w/ no college education and so forth.
But of that crew only goldman challenged the House of Morgan for ibanking (ie, corporate finance) supremacy, and even then they weren’t really in Morgan Stanley’s league until the 70′s. Sollie was purely a bond trading shop, Bear was also a sales & trading shop, and Lehman was mixed but their ibanking clients were not the gold roster of Morgan’s, Drexel’s, Kidder’s, and first boston’s…the big names at the time.
but the rise of quant trading, venture capital, reatail brokerage (a la Merril Lynch…i mean, no one invested in stocks b/f the mid-80′s), as well as more aggressive and lucrative forms of finance–junk bonds, mortgage backed securites, and leveraged buyouts–delodged the traditional fortune-500 ibanker from the top spot on wall street. and even if one were to practice traditional corporate finance or M&A, globalization and the IT revolution had completely transformed the cultural landscape.
February 19, 2010, 3:04 amneurodoc says:
Thanks, Manju, I found that mini-history very informative. David Brooks in Bobos in Paradise looked at some of the social concommitants of that rise of meritocracy in the financial industry, drawing upon wedding announcements in the NYT for his evidence.
February 19, 2010, 10:06 am