Brown’ s Money Problem

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Apparently the trouble with Brown University’s wealth doesn’t end with the slave trade endowment used to create the school back in 1764. Some Brown alumni and students are now really aggravated with President Ruth Simmons who, it turns out, is on the board of directors at Goldman Sachs, the investment and securities firm implicated in the subprime mortgage crisis.

According to an article by Graham Bowley in the New York Times:

Dr. Simmons… defended her role at Goldman. She said… the public controversy surrounding Goldman had no influence on her decision to withdraw from the board. Instead, she said, she stepped down after 10 years because the job was taking up too much of her time, particularly in the wake of the financial collapse.

The role of directors, Dr. Simmons said, has been “redefined,” adding that the crisis “involved many more meetings, including telephonic meetings, and a lot of material to deal with.”

Well right. When a company is responsible for several public relations nightmares, it’s going to be a lot of work to fix it.

Many object to Simmons’s position on the board at the company, accusing her of selling out to Wall Street. In December Simon Liebling wrote in the Brown student newspaper that:

Simmons was, through her seat on the Compensation Committee at Goldman, directly tied to one of the most shameful and embarrassing business decisions in memory. To distance the University from Goldman’s bonus disaster, Simmons should resign her position on the Board of Directors in public protest….

This concern seems misplaced, however. Politicians, celebrities, and academics often have positions on corporate boards. Lance Armstrong was on the board of Morgans Hotel Group. Hilary Clinton was on the board of Wal-Mart. Henry Kissinger and Nancy Reagan were both on the board at Revlon. But Simmons was not merely a fancy name. Simmons was significant public figure who had led several major institutions of higher learning. The trouble is not that Simmons was on the Goldman Sachs board, or even that she was paid a handsomely to be there. No, the trouble is that Simmons didn’t appear to do a very good job at Goldman Sachs.

The board of directors at a corporation is body responsible for high-level decision making. Goldman Sachs made huge profits selling subprime mortgage-backed securities. Goldman Sachs received $10 billion preferred stock investment as part of the Troubled Asset Relief Program (TARP) in 2008 to prevent the company from going bankrupt. And Goldman Sachs was the company that decided to pay some 1500 employees bonuses in excess of $1 million after receiving that TARP money.

These merits of these actions are debatable, of course, but they are the actions for which Simmons bears responsibility. The reason Simmons is at Goldman Sachs is to make decisions. Too many telephone calls seems like a rather weak reason to quit.

Incidentally, Goldman Sachs paid Simmons $323,539 for her service in 2009. Simmons also owns Goldman Sachs stock worth $4.3 million.

Daniel Luzer

Daniel Luzer is the news editor at Governing Magazine and former web editor of the Washington Monthly. Find him on Twitter: @Daniel_Luzer