When the New York University faculty geared up for a vote of no confidence in President John E. Sexton this past December, the chairman of the university’s Board of Trustees said he was blindsided.
Here was a university president who had helped transform an institution, spearheading bold international efforts and earning a reputation as a tireless fund raiser. Yet some professors described Mr. Sexton as an autocrat, and they seized on his compensation and luxurious perks as evidence of his remove from the common plights of faculty and students.
“We recognized we had a problem,” said Martin Lipton, chairman of the NYU board.
On Wednesday, the board announced that Mr. Sexton would step down when his contract ends in 2016 and that faculty members would be included in the formal search process for his successor. The trustees also said they would end a controversial loan program for second homes, which was used to finance a posh getaway for Mr. Sexton on Fire Island. (The board will not claw back the loan for Mr. Sexton, or for a handful of other faculty and administrators who received the same perk.).
“These are contracts we entered into with people,” Mr. Lipton said. “We’re not going to go to people and say we’d like to redo a contract just because some people are criticizing it.”
The board’s decision marks a rare capitulation to critics on a matter of executive compensation at a private institution. The reversal is part of a broader effort by the trustees, though, to mend relations with the faculty and bring an end to discord that has gripped the campus for months.
NYU has given loans for second homes to 20 administrators and faculty members, and Mr. Lipton said the rarely-extended benefit was proving more trouble than it was worth.
“Since it had become an issue that people were criticizing, why not just drop it and avoid the concern?” said Mr. Lipton, a lawyer in New York City.
Mr. Sexton declined a request for an interview.
Frank A. Casagrande, who consults boards on executive compensation, said that sometimes trustees fail to consider how a benefit will look under public scrutiny.
“What NYU is understanding is that there were consequences to their choices that maybe they didn’t think enough about,” said Mr. Casagrande, president of Casagrande Consulting.
A Perk Too Far?
The loans first came to light in June, when The New York Times revealed that Mr. Sexton received a $1-million loan from an NYU foundation for a beach house stretching across three lots.
Big perks for college presidents are nothing new, but the idea of a loan for a vacation house struck a particular nerve. Even Stephen Joel Trachtenberg, who was among the most highly compensated presidents in the country when he led George Washington University, told the Times that the benefit was “a little too sexy even for me.”
Mr. Trachtenberg’s comments gave the Times story particular gravity, because college presidents seldom criticize one another publicly.
The former GWU president said Thursday that he still believes loans for second homes simply invite criticism, and that he would not accept such a benefit. Even so, Mr. Trachtenberg said he was speaking about the benefit generally and was never informed by the Times reporter that Mr. Sexton was the subject of her story.
“I was embarrassed by the fact that it looked like I was criticizing my friend,” he said. “I wrote a letter to John apologizing. He has forgiven me.”
Ariel Kaminer, one of the authors of the article and the reporter who spoke to Mr. Trachtenberg, said she would have told him the subject of the piece if he had asked.
“I asked him if he had ever heard of this practice, and that’s the question that he very eagerly and entertainingly answered,” she said. “He didn’t ask me to tell him which school it was, and I didn’t feel it was information I was keeping from him.”
Mr. Lipton, the board chair, said he could not recall how discussion of a loan for the president’s beach home had begun, nor could he remember the terms of the loan. In a typical case, though, a loan from NYU may come with a favorable interest rate and “there is forgiveness in an amount that is in effect more compensation.”
“We all feel that he is grossly undercompensated for what he’s accomplished,” Mr. Lipton said of Mr. Sexton. “Since he became president we’ve raised, I think, $4.7-billion in contributions.”
In 2011, Mr. Sexton received $1.5-million in total compensation, according to the university’s most recent tax forms. In the private sector, Mr. Lipton said, “this is a guy who could readily make $25-million a year.”
Mr. Lipton said he personally does not own a vacation home, but he suspects many members of NYU’s board do.
“Our feeling was that we weren’t paying him very well, that he had done this fabulous job, and we wanted to help him with having a second residence,” the board chair said.
Building Better Relations
In a nod to greater inclusiveness at NYU, the trustees also announced Wednesday that they would create a Joint Committee of the Board, a group of faculty and staff members, and students, who will meet with trustees several times a year. The creation of the committee, Mr. Lipton said, was an effort to give voice to constituencies who say they have been bypassed under Mr. Sexton’s leadership.
There is a “hard core of dissident elements on every faculty that you’re not going to satisfy,” Mr. Lipton said, but the board hopes to build better relations with the “95 percent of the faculty that is interested in the functioning and the good health of the university.”
The board has made clear from the beginning of Mr. Sexton’s troubles that they stood behind the president, and Mr. Lipton said the board never considered letting him go. Nor did Mr. Sexton ever offer his resignation.
“We’re convinced there is no one who could be more effective than John,” Mr. Lipton said, “and I speak on behalf of a totally unanimous board.”
“I don’t think his reputation will in any way be tainted by this,” he added. “No question that it’s a hiccup in a career of great success at every stage, but I really view it as a minor factor.”
Clarification, 8/16/13, 4:30 p.m.: This article originally stated that Martin Lipton had said that NYU offered 10 loans for second homes to administrators and faculty. The university clarified that there have been 20 such loans, and the article has been updated to reflect that.
