Who Wins When a College Presidency Fails?

The academic year has ended, graduation is over, and now we begin to see the exit of presidents from their universities. Some of these exits are planned retirements. A number are moving on to new positions. Other presidents just determine that the job may not be for them. Finally, there are those who are leaving “to spend more time with the family.”

So no one will be surprised if the upcoming 2017 American College President Study finds a continuing decline in the average term of university presidents. The last study by the American Council on Education found that the average presidential term had decreased from 8.5 years in 2006 to seven years in 2011. Why? Retirements are the easiest explanation; the boomer generation is ready to leave the work force. The Association of Governing Boards of Universities and Colleges suggests that another reason for shorter terms is the demands of the position, with presidents now responsible for academics, fund raising, community and government relationships, and institutional policies.

While others speculate about the underlying causes for the increased churn rate, we want to ask a different question: Does anyone benefit from the increased pace of presidential turnover? If so, who?

In our study last year of search-firm contracts, we found that at least 75 percent of presidential searches at public colleges and universities are conducted with the assistance of a “headhunter,” a trend confirmed by the ACE studies. As we wrote last November, the worldwide search-firm industry is a nearly $13 billion enterprise, and the nonprofit, government, and higher-education sectors of the industry were expected to grow by 19 percent in 2016. This made us wonder: How much of that growth might be attributed to the increased turnover of university presidents and other senior executives? Or, on the other hand, does the industry actually contribute to the increased turnover?

According to the Council for Higher Education Accreditation, in 2013-14 there were 3,437 degree-granting, accredited, public, and private nonprofit institutions in the United States. Assuming an average presidential term of seven years, there would be approximately 435 searches in a given year, with at least 325 conducted with the assistance of a search firm. With the average search-firm fee of about $100,000, presidential searches alone represent a $32.5-million business opportunity.

Of course, some of this potential windfall for search firms may be mitigated by the terms of the contracts with their clients. For instance, most of the agreements we reviewed contained some sort of guarantee that the successful candidate would stay for at least one year. If not, the majority of the firms agreed to conduct a new search with no additional fee, just reimbursement for expenses. We suspect that no search firm wants to be associated with a high churn rate. But in our review of over 60 search-firm contracts, we did not find a single instance where the firm was required or volunteered to provide any data on the length of service for the presidents they had placed. In fact, the “success” metrics we typically found were merely lists of past clients, sometimes supplemented with a list of institutions at which they had placed candidates from traditionally underrepresented groups.

But it is not only the search-firm industry that stands to benefit from shorter presidential terms. Our study showed that most presidents have substantial financial protections if the governing board terminates their contracts early and without cause (i.e., without citing any specific underlying reason). We found termination clauses that varied from providing several months’ salary and benefits to paying for the remaining months or years of the contract.

Even if terminated early, these presidents often retain their tenure rights or receive additional compensation to buy out those tenure rights. If the presidents remained as tenured faculty members, their future salary was typically predetermined, making them among the most highly paid faculty members in the institution. While we do not know of any instances where a president has deliberately sought to have a contract terminated without cause before the end of the term, our research indicates that when this does occur, the individual can benefit substantially.

A short-term presidency can be problematic for the university, however, with negative publicity and difficulty in recruiting applicants as well as faculty and students — and, of course, the expense of a new search. So, what can be done?

When we looked at the most recent research on the tenure of corporate chief executives, we found that they are staying longer, despite increased scrutiny from investors and the aging of the boomers. For instance, chief executives in S&P 500 companies are staying in their positions for 10 years or longer. Why is there such a difference in length of service between corporate chief executives and college presidents? After all, both lead multimillion-dollar entities that have many constituents, large numbers of employees, and often multiple sites, and that often use search firms to identify upper-level candidates.

And, more to the point, what does all this mean for the university presidency? First, consider the early termination without cause: Do those governing boards talk to the presidents about any issues and try to provide training, coaching, or in some other ways try to improve the situation? Governing boards must recognize that in hiring a search firm they are outsourcing one of their most important responsibilities — selecting a president.

While relying on a search firm may save board members valuable time, it may also limit their ability to gain an overall sense of the applicant pool, or even of the finalist(s) for the position. Further, our review of presidential contracts indicates that measurable metrics for presidential performance are rarely identified. Those we did find were generally broadly defined, not measurable, and without consequence. The only contracts we found with true metrics were those for the public universities in Arizona, which have two sets of metrics for presidents: One set is the same for all three presidents, and one is specific to each university.

Together, these two sets of metrics provide short- and long-term goals for the president, each with specifically defined outcomes. If a president misses a metric by even the smallest amount, the associated bonus is not paid. Metrics such as this provide specific criteria so the board and the president have agreed-upon expectations for performance.

We believe that institutions also need to develop new metrics to assess the success of search firms. A list of clients, or minority and female placements, does not tell us much. More informative measures of success might include length of service for previous placements, or the number of repeat engagements with previous clients. Governing boards also need to think carefully about the benefits received by presidents for termination without cause. While we understand that any employee wants as many protections as possible, some of the language agreed to by governing boards provides lucrative benefits not available to any other public employees. By agreeing in advance to “parachutes” that could be worth millions of dollars, are boards fulfilling their fiduciary responsibilities?

We have asked a lot of questions here, and we do not pretend to have all the answers — however, we do hope to continue the discussion.

Judith A. Wilde is the chief operating officer and a professor in the Schar School of Policy and Government at George Mason University, where James H. Finkelstein is a professor emeritus.