The Irascible ProfessorSM
Irreverent Commentary on the State of Education in America Today

by Dr. Mark H. Shapiro

"Finance is the art of passing currency from hand to hand until it finally disappears." .... ...Robert W. Sarnoff.
Commentary of the Day - August 15, 2000: The Incredible Shrinking Endowment!
Eckerd College in St. Petersburg, Florida has seen it's endowment shrink from $34 million to $13 million since 1993 with the bulk of the decline occurring in the last 18 months, according to stories published in the St. Petersburg Times, the Naples Daily News, and the Chronicle of Higher Education.  Eckerd was founded in 1958 as Florida Presbyterian College, but changed its name in 1972 following a $10 million donation by trustee and well-known drugstore magnate Jack Eckerd.  The college, though no longer officially connected to the Presbyterian Church, maintains a close relationship with the denomination.

Since the termination of its relationship with the Presbyterian Church the operations of the college have been supervised by a 52 member board, which - according to the Chronicle article includes "prominent business executives, millionaires, men of the cloth, and leaders of national higher-education associations".  Board members include Robert H. Atwell, president emeritus of the American Council on Education, Theodore J. Marchese, vice president of the American Association for Higher Education, and David L. Warren, president of the National Association of Independent Colleges and Universities.  There are two obvious questions to ask in this situation.  The first, what happened to the money?  The second, where were the trustees while this was going on?

The answers to both questions reveal something about the governance of small colleges like Eckerd.  Peter Armacost served as Eckerd's president from 1977 until his resignation in June of this year.  Eckerd's endowment was small and its financial future was far from secure when Armacost took over.  Armacost instituted several imaginative programs that helped to raise the visibility of the college and to draw funds to its endowment.  Two of the programs - a Management Development Institute and the Academy of Senior Professionals - turned out to be highly successful.  The first of these is a highly profitable enterprise that provides courses in leadership, teamwork, and conflict management to corporate clients.  The second program draws from the large number of retired professionals who live in the St. Petersburg area.  The management institute and similar programs bring in nearly $3 million in profit each year, while members of the Academy of Senior Professionals contribute approximately $1 million per year in gifts.

Armacost was far less successful in his attempts to develop real estate projects on valuable waterfront property owned by the college.  One project, College Harbor, was a townhouse development that opened in 1986.  The other, College Landing, was an assisted-care facility that broke ground in 1992.  By 1996 both projects were in bankruptcy, and the college was faced with the prospect of having to pay off liens against the property that were incurred by the developer.  So far about $5.3 million of the endowment has been consumed by these two real estate projects, and it is estimated that another $9 million will be lost on College Landing.

While these real estate projects were failing, the Board of Trustees allowed Eckerd's chief financial officer to borrow money from the endowment to pay ongoing college expenses.  Initially, this was intended to smooth out cash flow problems.  However, it appears that several million dollars of endowment money was drained by this process.  It also appears that the chief financial officer at the time, James Christison, attempted to involve the college in a highly questionable investment scheme.  Although the Board of Trustees declined to participate in this scheme, Christison persuaded several college supporters to invest substantial sums of money.  Eckerd College eventually paid close to $600,000 to settle claims growing out of this activity, and Christison retired in 1997.

Mr. Christison successor, J. Webster Hull, appears to have been an even less talented financial manager.  He continued the practice of using endowment funds to cover current expenses.  This included the use of $6.4 million to cover the construction costs of a new dormitory and additional funds to meet cost overruns for a new Continuing Education Center.  By all accounts Hull's office was a shambles.  He was unable to provide financial reports to the Board of Trustees in a timely fashion, and surprisingly the Trustees did not press for detailed financial reports until trustee Blueford H. Putnam took over as chair of the trustees' finance committee.  Putnam took the trouble to look at the endowment portfolio, and discovered the missing millions.

Sadly, the relationship between the trustees at Eckerd and the administration was far too cozy.  It appears that many of the 52 members of the Board of Trustees were appointed because of the likelihood that they would contribute to the college, or because of the "credibility" that they would lend to the college.  It appears that few were chosen to provide genuine oversight of college operations, and even though many were successful business people few were willing to ask the hard questions about college finances that one would expect from independent trustees.  At the very minimum, given the problems that the college was experiencing with its real estate operations over the past decade, the trustees should have been demanding independent audits of the college books.

All college and university trustees need to take heed of what happened at Eckerd!

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© 2000 Dr. Mark H. Shapiro - All rights reserved.