✔✔✔ Fact Checker here. All summer. No vacation.
Surprising no one, behind closed doors, the Board of Trustees has elected Rick Wagoner '75 its new chair, succeeding Dan Blue Law '73 who is being forced from the board by term limits.
A walk-on Duke basketball player who became the decade-long chair of General Motors, Wagoner had been vice chair for two years.
He brings impressive experience to his new job: he came up through the financial management ranks of GM and thus brings significant expertise at a time when Duke's budget is still challenged. He has substantial exposure to international operations, having worked as a top executive in South America for GM for many years. And he understands complex institutions, all qualifications that FC felt that Blue, principal in a three man Raleigh law firm and local politician, did not have.
Wagoner also brings a lot of baggage, since his years at GM ended with a thud, which we will explore below.
✔The Board elected two vice chairs, both hugely wealthy, setting up a contest when term limits catch up with Wagoner in two years. They are hospital magnate Jack Bovender and private equity genius David Rubenstein. Most importantly, if a search is conducted for a high level administrator -- such as President -- one of them might well be in charge.
The board honored its retiring members, but did not announce who is joining the board. The ultra-secretive Brodhead Administration not only nominates and "elects" these people behind closed doors, but they won't even reveal who they are until July 1 when their term actually begins. If you could see FC right now, you'd see someone shaking his head.
✔As it does every year at its Commencement meeting, the board adopted a new budget. This year's is surprising because it includes a 4.2 percent increase in spending. Aside from confirming that the two year wage freeze will end and some employees will receive small merit increases, we do not have enough information to write intelligently about the budget.
✔✔✔ --- We have no indication if lower paid employees might enjoy a bigger percentage, having been particularly hard crimped during the freeze. If you do the math, employees making less than $30,000 -- who benefited from two annual payments of $1,000 in lieu of raises -- will actually see their pay go down with average raises.
✔✔✔ --- How did the Arts and Sciences fare? Were there more cuts, or were any restored? Will A and S be able to keep its entire complement of faculty?
✔✔ --- Is Duke continuing to dip into its reserves to patch up red ink in the budget. In the year just ending, the budget called for $72 million.
✔ --- What assumptions is Duke making about earnings on its endowment. We have been budgeting for a 8.5 percent return (spending around 5 percent, using the rest to protect against inflation) but over the last decade, the return has only averaged 6.5 percent.
✔ --- While the official press release extols an increase in financial aid, we do not know if we are continuing to draw down the endowment for financial aid at a higher rate than is prudent. That's FC's evaluation, prudent. In the past two years we have taken more than our fair share, robbing future generations of a resource.
Wagoner is True Blue. He met his wife Kathy '77 at Duke. Their three sons are all Dukies too: Trip '06, Scott '08, and Matt '12. His career at GM began after a Harvard MBA as an analyst in the treasurer's office. He served as treasurer and later managing executive of GM's operations in Brazil before returning to Detroit to climb the ladder.
Now the bad news. GM -- challenged when Wagoner took over -- "30 years of management mistakes" -- did not do any better during his term. He was criticized for holding on to dead-wood executives who had come up the ranks with him. During cutback after cutback, tens of thousands of union workers lost their jobs.
Ultimately, during Wagoner's term, GM would lose $85 billion; Wall Street punished its shareholders, and at the end of Wagoner's service, you could buy a share of GM at the same price offered 55 years earlier.
The end for Wagoner came during a crisis brought on by the world-wide recession. Seeking government help, he and other auto industry leaders went to Washington. They were roundly scolded for arriving in their private jets; on a subsequent trip to the Capitol, Wagoner drove himself, somehow fitting his lanky frame into a Chevy Malibu. As the price for government involvement, Wagoner was canned at the insistence of the White House, forced into retirement. The BBC said he lacked the "ruthless streak needed to make the tough decisions required to bring GM back from the brink of bankruptcy."
In early retirement, Wagoner, 58, has kept a low profile. He recently became a director of the Washington Post Company. This was about the same time that Duke entered into an agreement with a Post subsidiary, the Kaplan education company. We do not know if Wagoner had any role.
Typically, we have no idea in hell where he stands on any Duke issue.
He holds two degrees from Duke, in psychology '67 and a masters in hospital administration '69. He retired as chair of the Hospital Corporation of America, which in becoming the largest private operator of hospitals and other medical facilities in the nation, made relatives of former US Senate majority leader Bill Frist billionaires many times over. Bovender did very well indeed for himself.
Loyal Readers, make sure you understand. These people got rich off of sick people, charging huge amounts for medical care, making untold profits.
There is much stench surrounding HCA. Convicted of felony after felony, the corporation -- not its officers -- was slapped with penalties for cheating Medicare and other insurers, and it ultimately paid a civil settlement of more than $2 billion.
The corporation has also bounced back and forth from private ownership thru hedge funds and the Frist family to being traded on the stock exchange.
A spin-off of HCA recently completed a deal with Duke Health for certain facilities in North Carolina. We do not know if Bovender made introductions or had any role. And we have no idea in hell where he stands on any Duke issue.
His rise to vice chair was not expected, since he has only been a trustee for four years.
Anyone who saw Michael Moore's epic documentary "Fahrenheit 911" on the re-election campaign of George W. Bush will surely remember the Carlyle Group, a private equity firm that Rubenstein co-founded in Washington. It operates at the intersection of government power, politicians out of power, the military-industrial complex and Wall Street. Duke '70 and University of Chicago law grad, he was a domestic policy adviser to President Carter before he co-founded Carlyle. (We do not know his politics today; Carlyle is associated with Republicans)
Rubenstein went on to become a billionaire several times over -- and has announced that he is going to give much of it away.
He got his start by paying for the building in the Sanford School of Public Policy that bears his name.
Rubenstein is stretched thin with lots of outside charitable directorships and a global presence in business. He is chair of the board at the Kennedy Center in Washington, vice chair at Lincoln Center in New York. Just the same he is not stuffy. Speaking at Harvard: “I analogize [private equity] to sex...You realize there were certain things you shouldn’t do, but the urge is there and you can’t resist.”
He owns one of the few copies of the Magna Carta in private hands.
Rubenstein chairs the Duke Trustees special committee on China and has not responded to numerous FC inquiries. Naughty, naughty. We do not know who is on this committee, when it was formed, how often they meet, and if they get any input other than that provided by the Brodhead Administration. That latter point should have particular resonance for a financier in private equity deals used to doing "due diligence."
Rubenstein was not scheduled to attend this weekend's Trustee meeting; we do not believe the Trustees had any focus on China, although Duke's medical school in Singapore, which is about to award its first Duke MD degrees, was discussed.
At the start of the fiscal meltdown, President Brodhead surveyed a budget of approximately $1.8 billion and announced that in three years there had to be a "smaller Duke" with a budget $125 million less. Three years because making all the cuts in one year would be too brutal.
In the next budget that the Brodhead Administration formulated, for the 2009-10 academic year, spending was "flat." This year, the second in the three year transition, it showed an increase, and next year -- when it was supposed to come in at $1.7 billion -- it shows another jump of 4.2 percent and will total $2.1 billion.
Fact Checker has no explanation. Nor has the administration ever done anything but obfuscate.
Judging by the PR announcement today after the Trustees meeting, executive vice president Tallman Trask is going to need an orthopedic doctor, from thrusting his arm around in back of himself and patting himself on the back so hard.
The announcement also said that after a two year hiatus, planning would resume for capital projects. We await the announcement of faculty names and other stakeholders involved in these efforts.
Thank you for reading FC.