The secret corporate life of Yale professors

According to a filing with the Securities and Exchange Commission on Tues., Feb. 8,, ISP is paying Kronman $50,000 to serve as a nominee for Dexter's board of directors. At a shareholder's meeting on Thurs., Apr. 27, ISP will try to convince Dexter's shareholders to elect its nominees. If they do, the new board would presumably allow ISP to buy Dexter.

DANICA NOVGORODOFF/YH

As the takeover attempt is in progress, Kronman could not discuss it. But Ed Novotny, a consultant on the ISP side of the negotiations, said Kronman's probably not in it for the money. "People go on boards because they think they have something to contribute," he said. "If Tony's doing this, it's a clear indication that he thinks there's going to be a turnaround."

Kronman is not the only Yale faculty member to venture into the corporate world. In the last decade, corporate boards have become increasingly independent from company management as shareholders demand more accountability and less cronyism. Modern boards tend to feature more professionals: lawyers, doctors, accountants, and university professors. With increasing frequency, academics and corporations are finding that they can learn from each other.

"Academics are tough," Paul MacAvoy, GRD '60, a professor and former dean of the School of Management (SOM), said. Hostile takeovers, he said, work to make the economy more efficient in the long term, but they require hard-nosed determination to succeed. "They mostly happen to companies that need it badly," he said. "An insurgent wants to take over moribund assets and shake them up."

Why the professorial type?

John Pepper, BK '60, a member of the Yale Corporation who serves on the boards of Procter & Gamble, Motorola, Xerox, and Boston Scientific, maintained that academics are a valuable asset to a board of directors. "I've been on boards with academics, and I think they bring a quality of thinking and logical reasoning," he said. "The ability to penetrate issues objectively and think about issues holistically is developed within the academic world."

A high-profile professor also appeals to shareholders as an objective figure who isn't part of the commercial establishment. "It's become common [for boards] to look for somebody from a nonprofit [organization], often a university," SOM Professor Sharon Oster said. Oster serves on the boards of three publicly traded companies and three nonprofits.

COURTESY OPA Law School Dean Anthony Kronman is assisting a hostile takeover.

MacAvoy has served on 12 corporate boards, including Chase Manhattan, U.S. Synthetic Fuels Corp., Columbia Gas Systems, Colt Industries, and Alumax. Currently, his only commitment is to the Lafarge Corp., the third-largest cement and construction materials company in North America. Companies in the industrial sector seek out MacAvoy because of his extensive research work in that area—many of his 17 books have been on energy, transportation, and communications.

Business professors are the ones most likely to serve on boards because of their technical understanding of management strategies, but companies often seek out other academics whose expertise relates to a particular industry. Vincent Marchesi, SM '57, MED '63, director of Yale's Boyer Center for Molecular Medicine and a faculty member in the School of Medicine, served on American Cyanamid's board for about three years before the company was bought by American Home Products.

Marchesi found that his role was largely symbolic. Since most of the board's duties concerned the company's management and fiscal responsibility, Marchesi's expertise rarely came into play. "You don't really need scientists to represent the shareholders, but most pharmaceutical companies would like to have scientists on their boards," he said. "You can give the company a little bit of an indication as to what outside scientists think of their research program, but you can't go to a meeting every two or three months and contribute to a company's research."

Lawyers and law professors are also popular candidates. "A lot of boards appreciate having legally-trained people, not to serve as lawyers, because the companies have their own counsel, but because they're helpful in understanding what fiduciary responsibility means," Law School Associate Dean Jim Thomas, LAW '64, said. Thomas serves on the boards of People's Bank and United Illuminating.

An imperfect world

Yale makes no attempt to control what kind of boards its faculty serve on: MacAvoy said any attempt on the University's part to censor professors' corporate affiliations would be akin to censorship. "If a Yale professor were on the board of directors of the KKK, it would not be correct for the University to force her not to do it—it would be an infringement of her basic right to free expression," he said.

Instead, Yale trusts its faculty members to make ethical decisions, and they do. MacAvoy remembered his experience as a Colt board member: "I had a lot of trouble with Colt producing firearms, and two or three of us on the board asked the chair to consider getting rid of the firearms division." The company's management refused, and the board quit and sold the company to its employees.

CAYTE PUSHKAREVA/YH SOM Professor Paul MacAvoy has served on 12 corporate boards.

United Illuminating's ownership of nuclear plants sometimes "can make the hair on my head stand on end," Thomas said, but not because he has anything against nuclear energy. Board members can be held liable for a company's decisions, and Thomas sometimes worries about a Three Mile Island-type accident. Most board members, he says, are insured. "You have to be bonded. The buck stops with you," he said.

Serving on a corporate board isn't just a tricky moral and legal decision—it's quite a time commitment. Corporate boards usually meet quarterly, although they may meet as often as once a month, and their members are expected to attend special planning meetings and to serve on committees. "I was on the audit committee at Chase, and our meetings took eight hours, because we were accountable to four different regulatory agencies." In addition, there's homework. "It isn't so much the time required as the responsibility," MacAvoy added.

According to Yale's Faculty Handbook, faculty members may not spend more than one day out of seven on non-Yale-related business. "I would not take on any more [boards]—in fact, I may leave one," said Oster, who currently serves on six.

Giving, but also getting back

When a professor serves on the board of a corporation, the company gets prestige and expertise. What does the professor get? According to MacAvoy, board members' salaries usually range from $30,000 to $150,000 a year. But Yale's board-serving faculty say the money is just icing on the cake.

Thomas joined the board of the New Haven-based National Savings Bank over 15 years ago because the company was dedicated to giving back to the local community, and he stayed on when it was taken over by People's Bank. "All the boards I serve on are passions of the heart," he said. Serving on United Illuminating's board, meanwhile, seemed like "an interesting challenge."

Academics are curious people, and many can't resist the opportunity to see how the corporate world works from the inside. That was the case for Marchesi. In 1990, after securing a $6 million blood-cell research grant for the Boyer Center from American Cyanamid, he was asked to serve on the company's board. Though he had never served on such a board before, he was interested and agreed to pursue it. Although not sure he would serve on a board again, Marchesi did gain valuable insight into corporate decision-making.

Serving on boards, Marchesi said, can "help scientists know in which direction companies are moving. You don't actually influence their donation decisions, but you see how they're made." This knowledge can aid the University in applying to companies for research grants. "I wanted to make sure that if [American Cyanamid] had other interests in research, Yale would be represented," Marchesi said. In addition, part of his decision to serve was sheer gratitude. "They had just given $6 million to the University, so I was giving them something for their money," he said.

Since private universities increasingly rely on corporate donations for support, many professors agree to serve on boards as a way of saying thanks. Health Care REIT, a real-estate investment trust whose shares are traded on the New York Stock Exchange, is one of the three corporations of which Oster is a board member. The company's founder, Frederic Wolfe, SY '51, gave Yale the money to create the endowed chair currently occupied by Oster. "I've enjoyed my board work enormously," Oster said. As a business professor, she uses the lessons learned in board meetings in her teaching and scholarship. "It's a laboratory to see how the kinds of economic and management principles I teach in class actually work in the real world."

More concretely, management professors can get exclusive access to company information by serving on boards. Of the 12 boards on which MacAvoy has served, 11—all but Lafarge—have been taken over. "I've made seven or eight or nine academic case studies about companies that have been taken over," MacAvoy said. "Management academics serve on boards because it's a marvelous source of information—you have access to all the working papers. I teach a course on corporate governance, and I have a fund of knowledge that you can never get from a textbook."

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