Wednesday, February 5, 2014

I apologize if my regular readers are getting tired of my posts about the University of Illinois.  I promise to continue to intersperse other matters, of course, but it isn't often we get to see a morality play in progress at one of the world's great universities.  Many people in the University are sending me information, often decrying a culture of corruption and lack of accountability in an institution they hold dear.  People at other universities are also expressing concern about UI's lack of responsiveness, for fear that this kind of behavior will negatively splash onto their academic medical centers.

For today, let's return to the Dean of the College of Medicine.  Many were surprised to learn of his position on the Novartis Board of Directors and the potential for--at best--awkwardness as he rules on conflict of interests within a university that has people working on scientific research related to the areas in which Novartis and its competitors conduct business.

Now, consider the issue of personal compensation.

Spencer Stuart, the search firm, reported in 2011: "Across all industries, the average all-inclusive compensation for S&P 500 directors now exceeds $232,000." I've not been able to find the corporate document that lists Directors' payments for Novartis, but it is not unusual for major pharma companies to pay at or above $300,000 per year.  [See comment and link below. The amount is about $450,000.]

Was the Compensation Committee of the UI Board of Trustees told of this person's outside income when they set his compensation?  [Noted in comment below: UI compensation is $700,000.]  Perhaps all is well on this front if he doesn't take the Novartis payments and instead directs them to the University.  There is no indication, however, that such is the case.

Under IRS rules, non-profit organizations are required to set a level of pay for high executives that is reasonable given their range of responsibilities and is comparable to that of others in the field.  Beyond that, Wikipedia reminds us:

Intermediate sanctions is a term used in regulations enacted by the United States Internal Revenue Service that is applied to non-profit organizations who engage in transactions that inure to the benefit of a disqualified person within the organization.* These regulations allow the IRS to penalize the organization and the disqualified person receiving the benefit. Intermediate sanctions may be imposed either in addition to or instead of revocation of the exempt status of the organization.

It is certainly true that the Dean's position as Dean brings an advantage to Novartis.  Indeed, the company makes specific mention of that position and his other University activities when it explains why this person fulfills two categories of importance to the corporation's board:

Leadership, Healthcare and Education experience–dean and professor of leading US university medical school. Biomedical Science experience–federally funded clinician-scientist and research fellowship recipient.

Novartis, in turn, offers remuneration to the Dean because of this value.  In short, his official capacity enables him to engage in a transaction that inures to his benefit. I'm not a lawyer and don't know if a state institution like UI has to meet the IRS guidelines, but surely they reflect a reasonable standard of review in any event.

Another topic worthy of review by the Board of Trustees, no?
* A disqualified person is any person who was in a position to exercise substantial influence over the affairs of the applicable tax-exempt organization.


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