By John Hrabe

After fourteen years as head of the nation’s largest higher education system, Cal State University Chancellor Charles Reed is calling it quits. Reed’s tenure has been praised by the insular higher education community. He’s been one of the most vocal protectors of the status quo, which enriches the bureaucratic elite at the expense of students and faculty.

“In my four years in California, the Chancellor has been an effective and reliable ally in the fight to keep alive for future generations of Californians the promise of an affordable, top quality education,” said Mark Yudof, president of the University of California, according to “Testaments to Chancellor Charles B. Reed’s Service,” a glowing piece of bureaucratic propaganda produced by the Chancellor’s office. “We have worked as partners in Sacramento, attempting to persuade the state’s political leadership to reverse its chronic disinvestment in public higher education.”

To his critics, Reed is to blame for reckless spending, endless tuition increases, a contentious relationship with faculty and an embarrassing executive compensation scandal. “Chancellor Reed has presided over an era of unprecedented turmoil in the California State University system,” read a statement from the California Faculty Association upon Reed’s retirement announcement. “The CSU has seen devastating budget cuts, and students have borne much of the burden – student fees have more than quadrupled since 2002.”

Prop Zero blogger Joe Mathews recently suggested that Los Angeles Angels of Anaheim first baseman Albert Pujos take over the job. “Maybe he could be convinced to work days at Cal State headquarters in Long Beach for free, before making the short drive to Anaheim for night games,” he wrote. That got us to speculating about other scenarios, some just as unlikely, for filling the job of Cal State Chancellor.

The Favorites

Scenario #1: The Cal State Insider

Candidates: Cal State Vice-Chancellors: Benjamin Quillian, Ephraim Smith & Gail Brooks

Rationale: If you thought the Augusta National Golf Club was exclusive, you’ve never reviewed the resumes on file in Cal State’s HR department. Or, for any academics out there, Cal State is susceptible to in-group–out-group bias. “Each group nourishes its own pride and vanity, boasts itself superior, exists in its own divinities, and looks with contempt on outsiders,” observed sociologist William Sumner, according to Wikipedia.

Cal State loves to promote from within. New Cal State Northridge president Dianne Harrison previously served as president of Monterey Bay. San Jose State President Mohammad Qayoumi’s used to hold the same position at East Bay. We could go on and on. That’s why the safe bet is that after a long and expensive executive search firm completes their review, Cal State will promote one of the system’s vice-chancellors. Moreover, we aren’t exactly sure that any out-of-state education administrator could be persuaded to take the job.

Downside: Status Quo. Cal State could expect more of the same dysfunction and fiscal mismanagement if it promoted from within the organization. In 1990, after CSU Chancellor Ann Reynolds resigned in disgrace following her own executive pay scandal, an executive vice chancellor took over the job on an interim basis. The chief deputy, Herbert Carter, would go on to serve as Chairman of the Board of Trustees, until the State Senate blocked his reconfirmation earlier this year.

Odds: 4 to 1

Scenario #2: Out-of-State Higher Education Administrator

Candidates: William E. Kirwan, Chancellor of the University System of Maryland; Frank T. Brogan, Chancellor of the State University System of Florida

Rationale: Cal State’s out-of-state farm system has training camps in Maryland and Florida. From 1985 to 1998, Reed served as chancellor of the State University System of Florida. Cal State plucked Elliot Hirschman from the University of Maryland last year to fill the void at San Diego State. As further evidence of Cal State’s Maryland connections, the universities worked out a 2008 memorandum of understanding for assisting servicemembers with completing their degrees.

Downside: An out-of-state administrator wouldn’t be much better than a Cal State insider. They’d look at Cal State’s budget problems as a forced choice between tuition increases and enrollment cuts.  These individuals wouldn’t necessarily replicate Cal State’s reckless spending practices, but they could be expected to appease the institution.

Odds: 25 to 1. We doubt either one of these administrators would want the job. Why join the Cal State University system as it prepares for catastrophic budget cuts in the fall? Moreover, Cal State would likely disapprove of Brogan’s political affiliation; he served as Jeb Bush’s Lt. Governor.

A Stretch, But Still Plausible

Scenario #3: A Rotating Position

Candidates: Cal State Presidents

Rationale: In response to Reed’s retirement, the California Faculty Association suggested, “This ‘changing of the guard’ provides a unique opportunity to reflect on the direction of the CSU, and to improve the quality of education at the nation’s largest university system.” So, what’s unique and out-of-the-box, according to one of those high-priced consulting firms that would likely be paid to conduct an executive search? One idea might be to rotate the Chancellor position among the Cal State presidents.

College presidents are essentially mini-me’s of the system-wide chancellor. The job responsibilities are the same: to raise money, to negotiate with faculty and to act as the public face of the college. By rotating the position, Cal State presidents would begin to think more collectively about the system’s problems, instead of focusing exclusively on what’s best for each individual campus. That might produce more cost-saving partnerships among Cal State universities. For example, Dominguez Hills could merge a few course sections with Long Beach State. You’d also save money by eliminating the salary of one of the highest-paid state employees, thereby blunting further executive compensation criticism.

Downside: Cal State presidents would probably tell you that they’ve already got enough on their plate. Instead of using the position to think collectively about the good of the system, presidents might use the Cal State Chancellor’s office to funnel money back to their individual campus.

Odds: 6,839 to 1

When Pigs Fly and Hell Freezes Over

Scenario #4: The Cal State Critic

Candidates: Asm. Anthony Portantino; Sen. Leland Yee

Rationale: In one move, the Cal State Board of Trustees could effectively end all criticism of its executive compensation policies. What better way to silence your critics than to hire one of them to run the place? Yee and Portantino have impeccable legislative records defending Cal State from budget cuts. They’re well-respected by the faculty association, which has been unhappy with the current administration. Plus, this choice could unify Cal State Trustees in their push for the November tax increases. (Not that CalWatchdog supports tax hikes.) Their message about dire budget cuts wouldn’t be muddled by wasteful spending by the Chancellor’s office.

Sen. Yee is the ideal candidate to serve as the new Chancellor of the Cal State University. He meets all the requirements: he spent eight years on the San Francisco Unified School District Board of Education, has a doctorate in child psychology and showed his fundraising prowess in the San Francisco mayor’s race. He’s about the only outsider who has the qualifications to immediately fill a higher education leadership position. There’s also a precedent of a legislator serving as chancellor. Former State Senator Jack Scott most recently served as chancellor of the California Community College system.

Downside: It’s easier to criticize than govern. Although Portantino and Yee are highly effective legislators, some administrators would argue that they lack the necessary administrative experience.

Odds: 44,000 to 1. This scenario is pretty far-fetched, but only because of personality conflicts. The Cal State Trustees and bureaucrats despise these government watchdogs. Earlier this year, the pair sent a letter to the Chancellor’s office demanding the truth about Cal State’s executive pay. An Assistant Vice Chancellor replied, “Not sure we felt it was necessary to respond to the ongoing and never ending critical communications.” Yet, this scenario is still more likely than the final option.

Scenario #5: Higher Education Revolutionary 

Candidates: Salman Khan, Peter Thiel, Sebastian Thrun

Rationale: Entrepreneur and businessman Mark Cuban predicts that higher education will experience a collapse in the next decade far worse than the housing market debacle. “Like the real estate industry, prices will rise until the market revolts,” he wrote on his blog. Khan, Thiel and Thrun are education revolutionaries. They understand how to effectively use technology to enhance the learning experience and bring down costs. These visionaries provide something for nothing. They give knowledge and learning away free of charge. At a time of budget cuts and doing more with less, they’d be the perfect choice to lead the Cal State system through the coming higher education revolution.

Every higher education institution wants to be like the Ivy League schools.  Harvard and MIT both offer courses online for free, why not Cal State? Colleges and universities claim to be interested in educating all, regardless of wealth or economic status. The easiest way to fulfill that mission would to require all course materials, notes and lectures be posted online for free. After all, taxpayers pay the bill. That’s the kind of approach a tech-savvy education innovator might bring to Cal State.

Downside: Short term pain. These brilliant minds would run headlong into an obstinate and entitled Cal State administration.  When the trustees recently handed out pay raises to two new presidents, CSU Trustee Roberta Achtenberg said, “I’m just sorry we can’t pay them more because of the policy we adopted.” Tone-deaf is an understatement.

Odds: 427,000 to 1. Let’s face it nothing is more terrifying to the Ivory Towers than Udacity, Khan Academy and the Thiel Fellowships. These innovative programs aren’t reforms. They are fundamental revolts against the higher education complex. Cal State could shake up the world of higher education with a bold choice like Thrun, Thiel or Khan.

By John Hrabe

Following public outcry over six-figure pay raises handed out to top executives, the California State University Board of Trustees approved a plan last week to shift future pay hikes from taxpayer funds to nonprofit auxiliary foundations. The decision effectively freezes the amount of tax dollars spent on the college’s executive compensation, and Cal State officials hoped that would be enough to bring closure to the issue.

“Hoping we can put this issue 2 rest at CSU Trustees meeting. Prez Salary Freeze w/ taxpayer $ is right move,” newly confirmed Cal State Trustee Steve Glazer posted on Twitter. State Superintendent of Public Instruction Tom Torlakson, an ex-officio member of the board, praised the action as “a significant step in the right direction.”

But, the new policy that was intended to quell public criticism of Cal State’s spending practices has some ethics experts questioning whether it creates a conflict of interest, or the appearance thereof, for the college foundations. That’s because Cal State presidents commonly maintain a powerful influence over the foundation boards, according to a CalWatchDog.com analysis of the governing documents for more than a dozen auxiliary groups.

The Cal State University chancellor and the presidents of nine campuses all serve as voting members of their respective foundations, which now have the authority to supplement presidential salaries and benefits. The campuses are Bakersfield, Channel Islands, East Bay, Humboldt, Long Beach, Sacramento, San Diego, San Jose and Sonoma State.

“It is my belief that the foundations have always operated as a slush-fund for presidents,” Kevin Wehr, president of the Sacramento State University chapter of the California Faculty Association, told CalWatchDog.com. “When foundation money is used to remodel presidents’ homes and kitchens, one really has to wonder how this benefits the direct instruction of students–especially when the amounts of money are the equivalent of 100 course sections or more.”

College presidents not only serve as ex-officio members of the foundation board of directors. In many cases they serve as an executive officer of the foundation, have unrestricted authority to control board appointments and veto any changes to the foundation bylaws. And one Cal State president even has the power to remove a foundation board member at any time—for any reason.

“The CSU Board of Trustees’ decision to use funds from college foundations to pay for raises for campus presidents does raise some questions,” said Loyola Law School Professor Jessica Levinson. “If college presidents are in control of these college foundations, then it raises at least a question of the appearance of a conflict of interest.”

State Law Bans Self-Dealing by Foundation Board Members

State conflict of interest laws prevent auxiliary organizations from self-dealing. California Education Code Section 89906 stipulates: “No member of the governing board of an auxiliary organization shall be financially interested in any contract or other transaction entered into by the board of which he is a member, and any contract or transaction entered into in violation of this section is void.”

Michael Houston, a partner at the Newport Beach firm Cummins & White, LLP and expert on government ethics, says this provision is likely a problem for Cal State’s new pay policy.

“This seems not only to be a conflict, then, but a likely problem under 89906,” he said. “That would particularly be the case if the president could be said to have the ability to influence the other board members despite the president being unable to vote.”

Cal State presidents have numerous ways of influencing other foundation board members. Five foundations — one for the statewide CSU and the foundations for four campuses, Bakersfield, East Bay, Long Beach and Sonoma — grant the college’s top executive a leadership position as president, chair, secretary or CEO of the foundation. In turn, the executive position occasionally vests the president with the power to choose the organization’s executive director and other key personnel.

But, paid employees are far from the only foundation members with a favor to return.

Boards Hand Picked by President

“All Directors must be approved by the University President,” mandates Article II Section 1 of the San Jose State Foundation’s bylaws. In other words, the foundation board members owe their appointment directly to the president. Eight other Cal State presidents — at Channel Islands, East Bay, Humboldt, Long Beach, Sacramento, San Diego, San Francisco and Sonoma State — have similar appointment powers.

If an unfriendly board member were able to sneak through this presidential approval process, he or she might be able to convince the board to curb the president’s authority. But such renegade board members at Channel Islands, East Bay, Humboldt, San Diego and San Francisco would be stymied, again. These five Cal State presidents must sign off on any amendments to the foundation’s bylaws.

“These Bylaws may be amended or repealed, subject to the provisions of the Law, only by the approval of the Board and with the written consent of the President of SDSU,” states Section 6.4 of the Campanile Foundation, San Diego State University’s nonprofit auxiliary. SDSU also goes one step further, requiring “the written consent of the President of SDSU” for any changes to the organization’s articles of incorporation.

Sonoma State Foundation’s Past Self-Dealing

But the most sweeping presidential power lies with Sonoma State’s foundation. Of the dozen college auxiliary groups reviewed by CalWatchDog.com, only Sonoma’s bylaws grant the president unrestricted power to remove a board member. Under Article II, Section 4, “A member of the Board may also be removed from office by decision of the President of Sonoma State University.”

Cal State faculty members like Wehr see this arrangement of supplemental foundation payments as a potential conflict of interest. “If campus presidents were to receive additional compensation from private donors, one would have to ask: ‘Who do they work for, and to whom will they owe their allegiance?’”

Wehr’s fears of potential conflicts aren’t entirely theoretical. In 2011, the Santa Rosa Press Democrat reported that more than $9 million in foundation loans were funneled to Clem Carinalli, a former foundation board member. The Sonoma real estate developer convinced the board to loan him money just two days after resigning his position on the nonprofit’s board. “Two of Carinalli’s loans from the foundation are still outstanding — one for $1.25 million and another for $232,500, according to McNeill and the foundation’s most recent annual financial filing,” the paper originally reported.

Conflict of Interest Exception Doesn’t Apply

Sonoma State foundation’s loans to a bankrupt developer might appear to be a blatant conflict, but state law grants some exceptions to the conflict of interest policy. Section 89907(b) allows auxiliary organization to engage in a transaction if the board believes the contract “is just and reasonable as to the auxiliary organization at the time it is authorized or approved.”

Could the same exception be applied to the new presidential pay policy?

Houston doesn’t think that the 89907(b) exception would apply to college presidential bonuses “because it is basically giving money to a director/president where there is nothing of value given to the auxiliary in return.”

He added, “It would appear that a director/president could NEVER take advantage of Section 89907” because state law prohibits the exception from being applied when “the contract or transaction is between an auxiliary organization and a member of the governing board of that auxiliary organization.”

Senator Leland Yee: Cal State is Beyond Tone Deaf

State Senator Leland Yee, D- San Francisco, who has been one of the most vocal critics of Cal State’s executive compensation policies, isn’t about to let up. “The trustees are beyond tone deaf; they are either completely oblivious or simply don’t care what students, lawmakers, and taxpayers think,” he said. “As I said last week when the Chancellor proposed this new policy, it is nothing more than smoke and mirrors disguised as reform.”

“All efforts — including the campus foundations — should be focused on ways to ensure tuition is affordable and quality courses are available, not finding new ways to line the pockets of top administrators and giving corporations another means to cozy up to campus presidents for their own financial gain,” he wrote in a statement following last week’s policy change.

One Republican Senator echoed Yee’s criticism of Cal State.

“CSU’s leaders are proving over and over again that they’re incapable of being good stewards with taxpayers’ money: the $400,000 executive salaries, the tapping of Foundation money to cover-up these outrageous salaries,” State Senator Joel Anderson, R- Santee, told CalWatchDog.com. “How can the Governor keep a straight face while asking Californians to approve higher taxes while CSU bureaucrats continue to demonstrate their disdain for taxpayers?”

Four Cal State executives currently receive thousands of dollars in annual supplemental payments from college foundations, including $50,000 for San Diego State’s Elliot Hirshman, $25,000 for San Jose State’s Mohammad H. Qayoumi and $30,000 for CSU Chancellor Charles Reed and Cal Poly San Luis Obispo’s Jeffrey Armstrong.

These foundation payments are in addition to a state-funded compensation package that includes housing and car allowances, retirement benefits, health care and other miscellaneous employment-related benefits. In 2009-10, Cal State Los Angeles president James Rosser reported $515,612 in government compensation to the IRS.