[Congressional Record (Bound Edition), Volume 152 (2006), Part 6]
[Senate]
[Pages 8376-8377]
[From the U.S. Government Publishing Office, www.gpo.gov]




                          AMERICAN UNIVERSITY

  Mr. GRASSLEY. Mr. President, I ask unanimous consent to have printed 
in the Record my correspondence with American University, AU. AU is a 
federally chartered nonprofit, tax-exempt educational organization.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                                      U.S. Senate,


                                         Committee on Finance,

                                     Washington, DC, May 17, 2006.
     Gary M. Abramson,
     Chair of the Board, American University.
     Thomas Gottschalk,
     Vice Chair of the Board, American University,
     Washington, DC.
       Dear Mr. Abramson and Mr. Gottschalk: I am writing to you 
     regarding the Finance Committee's review of governance issues 
     at American University (``AU''). AU is a federally chartered 
     non-profit, tax-exempt educational organization. Congress 
     enacted the law in 1893 that first incorporated AU, appointed 
     its initial individual corporate members, and specified the 
     size and composition of its board of trustees. Act of Feb. 
     24, 1893, ch. 160. In 1953, Congress enacted legislation, 
     altering, among other things, the process by which the AU 
     board of trustees is elected. Act of Aug. 1, 1953, Pub. L. 
     No. 183, ch. 309. The Finance Committee's review is 
     predicated on this unique history of the legislative 
     relationship between the federal government and AU as a 
     congressionally chartered institution, as well as on the 
     Committee's general legislative and oversight jurisdiction 
     over tax-exempt charitable organizations.
       In conducting its governance review, the Finance Committee 
     has reviewed the numerous documents provided by AU and 
     material provided by other sources, as well as discussions 
     with current and former board members, faculty, students and 
     AU employees. In addition, I have heard concerns raised by AU 
     students from Iowa and their parents. To allow students, 
     faculty and staff, and the public to have a better 
     understanding of the governance issues still facing AU, I am 
     today releasing relevant material provided to the Finance 
     Committee. It says volumes about problems of AU governance 
     that students, faculty, and supporters often have to learn 
     about the work of the AU board from the U.S. Senate Finance 
     Committee rather than from the board itself. I understand 
     that governance changes are to be proposed that proponents 
     claim will ensure that there will be greater openness and 
     transparency at AU. I look forward to meaningful reform in 
     this area and expect to be informed of the details of those 
     proposals.
       While I am releasing quite a bit of information today, I am 
     frustrated that there is certain key material that I cannot 
     release today. When the Committee began this investigation on 
     October 27, 2005, I received assurances of cooperation. The 
     Washington Post stated on October 28, 2005, ``Gottschalk said 
     yesterday that the board would do everything it could to 
     cooperate.'' Unfortunately, those words have not always been 
     met by deeds. While AU has over time provided material 
     requested, AU continues to redact material provided and most 
     frustratingly labels key documents' `confidential' and not to 
     be released to the public. This is not what I would expect 
     from a university that benefits from tax-exempt status and 
     was chartered by act of Congress. I call on you to hold to 
     your public commitments of full cooperation and allow for 
     public release of all documents without redaction that have 
     been requested. AU students, faculty and supporters have a 
     right to a full understanding of the board's actions.
       One of my principal governance concerns relates to the 
     legal structure and composition of the AU board. The Finance 
     Committee, during its roundtable discussion on charitable 
     governance, heard from AU student leaders, faculty, and 
     former board members, a number of whom called for the removal 
     of certain AU board members--particularly focusing on members 
     serving on the ad hoc committee that took actions regarding 
     former AU president Dr. Ladner without the knowledge of key 
     board members.
       In reviewing the material, I understand the views of those 
     who believe the members of the ad hoc committee should be 
     removed. In the course of our review, I have also focused on 
     several key votes by some AU board members. In particular, 
     given all related information reviewed by the Finance 
     Committee, I am seriously troubled by votes cast in October 
     2005: 1) to amend the audit committee's recommendation and 
     secondly to reject the audit committee's recommendations on a 
     vote for reconsideration; 2) to reject three identical 
     recommendations from counsel, including Manatt Phelps as well 
     as Arnold & Porter, that had concluded that Dr. Ladner's 1997 
     employment agreement was invalid; 3) not to terminate Dr. 
     Ladner for cause; and 4) to increase cash severance to Dr. 
     Ladner by an additional $800,000 over eight years--after the 
     board had already voted to increase Dr. Ladner's cash 
     severance by $950,000.
       It is important to bear in mind that these votes were made 
     after the findings from protiviti independent risk consulting 
     reports, which I am releasing today; were known to the board 
     and that provided in detail the expenses of Dr. Ladner and 
     his wife that he charged to AU. The report shows expenses 
     that would make for a good episode of `Lifestyles of the Rich 
     and Famous'--a lifestyle paid for by AU students and their 
     parents. In addition, as noted above, the board

[[Page 8377]]

     members were aware of the findings of two respected law firms 
     that found that Dr. Ladner's 1997 employment agreement was 
     invalid.
       While I fully understand that as Chairman of the Senate 
     Finance Committee, I'm not here to direct the management of 
     the affairs of AU or its board, I do want you to know that I 
     am considering proposing federal legislation that would 
     require changes in the structure, composition, and governance 
     of the AU board, as Congress has done previously. In 
     particular, in discussions with Finance staff, AU board 
     members have noted that they do not view that under current 
     federal law the AU board has the authority to compel a board 
     member to resign. Please confirm if that is accurate, and 
     please also provide your views about the wisdom of Congress 
     amending the law to provide the AU board such authority and, 
     if so, suggested changes to the law.
       In addition, I want to draw your specific attention to a 
     board meeting that discussed Mr. Ladner's compensation 
     package. In general, under federal tax laws, outside review 
     and justification for the salary of a highly compensated 
     individual at a public charity provides a safe harbor from 
     penalties under Section 4958 of the Internal Revenue Code. My 
     review of tax-exempt organizations and corporations has found 
     that in the overwhelming number of cases outside consultants 
     provide a justification for the salary request that is being 
     considered. In fact, the AU situation is the only example 
     Finance Committee staff have seen of an outside consultant 
     stating that a salary of an individual at a public charity is 
     too high.
       However, in calling for a salary for Dr. Ladner higher than 
     that recommended by outside consultants, some AU board 
     members appear to have rejected concerns about complying with 
     the laws passed by Congress and instead described financial 
     penalties for violating federal law as `de minimis.' Comments 
     that suggest that federal laws should be disregarded because 
     penalties are `de minimis' are stunning when I hear them from 
     members of for-profit corporate boards; they are shocking 
     when they come from board members of a tax-exempt university. 
     Do you believe this is the appropriate message AU should send 
     to students--it is all right to violate the law if the 
     penalty is de minimis? Please provide a complete explanation 
     of these events and your views of them, as well as all 
     related material.
       The issue of whistleblower protection at non-profit 
     institutions has also been of great concern to me in the 
     course of the Committee's work. Whistleblowers in certain 
     situations are protected from retaliation under state and 
     federal law. A series of aggressive emails to other AU board 
     members by one AU board member appear to attack 
     whistleblowers trying to do the right thing regarding the 
     situation at AU. They include the following language: ``You 
     are right in citing a Nixon era example. People do not 
     tolerate leaks any more. No one is so naive anymore to think 
     that unidentified `whistleblowers' are public servants. You 
     are right in saying there always must be a process for people 
     to report wrongdoing but this is not the way.''
       As a champion of whistleblowers in Congress for years, I 
     can state categorically that not only are whistleblowers 
     public servants, they are often heroes--saving lives and 
     taxpayers billions. I commend you, Mr. Gottschalk, and former 
     board chair Ms. Bains, for taking a strong line against any 
     effort to bring the Salem witchcraft trials to northwest DC. 
     But again, that a board member might propose retribution 
     against whistleblowers, as appears from some of these 
     emails.is inexcusable. I would appreciate your general views 
     on the benefit of whistleblower protection at tax-exempt 
     organizations, as well as your specific views on the series 
     of emails appearing to support aggressive efforts to search, 
     find, and punish those who try to speak out against what is 
     wrong. In particular, do you believe such efforts send the 
     appropriate message to AU students--especially given that a 
     large number of AU graduates will be employed in public 
     service?
       Finally, let me return to the overall issue of governance. 
     In meetings with my staff, AU representatives have given 
     assurances that AU will have in place governance reforms that 
     will provide students and faculty a meaningful and 
     substantive voice at AU. I view this as a vital part of AU 
     governance reforms coupled with greater sunshine and 
     transparency that I mentioned at the beginning of my letter. 
     Please inform me in detail what the governance reforms are as 
     to students and faculty.
       Given that Congress is currently considering reforms to 
     provisions of the tax code affecting charities as part of the 
     conference on the pension bill, I ask that you provide 
     answers to this letter within 10 working days. Thank you for 
     your time and courtesy.
           Cordially yours,
                                              Charles E. Grassley,
     Chairman.

                          ____________________