Truth, Candor, and Crisis at Yeshiva University

Among universities in trouble, the darkest cloud hangs over Yeshiva University, a venerable Jewish institution founded in New York in 1886. The University acknowledges huge economic losses and failed investment policies and is taking extraordinary steps to balance its books, including ceding control over its one-time crown jewel, Albert Einstein College of Medicine, which has close friends of its law school, Benjamin N. Cardozo School of Law, very concerned.  Critics, moreover, see a death spiral and question the leadership’s candor.

Amid calls for the resignation or dismissal of Yeshiva’s president, Mr. Richard M. Joel, he says the University will no longer engage with the media on fiscal questions. The Wall Street Journal reports that the University has hired the crisis-management communications firm, Kekst & Co., but any benefits from that hiring are not yet obvious.sunlight

In a familiar pattern facing other organizations in crisis, what both sides miss in this dangerous heightening of tensions is the importance of trust to any institution’s health. To resolve this crisis, as always, the institution’s leadership must regain trust by explaining how its current fiscal stewardship advances the institution’s mission. Critics must not rush to judgment and hear the leadership out on what it has learned from recent problems and plans for the future.

Like other investors, part of Yeshiva’s problems are due to the financial collapse of 2008, but its roots are a bit deeper and offer broader lessons. Since at least 1993, the board of trustees oversaw Yeshiva’s endowment and made investment decisions. University policy permitted trustees to invest endowment in funds the trustees managed, despite conflicts of interest, so long as they made full disclosure.

During the early 2000s, the trustees increasingly allocated endowment to their own hedge funds, which were heavily weighted in risky securities. By 2008, the endowment, valued at more than $1 billion, held riskier investments than those of peer institutions. The financial upheaval of 2008 thus hit Yeshiva even harder than most peers, shrinking its endowment by more than $300 million, including $100 million due to the Ponzi scheme of Bernie Madoff, whose top victims also included a Yeshiva trustee.

While it appears that the trustees and the administration acted in good faith, even if no laws were broken, poor judgment abounded. The loose conflict-of-interest policy certainly was a mistake, as a trustee’s personal involvement skews his judgment. Reputable and durable institutions scrupulously avoid the remotest appearance of impropriety. For stalwarts like Yeshiva, this principle of integrity, coupled with an ethic of prudence, should govern investment decisions.

The University learned its lesson from this calamity and has adopted new policies that may serve as a model for other endowments. It created a professional investment office to set strategy, updated oversight protocols, and established a rigorous conflicts policy. While thus implicitly recognizing earlier weaknesses, the University has not offered a mea culpa nor has it identified particular past faults—whether sins of omission or commission, of process or substance, or whether the product of mere haplessness or of actual chicanery. That reticence allows unimpressed critics to overlook the significance of these reforms.

It is hard to measure objectively the exact economic costs of Yeshiva’s policies or market onslaughts from which it has suffered. One result of this difficulty is wildly different numbers being reported by the University and critics—ranging from $300 million to a staggering $1.3 billion. However, it is less important to achieve consensus on financial figures than to find common ground on productive next steps.

At stake is advancing the institution’s core mission, which is not to maximize endowment or earn a profit but to promote knowledge and teach students. The fiscal drama becomes a superficial distraction from fundamental academic judgments about the relation among current and future pedagogical, scholarly, scientific, cultural and religious needs and resources.

Constituents would rightly like to know more about Yeshiva’s finances as well as the academic thinking behind decisions concerning building or closing facilities and forming or ending joint ventures and programs. For example, when Yeshiva recently ceded managerial control over Einstein College of Medicine to another institution to cut costs, it did not publicly detail the educational rationale. Critics jumped on the move, assuming and asserting that it was a sign of distress rather than a shrewd maneuver that promotes the University’s goals.

When institutions are imperiled in this way, the best course of action is to make certain that the operative facts are publicly known, to identify lessons learned, and to act on them. In that spirit, the University might do well to form an independent task force with unlimited access to University information charged to report a public assessment of where things stand and where they are going. Lifting the cloud over this 128-year old bastion of Judaism, such a look would enable Yeshiva University to move forward with its important business of education.

Lawrence A. Cunningham, a graduate and former faculty member of Yeshiva University’s law school (Cardozo), is a professor at George Washington University and the author of the forthcoming book, Berkshire Beyond Buffett: The Enduring Value of Values.

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