115 Year old University Fails to Follow Proper Fiduciary Practices and Devastates the Legacy of its Founder. This is a good case where there is value to integrating fiduciary due diligence with strategic planning.
As parents get ready to send off their children to college this month and next, many of us are thankful the our chosen school has provided us with financial assistance. It would be even more exciting if our children were getting a great education at one of the top universities in the US for free! For almost 115 years one school has done just that. Imagine, however, if you had been promised a free education for your entering freshman and were told that it would now cost you $20,000 per annum?
This happened with the prestigious Cooper Union for the Advancement of Science and Art in New York City a few years ago. found itself having to charge tuition for the first time in its history. Founded in 1902 by the Cooper Family with the gift of the land under the Empire State Building in New York City, the wish of the family was to provide free education to all those who were enrolled. Over the years the Board of Trustees reflected the crème de la crème of New York society, including some of the City’s most well know financiers. There was plenty of money to meet the needs of the students and maintain the facilities. Things began to change in the late 2000’s; more and more money was placed with hedge fund managers in their famous “2 and 20” funds (2% annual fee plus 20% of the profits) who took exotic bets. By 2012, the Cooper Union Foundation is worth less than it was in 2008, dropping from $710 million in 2008 to $667 million by the end of fiscal 2012. With ever increasing costs and decreasing returns, the solvency of Copper Union was in jeopardy so the decision was made to charge tuition.
What went wrong? Many things – high concentration of market risk, poor diversification, limited planning and high costs of investment management, amongst other issues. It is a starling tale of arrogance and expectations gone wild. The lesson remains, however, that without a sound fiduciary governance policy, even sophisticated investors can get into trouble. More than ever, global best practices can offer sound guidance to stewards of other peoples’ money – both in the financial sense and in the moral context