GOLDEN TOUCH

Vanderbilt Reins in Lavish Spending by Star Chancellor As Schools
Tighten Oversight, a $6 Million Renovation Draws Trustees' Scrutiny

Marijuana at the Mansion

NASHVILLE, Tenn. -- At Vanderbilt University, the board is trying to
rein in star chancellor E. Gordon Gee, without running him off. Since
arriving here in 2000, the 62-year-old Mr. Gee has dramatically
boosted the 133-year-old school's academic standing and overseen fund
raising of more than $1 billion.

Mr. Gee's $1.4 million annual compensation is among the highest for
U.S. university leaders.

But supervision of Mr. Gee by the university's 44-member Board of
Trust has "probably been a little loosey-goosey," says trustee Edward
Malloy, a former president of the University of Notre Dame.
Vanderbilt paid more than $6 million, never approved by the full
board, to renovate and enlarge Braeburn, the Greek-revival
university-owned mansion where Mr. Gee and his wife, Constance, live.
The university pays for the Gees' frequent parties and personal chef there.

The annual tab exceeds $700,000. Some trustees' concern was aroused
when they learned that Mrs. Gee was using marijuana at the mansion.
The chancellor told some trustees she was using it for an inner-ear
ailment. Now change is afoot.

Trustees recently created a subcommittee to monitor Mr. Gee's spending.

For the first time, the full board will get reports about his
expenditures and pay package.

A second new board committee is scrutinizing potential conflicts of
interest and likely will look at the university's longtime contract
with a parking company in which a trustee holds a big stake. "We
should not be issuing blank checks to university leaders," says
Judson Randolph, a retired Vanderbilt trustee who still attends board
meetings. Yet no one wants Mr. Gee to leave.

Despite the board's actions, chairman Martha Ingram says: "I have
never had qualms about whether Gordon should stay on as chancellor."
The delicate dance by Vanderbilt trustees reflects a new era of
campus governance and the changing role of college heads.

Historically, these campus leaders earned modest salaries and enjoyed
long tenures.

Now, like Mr. Gee, they make more money and move more often.

Their higher compensation invites scrutiny from trustees, faculty and
students. Vanderbilt's $2.2 billion annual budget is bigger than the
revenues of all but the largest 800 U.S. public companies.

But management oversight on campus often hasn't kept pace with
changes in the business world.

At Vanderbilt, the full Board of Trust didn't approve the
university's annual budget, most big-ticket spending projects or debt
financing between 2000 and 2005. The scrutiny at Vanderbilt comes as
the national outcry over executive pay has reached into academia.

Recent disclosures about the pay and perquisites of campus leaders
have led to resignations and an indictment. American University last
fall forced out President Benjamin Ladner after auditors questioned
more than $500,000 in expenditures by him and his wife. The
Washington, D.C., university paid for the couple's birthday parties
and European vacations in first-class hotels, according to the audit.
Investigators found the Ladners once stopped in Rome on a business
trip to Dubai so she could have her hair cut by a favorite stylist.

Mr. Ladner says the university didn't pay for any European vacations
and the Rome stop "had nothing to do with" his wife getting a
haircut. In California, a state audit in May uncovered $334 million
in largely unreported pay and perks for University of California
staffers during the year ended June 30, 2005. The spending included a
$30,000 dog run built for Denice Denton, chancellor of the
university's Santa Cruz campus.

She committed suicide in June following extensive media coverage and
criticism by lawmakers. In August, a Houston grand jury indicted
former Texas Southern University President Priscilla Slade on two
charges of criminally misusing university money for her private benefit.

The indictment alleges Ms. Slade improperly spent $1.9 million during
her nearly seven-year tenure, including more than $260,000 to furnish
and landscape her home. Ms. Slade, whom university regents fired in
April, has denied wrongdoing and sued them for allegedly breaking her
contract. "She believed every expenditure she participated in was for
the benefit of TSU and was or would be approved by the board," says
Mike DeGeurin, Ms. Slade's lawyer. In the wake of such disclosures,
Congress is considering more scrutiny of management compensation at
nonprofits. Sen. Charles Grassley, a Republican from Iowa, intends to
introduce a bill next year to strengthen a federal prohibition on
"excessive" compensation for leaders of universities and other
charitable groups.

Good governance "can make the difference between universities where
presidents live high on the hog and where students come first," says
Mr. Grassley, chairman of the Senate Finance Committee. Recurring
Pattern Mr. Gee's 25-year career as a university leader follows a
recurring pattern: disrupt the status quo, lift the university's
image, raise a lot of money, and leave for another job. He has run
five universities -- more than any other American, he says. At each
stop, Mr. Gee has been well-paid, and well-housed.

A Mormon teetotaler trained as a lawyer and educator, Mr. Gee is
known for wearing bowties and horn-rimmed glasses.

He first became a university president at West Virginia University in
1981, when he was 37. In 1985, Mr. Gee left to assume the presidency
of the University of Colorado, where he charmed students and
lawmakers, who boosted state support by 37% during his tenure.

The university also built him a $780,969 house. After he resigned in
1990 to take the helm at Ohio State University, Colorado regents
found Mr. Gee had awarded deferred-compensation bonuses to top aides
without board authorization. Mr. Gee says he reviewed the bonuses
with the board's chairman, who has since died. At Ohio State, Mr. Gee
confronted state budget cuts. He restricted enrollment, merged
departments, cut jobs through attrition, and initiated a $1 billion
fund-raising campaign.

During his seven-year tenure, the university twice paid to renovate
its president's home and added a small conservatory to it. The total
cost was between $500,000 and $750,000, according to Mr. Gee. When he
announced plans to leave for the Ivy League's Brown University, Ohio
State students donned bowties and begged him to stay. Brown spent $3
million renovating the president's home for Mr. Gee, says Donald
Reaves, Brown's former finance chief.

The total included a $400,000 conservatory that was built in England,
then broken down, shipped, reassembled and attached to the
president's home on Brown's Providence, R.I., campus. Mr. Gee
believes a home with generous entertaining space is an essential
fund-raising tool for a university leader.

At Brown, he says, "I stayed out of the budget side" of the
renovation. In late 1999, less than two years after arriving at
Brown, Mr. Gee took a call from John Hall, a retired chief executive
of Ashland Inc. and longtime Vanderbilt trustee.

The two men had been friends since the early 1980s, when Mr. Gee
sought a corporate contribution from Mr. Hall for West Virginia's
engineering school.

Now, Mr. Hall wanted Mr. Gee to consider moving to Vanderbilt. Mr.
Gee said he initially resisted, but eventually succumbed after an
intense courtship by Vanderbilt trustees.

He said he never felt like he fully belonged at Brown, where he had
some run-ins with the faculty.

The day Vanderbilt announced his selection in February 2000, the Gees
toured Braeburn, situated on a hilltop in a tony Nashville
neighborhood. "They said, 'It would be nice to fix it up as nice as
the house at Brown,' " Mr. Hall recalls.

He says the university promised to renovate the home and install a
conservatory, guest quarters and commercial kitchen. "He got what he
wanted," Mr. Hall says. The university's offer letter, reviewed by
The Wall Street Journal, didn't mention the remodeling project.

It promised Mr. Gee a $504,000 annual salary, annual bonus and two
supplemental-retirement plans.

Only a few of the nine members of the board's search committee knew
the details of the offer letter at the time, according to people
familiar with the matter. After arriving at Vanderbilt, Mr. Gee set
out to recruit top-flight faculty, break down barriers between
academic departments and boost enrollment among racial and ethnic
minorities. He created a $100 million fund to support
interdisciplinary research.

And he attacked a sacred cow of higher education by folding the
athletic department into other departments to better integrate
athletics with the rest of the university. Meanwhile, the university
began renovating Braeburn, which was built in 1915. The project,
which included new plumbing, heating and electrical systems, expanded
the mansion by 3,700 square feet, to a total of 19,700. Construction
permits estimated the cost at $2.1 million.

But the final tab exceeded $6 million, according to a person close to
the situation. Mr. Hall says he knew the building was in poor repair
but the extent of the work was a "surprise." Mr. Gee says, "We
indicated some of the things that we thought would be important,
including creating a space for all the entertaining we were going to
do." However, he says he didn't keep tabs on the project's cost
because he didn't want to be perceived as trying to shape the project
for his personal gain. "I was told it was done right, it was done
well and it was done on budget," he recollects. In hindsight, he
agrees he should have learned the amount and kept the full board
apprised. Still, Mr. Gee says, "we paid for that house over and over
and over again." He notes that the university has raised more than
$1.2 billion since he arrived and says, "A lot of that was raised in
that house." Some of the money went to build the endowment, which has
grown to about $3 billion from $2 billion in 2000. Mr. Gee estimates
that Braeburn is home to several hundred events a year. The events
range from five-guest dinners served by a waiter to large fund
raisers for Nashville-area nonprofits where Vanderbilt pays the bill.
Improving community ties "is a very good use of university
resources," Mr. Gee says. "We don't live here to have parties for
ourselves." In some cases, the connections to Vanderbilt are more tenuous.

Three years ago, Mr. Gee and his wife hosted a party to celebrate a
memoir written by their friend Marshall Chapman, a rock singer,
songwriter and Vanderbilt alumna. Ms. Chapman says 300-plus guests
dined at tables covered with tie-dyed cloths while she sold about 65
copies of her book. The party cost Vanderbilt more than $15,000,
according to the person familiar with the situation. Michael J.
Schoenfeld, a university spokesman, declines to discuss the party's
cost. He says the party strengthened Vanderbilt's ties to the music
industry and notes that Ms. Chapman had endowed a women's basketball
scholarship. The renovations, the entertaining and Mr. Gee's pay
package stirred little dissent on campus for five years.

Mr. Gee was viewed as a campus hero and the university became
significantly more selective.

Vanderbilt admitted 34% of its applicants this year, compared with
55% in 2000. In the fall of 2005, university employees discovered
that Constance Gee, a tenured associate professor of public policy
and education, kept marijuana at Braeburn and was using it there,
according to people familiar with the matter. A few weeks later,
several trustees and a senior university official confronted Mr. Gee
in his office, telling the chancellor he shared responsibility for
allowing marijuana on university property, the person familiar with
the situation recalls. Trembling, the chancellor replied, "I've been
worried to death over this," according to this person.

Mr. Gee said his wife smoked marijuana to relieve an inner-ear
ailment, this person says. The Gees decline to comment on the
incident. Mrs. Ingram, Vanderbilt's board chairman, formally
reprimanded Mrs. Gee for possessing and using the illegal drug. The
matter was "handled appropriately and satisfactorily," says Mrs.
Ingram, who is chairman of Ingram Industries Inc., a conglomerate
with interests in book distribution and shipping.

Causing a Stir

Mrs. Gee has caused stirs on campus with her liberal politics.

She lowered the American flag outside Braeburn to half-staff after
President Bush won re-election in 2004. Mr. Gee says he quickly
ordered the flag raised back up. She and others signed a letter of
protest to the chancellor when Condoleezza Rice, then Mr. Bush's
national security adviser, was invited to address graduating students
in 2004. Mr. Schoenfeld says Mrs. Gee posted the letter on the
couple's refrigerator door at Braeburn. The marijuana incident
troubled some trustees, who were bothered that Mr. Gee never told the
full board about it, according to people familiar with the matter.

To these trustees, the incident demonstrated that Mr. Gee needed to
be more accountable to the board. Aware of the trustees' concerns,
Vanderbilt General Counsel David Williams reviewed Mr. Gee's
spending, looking for personal expenses.

Mr. Williams questioned the absence of clear records documenting time
the chef spent preparing meals for the Gees rather than for university events.

Mr. Gee later agreed to cover about one-third of the chef's roughly
$50,000 salary -- more than before. "When they [university officials]
tell me what needs to be done, I always write the check," Mr. Gee
says. "But sometimes, I get heartburn" from the requests. Restive
trustees then asked Mrs. Ingram for a broader look at Vanderbilt's
governance system, pointing to the federal Sarbanes-Oxley law on
governance of publicly traded companies and the scandal at American
University, according to Mrs. Ingram. She formed a committee to
determine if the university was following "best practices," she says.
The committee, led by retired investment banker Joe Roby, found the
full board never approved the budget and other financial items
between 2000 and 2005. The committee report, which was reviewed by
The Wall Street Journal, recommended that trustees take a more active
role in university affairs, including strategic planning, capital
spending and management compensation. It also suggested a special
panel to monitor Mr. Gee's budget and outlays for entertainment,
travel, food, staff and upkeep of Braeburn. The panel would report
annually to the full board. The recommendations sparked a spirited
board debate.

Mrs. Ingram says she initially opposed an April board vote to adopt
the report and create the expense panel.

Later she retreated, and the board unanimously endorsed the tougher
oversight measures. "We have a chancellor who is performing well,"
says a trustee.

The new checks, this trustee says, are aimed at making Mr. Gee "more
effective." Other trustees worry that the board could become a
micromanager. "You don't want to cut off your nose to spite your
face," says Mr. Hall, who won a spot on the new expense panel after
lobbying on his behalf by Ms. Ingram and Mr. Gee. The trustees'
effort to improve oversight has also renewed questions about one of
their own -- Monroe J. Carell Jr., a key Gee supporter on the
executive committee and head of the university's $1.75 billion
capital campaign. He and his family have given Vanderbilt more than
$40 million. Mr. Carell is founder and executive chairman of Central
Parking Corp., the world's largest operator of parking facilities. He
and his family own about 48% of the shares, according to Jeffrey
Heavrin, chief financial officer. Central Parking manages
Vanderbilt's parking lots and related services under a 1974 contract.

It currently earns between $100,000 and $120,000 annually in
management fees there, according to Mark Manner, a lawyer for Mr.
Carell. Vanderbilt never put those parking services out to
competitive bid, says Mr. Schoenfeld, the university spokesman.

That created a fuss in 2002, when Steve Franks, a former associate
athletic director, questioned Central Parking's rates for handling
parking at football games. After the athletic department switched to
a different provider, Mr. Carell complained to athletic director Todd
Turner, Mr. Franks says. "We were instructed to back our way out of
the contract we had signed and return to Central Parking," he says.
Mr. Manner confirms Mr. Carell called Mr. Turner to discuss the
contract. But the trustee "applied no pressure to him," Mr. Manner
says. Mr. Schoenfeld says the athletic department retained Central
Parking's contract, which had more than a year to run, because it had
not followed proper termination procedures. A consultant later hired
by the university to review the Central Parking relationship
concluded the parking-management fees were within market rates but
advised Vanderbilt to seek proposals from competitors. Mr. Carell
didn't participate in the board discussions and declines to comment,
Mr. Schoenfeld says. Vanderbilt requested bids for parking services
in July. Central Parking was a bidder.

Vanderbilt will announce the winner soon. Early this year, board
members began talks with Mr. Gee about a new employment agreement.

The chancellor says he sought to update his offer letter "in light of
the changing nature of corporate governance." One issue on the table
was Mr. Gee's seats on five corporate boards.

Fewer than 2% of U.S. corporate directors hold more than four seats,
according to proxy-advisory firm Institutional Shareholder Services.
As trustees considered inserting a limit into the new agreement, Mr.
Gee recalls, "I said I would move back to three boards" over the next
year. The agreement, signed in August, restricts Mr. Gee to three
public-company directorships. It also says the chancellor must get
prior approval for budgets in five categories including house
maintenance and entertainment, according to a person familiar with
the matter. Mr. Gee isn't entirely happy with the new limits.

He says he missed few of his 77 board and committee meetings last
year at Dollar General Corp., Massey Energy Co., Gaylord
Entertainment Co., Limited Brands Inc. and Hasbro Inc. When he
travels to these meetings, he says he also conducts Vanderbilt
business, such as conferring with alumni, parents, prospective
students and faculty. "Sitting on a corporate board is a hobby for
me," he remarks, pointing out that he doesn't smoke, drink or play
golf. Mr. Gee made nearly $400,000 in cash and stock awards from his
directorships last year. Mr. Gee says the governance changes at
Vanderbilt will continue. "You're covering us in the middle of a
movie," he says. The chancellor favors more accountability -- within
limits. "We have to make certain that we get it right first," he
explains, "so you don't get the pendulum swinging too far...in terms
of micromanaging."