Thursday, December 25, 2008

Merry Christmas

Pandora (our cat) and my dishwasher say Merry Christmas.

Yes, I probably need more sleep.

Wednesday, December 17, 2008

Who Is In Charge of the Store That Is Not Being Watched?

Last week, I wrote about who’s watching the store. This week, I’m wondering who’s in charge of the store.

News Items:
  • Madoff in house arrest, SEC under fire. “On Tuesday, SEC chairman Christopher Cox offered an embarrassing mea culpa for the agency's lack of oversight of Madoff's investment advisory firm, Bernard L. Madoff Investment Securities LLC. Cox said Wednesday there was no evidence that SEC staff did anything wrong amid accusations the regulator failed to act on tips of alleged fraud by Madoff in the past 10 years.” (Reuters)
  • Chrysler to Close All Plants for One Month. “Chrysler and larger rival General Motors Corp. have warned they could run out of cash within weeks without financial aid from Washington. Chrysler has said its cash will drop to $2.5 billion by Dec. 31, the minimum needed to meet payroll, pay suppliers and run the company. It would have trouble paying bills after the first of the year.” (Associated Press)
  • Lambuth University Crisis. "Lambuth leaders laid it on the line at a meeting called to answer questions about the financial crisis that threatens the university's future. To keep the doors open, Lambuth University needs an additional $800,000 to meet year-end obligations including the December 15 payroll. Of that amount, the Board of Trustees has already pledged $260,000 and those alumni contacted have offered another $100,000." (Memphis Conference, United Methodist Church)
  • Lambuth and United Methodist Church Unite for Common Cause. "Regarding the institution’s financial predicament, Koen explained that the current situation is a result of several events over time leading up to this point. Approximately four and a half years ago, an unacceptably high discount rate was reached under the direction of a former VP of enrollment. Due to misinterpretation of enrollment statistics and ineffective monitoring by senior leadership, there became a huge increase in Lambuth’s dependence on annual giving to balance the budget." (Press Release, Lambuth University)

All of these items are in the forefront of the news today, nationally and locally. All of them involve the failure of institutional oversight and leadership. And all of them seem to be willing to blame something instead of taking responsibility. While SEC Chairman Cox offered a mea culpa, he was also quick to say that his staff did nothing wrong.

This is the situation with Lambuth University, our conference’s small college. The school is in financial and institutional straits and is asking for contributions from alumni and churches, yet gives no assurances that safeguards are in place to prevent repeat occurrences. Legitimate questions that were asked were given vague and incomplete answers. Trustees said that they believed in the leadership and were given misleading information. Parents (to this date) have received no correspondence regarding the school’s struggles.

In short, we are being asked to bail out an institution while having vague information about the total indebtedness, how it got there, and who was (or is) ultimately responsible. These are questions that people have asked me that I cannot answer, as I have no information to give them a satisfactory answer:

  1. Why isn’t an independent, financial audit being done?
  2. What is the role of a trustee?
  3. Why should I contribute to the endowment when they’ve already been guilty of spending the principal once already?
  4. Is this a serious financial campaign, or just being done so we can say, “We tried.”?
  5. If the university goes under, is the Annual Conference financially liable?
  6. Who’s in charge, and who is ultimately responsible?

Regarding question 1: I am not an expert when it comes to finance and law. But I do know that the quickest way to engender trust after a financial crisis is to come clean, tell what happened, and print it out for all to see. Make changes and corrections and earn back trust.

Question 2: Being a trustee is more than a nice honor or being a yes man or woman to the president or CEO. It comes with responsibility and trust. It is both leadership and a check and balance of leadership. There is no one to “pass off” to or blame. It is their responsibility to know and ask the right questions.

Question 3: This is a very hard question to answer. I honestly don’t know how Lambuth will ever raise an endowment again. They violated the fundamental trust of a benefactor for an endowment – spending the principal. I don’t know if this is against the law, but I am fairly sure it is an unethical practice.

Question 4: This is an embarrassing question. I’ve gotten two emails about the urgent need for money. There has been a press release. But as far as a personal contact, or a letter to my church, I’ve yet to receive such. With such an imminent financial crisis, I would expect a whole lot more attention to detail and a “saturation” of sorts with publicity, data, reassurances, and personal contact. It seems to the casual observer that it’s not that big a deal.

Question 5: This is fuzzy too. This question was asked at the Lambuth informational meeting on Dec. 6th, and got an emphatic “no” in response. However, the trustees of Lambuth are nominated and appointed by our Annual Conference. And, were any of the buildings at Lambuth mortgaged (I don’t know if they are or not), I suspect the trust clause is in effect. If the school was to financially fail, who would creditors come after? Trustees? The annual conference? The trustees maintain that the conference is not liable. The logical question is, then, who is?

Question 6: This is really the question that needs answering. Who is in charge, and who is ultimately responsible? Are the trustees of Lambuth ultimately responsible, or is the Annual Conference who nominates and appoints the trustees the final authority? This is an important question, as it pertains to who is ultimately responsible for the debt. If the Annual Conference is not responsible, I will breathe a huge sigh of relief. However, if we are responsible, it really is in our best interests to bail out Lambuth – I suspect that would be far cheaper than enduring the endless litigation that could ensue regarding repayment of debt. Is anyone ever going to come clean and answer this question? The sooner, the better.

It all ultimately goes back to leadership – who is in charge of the store that no one is watching? It is fairly certain that in the Christian church, we are to take authority, not abdicate. To say “it’s not my job” or “we can’t do anything” is a cop out and abdication from discipleship.

It may be that in addition to being nearly insolvent financially, we may be spiritually bankrupt. Leadership in the church is not just administrative or financial - it is spiritual. Are we truly about making disciples, or just a social agency? How important is it to us? Do our hearts really burn to do the work of the Gospel?

Stephen Covey is quoted to say these words: "How different our lives are when we really know what is deeply important to us, and keeping that picture in mind, we manage ourselves each day to be and to do what really matters most."

So, who’s in charge of the store? I think Christ made it fairly clear that we are. He is the one who gave us the keys to the Kingdom.


Monday, December 08, 2008

Who's Watching the Store?

A few weeks ago, members of our Annual Conference were made aware of a financial crisis at Lambuth University, our conference's small college. An informational meeting was held last Saturday. I was unable to attend because of conflicts.

The bottom line is this: Lambuth needs $800,000 by December 15th to finish out this semester. They need $3.5 million to complete Spring Semester. We have given our churches nine days notice to raise all that money. To date, I haven't received anything official from the conference regarding fund raising, other than word of mouth. Our district superintendent sent us an informational email which was very helpful. But outside of that... I really don't know that much about fund raising attempts. Just send Lambuth your money. Soon.

From those I have talked to who went to the meeting, there was a lot of frustration. Lambuth has a new interim president; however he was not present at this informational meeting, making a videotaped presentation instead. Answers that should have been anticipated were not given. One person asked what the total debt was. The response was a convoluted "Well, that's actually hard to say... you see, there's short term debt, and there's long term debt. Then there's money we've borrowed from ourselves (endowment capital) that we have to pay back... and we took out a bond to build some buildings..." And that was the answer. We still don't know what will happen if the funding is not raised.

I am not a Lambuth grad, but I have fondness for the school. A lot of my friends went there. I would love for my daughter to attend there. But more than that... it is our conference's school. That means we are responsible for its operation and its continued mission. My questions would be two-fold: how in the world did those who were in leadership allow this to happen, and where was the check-and-balance for our leadership? As best as one can piece together, it sounds like the school is about $14 million in the red, gave more scholarships than it could fund, and was dependent on two very generous individual's contributions to cover things. How in the world could this have happened?

Before I can point the finger and assign too much blame, I have to point the finger at myself. Leadership is shared, and we must always be vigilant and responsible with the stewardship and resources God gives us and gives us dominion over. It would be very easy to blame trustees, administration, and university officers for Lambuth's problems... but in reality, we are all trustees of what God gives us, and in the oversight of God's Kingdom.

Where Lambuth is concerned, instead of saying we don't know what happened, we should all accept and admit some of the blame. The barn door was left open for a long time, and we are now paying the price.

Perhaps the words of John the Baptist are appropriate for both the Advent season and this season for our annual conference:
"From the fig tree learn its lesson: as soon as its branch becomes tender and puts forth its leaves, you know that summer is near. So also, when you see these things taking place, you know that he is near, at the very gates. Truly I tell you, this generation will not pass away until all these things have taken place. Heaven and earth will pass away, but my words will not pass away.

"But about that day or hour no one knows, neither the angels in heaven, nor the Son, but only the Father. Beware, keep alert; for you do not know when the time will come. It is like a man going on a journey, when he leaves home and puts his slaves in charge, each with his work, and commands the doorkeeper to be on the watch. Therefore, keep awake-- for you do not know when the master of the house will come, in the evening, or at midnight, or at cockcrow, or at dawn, or else he may find you asleep when he comes suddenly. And what I say to you I say to all: Keep awake." -
from Mark 13 [NRSV]

'Nuf said.


ADDENDUM: This press release went out today (12/9/08):

Lambuth University crisis
Memphis Conference/The United Methodist Church

Lambuth leaders laid it on the line at a meeting called to answer questions about the financial crisis that threatens the university's future. To keep the doors open, Lambuth University needs an additional $800,000 to meet year-end obligations including the December 15 payroll. Of that amount, the Board of Trustees has already pledged $260,000 and those alumni contacted have offered another $100,000.

"We need the church, collectively or as individuals, to pledge $500,000," said Dr. Mary Cay Koen, chair of the trustees, as she stood in front of a group of concerned Memphis Conference clergy, Lambuth alumni, key lay leaders, and parents of students in the Lambuth chapel on December 6. "And this money needs to be in hand by year-end at the latest."

To finish out the next semester without cuts in services or personnel, including faculty, the school must have an additional $3.4 million, Koen said.

Questions came thick and fast after Koen and board vice-chair Mike Keeney finished giving the history of the present crisis and issuing the challenge to the church.

"Is the school going to be here for my granddaughter, a freshman on an athletic scholarship?" asked Catherine Russell from McNairy County.

"If Lambuth, God forbid, doesn't continue, will the indebtedness here be the responsibility of the Memphis Conference?" queried the Rev. Tim Carpenter.

"As a parent of a student with college application deadlines, what are we supposed to do?" asked one mother. "My daughter, who's determined to come to Lambuth, says God will take care of it, but I'm trying to be a little more realistic."

Dr. Walter Mischke, retired clergy, said, "My question is about the athletic program, football. Has the tail been wagging the dog?"

Charles Allison, a church lay leader, Lambuth alumni and a CPA, asked pointedly why he hadn't been contacted before now. "Why didn't we have this meeting three years ago?" he wondered. "If I give you money now, can you show me you'll safeguard it?"

And Dr. Bill Evans, pastor of the Enville-Holly Springs Charge, wanted to know how the university reached this point. "It's an issue of accountability," he said. "Why didn't the trustees raise these concerns earlier?"

Dr. Koen and Keeney tried to answer questions as they arose.

During her history of the crisis, Dr. Koen outlined the basic problem: "Net tuition revenue, or real dollars paid for an education, has never kept the doors open here," she explained. "Lambuth has always undervalued its education and depended on significant annual giving."

Additionally, she added, "Lambuth has a tremendous debt service to the tune of $1.3 million per year and the endowment is encumbered to the point that the institution realizes very little income."

While all that made balancing the university's budget difficult, Koen said, it hadn't been an insurmountable problem-until now.

What's different now?

"We've survived 143 years this way," Koen continued. "Why is now so different? The generosity of United Methodists, alumni and others kept the wolf at bay until 4 1/2 years ago. A new VP for enrollment management was brought in by newly inaugurated President, Fred Zuker...In order to reach a large class size, this VP gave away a 4-year Lambuth education at a 97% discount rate to 250 students."

Although he was fired at the end of the year, the president had trusted the VP too much and believed his misrepresentation of facts. He hadn't monitored him effectively, Koen said. The damage was done.

The result? A huge dependence on annual giving to balance the budget. Instead of $1 million in annual giving, the school now needed $5 million annually.

"It's been a catch up game ever since," Koen explained, adding that the problem had nothing to do with spending on capital improvements, renovations on campus, or the athletic program. "Lambuth has never had a spending problem; Lambuth has a historic revenue problem which was literally magnified 500% by the deals made to recruit our senior class," she said.

Koen outlined the revenue raised by then President Zuker to address the financial shortfall. "Fred knew he had to raise a lot of revenue and he did," she said, stating that he brought in donors that gave Lambuth millions, "to the tune of $12,000,000!"

"We knew we needed to address the net tuition revenue and number of students," she said. "We set specific goals that would in five years relieve us of the need to depend on fund-raising. We met all those goals this year...but our budget this year depended on $5.6 million of additional giving."

Koen went on to outline a sudden new crisis when a $1 million discrepancy was discovered in revenue needed to finish the year.

"Our two very generous donors ultimately took care of the $1 million shortfall and gave us the safety net to go ahead without severe budget cuts," she said. "They also promised to continue giving at a reduced rate over the next four years. ..but we now know that markets and circumstances can change." The stock market fell, the school's safety net was gone. The donors withdrew their support.

In addition to the financial crisis, the school now had a leadership crisis. Not one vice president present in June is still with the university. President Zuker first moved to Chancellor then resigned. Dr. Charles Mayo was appointed as Acting President while still serving as VP for Academic Affairs, Dean of the College of Humanities, Head of the English Department, and taught four classes. The university underwent its regularly scheduled SACS accreditation visit. It was the proverbial perfect storm.

As for the questions raised, Dr. Koen said there is plenty of blame to go around. "Business as usual changed 4 1/2 years ago. We went from a reasonable amount of required annual giving to a great amount. But the board had faith in the leadership. The reports we received were good. Fund-raising was so successful. We had balanced budgets over the last four years. And the huge gaps were filled by generous donors who are now gone. Santa Claus has left the room."

But the school will be open through the spring semester, at the least. New leadership, represented by Interim President Jerry Israel, has ideas for moving forward once Lambuth gets past this crisis point.

The Rev. Ted Leach, a trustee, said, "Trustees are asking much harder questions now. This can be one of Lambuth's finest hours if we get through this crisis."

Bishop Dick Wills called on United Methodists to step forward, "not for the sake of the buildings, but for the faculty and students whose lives are shaped for all eternity by what's provided here...We need this turnaround to be permanent," he continued, "not something that occurs every year. We need to pull together as a family. If we can do that, Lambuth will live within its means."

If you wish to help, give an immediate gift to Lambuth through your church or contact the school's Development Office.