Duke Divinity Students Protest Pay of Chancellor for Health Affairs

This may be a first.  A small group of Duke University divinity students publicly protested the compensation given to some top university leaders, specifically including the Chancellor for Health Affairs.  According to the Raleigh-Durham News-Observer:

Theo Luebke strolled the plaza outside Duke's Bryan Center on Thursday afternoon with a bucketful of apples and a tale of woe.

'Come on! Everyone's in this together! Get your apples!' he exhorted students passing by during the lunchtime rush. 'With all the cuts we have around here and all the bonuses we have to give to the big guys, we need to raise all the money we can.'

Luebke isn't really the Depression-era fruit peddler his costume suggested. Luebke and a couple of other Duke divinity students hawked apples, ostensibly to raise money for the university, while others dressed as paperboys distributed a mock newspaper railing against bonuses paid to top officials within Duke's healthcare system and investment company.

For Duke workers whose pay has been frozen of late, the bonuses appear staggering.

A couple of examples: Neal Triplett, president of the management company, received a $729,749 bonus on top of his $413,603 salary; Victor Dzau, chancellor of the Duke health system, got a $983,654 bonus, bringing his total compensation to more than $2.2 million.

Thursday's skit, which mostly drew befuddled looks, was the third in a series mocking executive pay.

It turns out these munificent compensation amounts were paid at a time when Duke is in some financial difficulty:

In recent years, Duke has frozen pay and eliminated jobs in an attempt to pare its annual operating budget by $100 million.

Nearly 400 workers have accepted buyout offers since early 2009. Their jobs were then eliminated.

'During a time when the administration is saying we all needed to tighten our belts and make sacrifices...as it turns out, some of the folks who lost money for Duke were giving themselves bonuses,' said Amy Laura Hall, a tenured professor of Christian ethics. 'I think that's obscene.'

I cannot recall a previous example of students demonstrating against the compensation of a leader of a medical school and/or university health care system.  Maybe these students have started something.

In fact, we have frequently discussed executive compensation given by health care organizations that seems wildly out of proportion to the value of the health care they provide or the clinical value of their products.  Although compensation is even higher for executives of for-profit health care corporations, even leaders of not-for-profit organizations, including academic institutions, is now often in the millions per year range.

Service on (Mostly Health Care) Corporate Boards

Dr Dzau's compensation may appear even more extreme in the context of the money he brings in from outside work.  As Prof Margaret Soltan pointed out on the University Diaries blog, Dr Dzau also serves on multiple corporate boards.  The multiplicity of his outside work is not fully acknowledged in the most complete official biography posted on the Duke web-site, here, which only notes service on the Genzyme board.  In fact, he also serves on the boards of Anylam Pharmaceuticals, Medtronic, and PepsiCo.

According to the Alnylam Pharmaceuticals 2010 Proxy Statement, Dr Dzau's compensation as a director in 2009 was $234,433.  In 2009, Dr Dzau owned the equivalent of 45,000 shares, worth $424,800 at today's $9.44 price per share. 

According to the Genzyme 2010 Proxy Statement, Dr Dzau's compensation as a director in 2009 was $412,942.  In 2009, Dr Dzau owned the equivalent of 75,137shares, worth $5,312,937 at today's $70.71 price per share.

According to the Medtronic 2010 Proxy Statement, Dr Dzau's compensation as a director in 2009 was $173,698.  In 2009, Dr Dzau owned the equivalent of 14,552 shares, worth $493,895 at today's $33.94 price.

According to the PepsiCo 2010 Proxy Statement, Dr Dzau's compensation as a director in 2009 was $260,000.  In 2009, Dr Dzau owned the equivalent of 25,065 shares, worth $1,622,458 at today's $64.73 price per share.

So, in summary, in 2009, Dr Dzau received  $1,081,073 in compensation to be a director of these four companies.  In 2009, Dr Dzau owned stock or equivalent in these four companies valued at $7,854,090.  He has become what most people would consider rich just from his work on these boards, in addition to the millions he has received from Duke.

Conflicts of Interest and Other Questions

So this raises even more questions.  The most obvious is how the good doctor has time to simultaneously fulfill his responsibilities at Duke and for the four corporations? 

The next most obvious is why the university does not make a full disclosure of what appear to be severe conflicts of interest?  Anylam and Genzyme are biotechnology pharmaceutical companies.  Medtronics is a medical device company.  PepsiCo is a food and beverage company whose products affect nutrition and public health.  Dr Dzau's service on the board of each of these companies means he has fiduciary duties to each company, and is supposed to show unyielding loyalty to the companies' stockholders.  Of course, many business commentators have charged that most corporate directors are mainly chosen to be compliant with the top hired management's wishes, if not to be frank cronies of the management.  Even in the best case, showing unyielding loyalties to the stockholders of companies that make drugs, medical devices, and sugary drinks seems to be likely to influence a leader of an academic medical institution in ways that risk degrading the leader's responsibilities to uphold the institution's mission, i.e., to create severe conflicts of interest. 

Dr Dzau has a fairly severe case of what we labeled as a "new species of conflict of interest" in 2006.  Concerns about such conflicts affecting university presidents, but not specifically chancellors or vice presidents for health affairs, appeared in the New York Times last summer (see post here).  Maybe some day student protesters will see such conflicts as a problem.

However, should Dr Dzau make the usual defense of such conflicts, that they promote collaboration with industry needed for innovation, maybe Duke students or alumni might ask questions about the other side of the coin.

The Other Side of the Conflict of Interest Coin

Dr Dzau is supposed to be responsible for the stewardship of Genzyme.  We have recently posted about the company's seeming recent inability to make pure, unadulterated pharmaceuticals, and while exhibiting such inability to perform such basic functions, its payment of extremely lucrative compensation to its hired CEO.  Maybe someone could ask Dr Dzau what he thought about such actions, and whether he would take any responsibility for them?

Dr Dzau is supposed to be responsible for the stewardship of Medtronic.  Medtronic recently settled thousands of patients' lawsuits that alleged injuries due to a faulty lead on one model of a Medtronic implantable cardiac defibrillator for over $200 million. Medtronic has been the source of several alleged conflicts of interest involving influential physicians (see posts about Medtronic here).   Maybe someone could ask Dr Dzau what he thought about such actions, and whether he would take any responsibility for them.

Finally, a larger question is: is it good to have a leader of a medical school and academic medical center who has presided over such ethical lapses by health care corporations?  Let's see if anyone does get to ask Dr Dzau such questions.