Sunday, April 14, 2024

ECU juggles financial struggles, football woes, departing chief

By Michael Abramowitz

Cecil Stanton
[/media-credit] Cecil Stanton

It was mid-January, and reports were swirling that Cecil Staton was on his way out as East Carolina University’s chancellor. After less than three years on the job, the veteran politician-turned-academic leader dismissed published reports of his pending departure but didn’t deny that the heat was turning up. “Absolutely, I’m not going to sit here indefinitely, spinning my wheels,” he said in an interview. “There might be multiple visions for the university. The vision I brought is the one I thought resonated with the search committee and the board of trustees.

“I didn’t come here to play small ball.”

Unfortunately for Staton, that vision didn’t resonate with the UNC System leadership, particularly a Board of Governors chaired by one of his most vocal critics, Greenville businessman and ECU alum Harry Smith. Former system President Margaret Spellings and her interim successor, Bill Roper, showed little enthusiasm to protect Staton from brickbats. Efforts to support Staton by ECU Trustee Chairman Kieran Shanahan, including a January petition signed by about 130 business and community leaders praising the chancellor, proved ineffective.

On March 18, Staton said he would resign effective May 3, then spend two months as an adviser to ECU’s interim chancellor. (Golden LEAF Foundation President Dan Gerlach was named to the post on April 16.) Along with his $450,000 salary, the university agreed to pay Staton $598,700 in “nonstate funds” as a departure settlement.

Thus ends a tumultuous tenure that started with a bizarre hiring process, was stoked by significant disappointments in athletics and health care and agitation over a new $1.3 million chancellor’s residence, and concluded with reports showing that ECU’s enrollment and financial status slumped during Staton’s tenure.

None of which would be more than traditional university politics except for a simple truth: East Carolina’s impact on the state’s poorest region is critical to North Carolina’s future in myriad ways. No other UNC campus produces as many nurses, schoolteachers and primary-care doctors. Its role as a comprehensive university with robust academic and community-engagement offerings is vital for everyone who lives in the region, says John Chaffee, CEO of NCEast Alliance, a nonprofit economic-development group based in Greenville. It’s also important for the wealthy metro area 85 miles to the west that ranks among the nation’s fastest-growing regions.

“The Triangle can either send us money in the form of government transfer payments to the working poor who otherwise can’t sustain themselves, or they can send us money that builds regional capacity as an investment in this institution and in the future of this region,” Chaffee says.

Harry Smith
[/media-credit] Harry Smith

With a controversial leader at the helm of ECU, though, the institution’s ability to attract needed support from passionate alumni and supporters and state lawmakers was hobbled, if not crippled. And a controversial leader is what ECU got in Cecil Staton.

A 16-member search committee led by Raleigh banker Steve Jones and Shanahan, a Raleigh lawyer, recruited Staton in 2016 as the successor to Steve Ballard, a political science Ph.D. who led the university for 12 years as it added the state’s second dental school. The goal was to attract a dynamic leader with experience in the private sector, government and higher education. They got their match in Staton, a Greenville, S.C., native with a master’s of theology from Southeastern Baptist Theological Seminary in Wake Forest and a doctoral degree in religious studies from Oxford University in England. After returning to the U.S., he was a professor and led the publishing unit at Mercer University, a private school in Macon, Ga. He also started small publishing and media companies, served as a Georgia state senator from 2004-14, and led 11,000-student Valdosta State University as an interim president for about a year, starting in July 2015.

Staton’s Republican and Christian credentials appealed to North Carolina’s conservative legislative leadership and UNC System governor Henry Hinton, the board’s liaison with ECU. The Greenville radio station owner, hoping to be reappointed to the UNC board in 2017, contended in an email that he deserved another term because he was a leading fundraiser for key conservative N.C. politicians. After the email was made public, ECU alum Smith was reappointed and later became chairman, while Hinton was passed over.

Smith’s relationship with Hinton and Staton had soured a year earlier when Smith complained about the search process. He concluded that Staton may have misled the committee and ECU’s Board of Trustees about his private-industry history and his compensation in Georgia, including an unconfirmed claim that Valdosta State planned to offer Staton $500,000 to stay on as permanent president. The $450,000 annual salary offered Staton in 2017 compared with $385,000 earned by Ballard in his 12th year as chancellor. (Gerlach will recieve $350,000.) It also was unclear if Staton had a shot at the Valdosta job; Georgia Board of Regents’ policy prohibits interim presidents from selection as permanent leaders, though a board official says the policy is occasionally waived.

Smith says the search process reflected poorly on the ECU board. “Governance and oversight can be difficult at times, but not asking appropriate questions is what ultimately leads to institutional failure,” Smith says. “If we had taken the time to vet whether there was a $500,000 offer, there certainly wouldn’t have been the $450,000 offer [at ECU].” Staton’s compensation totaled about $290,000 during his year at Valdosta; in the previous year, 2015, he earned $165,000 as a system vice chancellor, according to Georgia public records.

Dan Gerlach
[/media-credit] Dan Gerlach

Staton calls the controversy “ridiculous,” noting the $450,000 salary is within the UNC System’s established pay range. Still, the incident prompted an investigation by Spellings and new rules for hiring chancellors that require more detailed compensation histories and background checks and prevent Board of Governors members from serving on search committees. It also prompted the Oak Brook, Ill.-based Witt/Kieffer executive search firm to return its $110,000 fee earned for the ECU post, a rare move by recruiters. Staton says Witt/Kieffer refunded the money rather than risk missing out on future UNC business.

A deeper dive into Staton’s background would have made system approval unlikely, Smith says. “We did not get any of the pertinent background information that I thought we should have received as a governing board hiring a chancellor at the third-largest university in the UNC System.” (Based on enrollment, UNC Charlotte now ranks third-largest, ahead of ECU.)

While Smith is most vocal, Staton has other influential critics. “He is a good man and a nice person, but he was in over his head,” says Tommy Taft, a veteran Greenville lawyer and real estate developer. “It’s a shame that he had the problems he had, but he did. It’s the same in big companies: If you’re the president of a big company and one of your divisions
is floundering, you do what you have to. It was time to make a change. … The need was critical.”

Suggestions of lack of experience and skills are “highly insulting to a career that spans decades,” Staton says. “I think that’s something easily tossed out by a handful of people who, candidly, have ulterior motives and don’t want me here.” He calls his experience in business, government and universities “the trifecta of what a public higher-education leader needs to be in 2019.”

The chancellor concedes he made mistakes. “I’m not a superman,” he says. “I admit to probably going too quickly, pushing the bar faster and with more intensity than maybe some people have been comfortable with.” Still, the university made progress in boosting international exchange programs, faculty research and fundraising, he says. In a departure letter in ECU’s campus newspaper, Staton said the university had raised $215 million during his tenure — without mentioning that more than $100 million of the total was pledged before his arrival.

But Staton’s chancellorship coincided with difficulties in two areas for which ECU is best known: football and medicine. ECU’s gridiron success has long helped promote the institution, and the university has mostly avoided the sports scandals that rocked UNC Chapel Hill. Staton often cited the football team’s improving cumulative grade-point average.

Henry Hinton
[/media-credit] Henry Hinton

Unfortunately, what fans saw was the 2015 firing of popular football coach Ruffin McNeill followed by three losing seasons under his successor, Scottie Montgomery; a five-year contract extension and $70,000 raise for Athletics Director Jeff Compher in 2017; and a $60 million upgrade of Dowdy-Ficklen Stadium despite slowing attendance and declining revenue. Outgoing Chancellor Ballard had negotiated Compher’s deal, which rewarded his efforts to move ECU into the more lucrative American Athletic Conference. But it was up to Ballard’s successor to finalize the new contract.

“So you’re the brand new chancellor and the board shows you the new deal waiting for your signature. What do you do?” says Hinton, an owner of the radio station that broadcasts ECU football games. “I know that the board pushed that new five-year deal, and I also know that Cecil had concerns about whether it should perhaps be a three-year deal and asked a lot of questions before signing off on it at the board’s request.”

With the team winning a total of nine games over three years, Pirate fans showed their displeasure. After years of average annual attendance topping 40,000, some games last year drew fewer than 20,000 people. Compher was booted last May, followed by Montgomery in November. Cash flow deficits in the athletics department are expected to total $33 million between 2018-21, according to an internal financial report provided to ECU leadership in March. To shore up its finances, the athletics department said in December it had drawn $20 million from other university-affiliated funds, including $10 million from the ECU Physicians practice group.

While Staton says he didn’t perform enough due diligence on athletic matters before his arrival, he says he responded by hiring three respected leaders: basketball coach Joe Dooley, football coach Mike Houston and Athletics Director Jon Gilbert. Those changes have reversed waning enthusiasm among Pirate fans, with year-over-year season ticket sales tripling to about 4,700, Gilbert told trustees in early April.

An equally thorny challenge for Staton involved the potential sale of 400-member ECU Physicians to Greenville-based Vidant Health, the main health care provider in much of eastern North Carolina. Since ECU’s Brody School of Medicine opened in 1977, the university and Vidant have relied on each other to provide patient care and train medical students at the Greenville medical center, seven affiliated hospitals and dozens of clinics. The practice has been a prize asset for ECU with profits from the physicians’ group helping offset costly physician training. Moreover, training hundreds of primary-care doctors who have stayed in North Carolina is among ECU’s greatest sources of pride.

But financing a medical school is challenging, particularly in a low-income region in which many residents don’t have private health insurance. Tired of constant appeals for more funding for Brody — North Carolina has appropriated $60 million to $65 million annually over the last five years — state officials and UNC’s governing board pushed ECU and Vidant to devise a more sustainable system. Their response was a merger of the two groups’ physician practices, while ECU would retain the medical school. After more than a year of negotiations, Vidant agreed to pay $462.5 million over 30 years for ECU Physicians. The so-called “Project Unify” won approval from all sides — except one key official. State Treasurer Dale Folwell used his constitutional authority to nix the plan, contending the agreement didn’t sufficiently protect the pension liability of state workers employed by ECU who would transfer to Vidant. He also questioned if selling facilities built with state-issued bonds would jeopardize their tax-exempt status.

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Failure to complete the deal was a blow to ECU and a signal of Staton’s difficult relationship with state lawmakers and officials. Staton doesn’t dispute that he fought for greater support for ECU. He points to UNC System internal reports suggesting that ECU would receive $40 million more annually if its funding formula was the same as UNC Chapel Hill and N.C. State University. Last July, he wrote an op-ed in the News and Observer of Raleigh chiding lawmakers for an unexplained $1.1 million budget cut and for not backing a proposed new campus building.

The column ticked off Smith, who called Staton’s comments “completely inappropriate” in an email to two influential Republican lawmakers. He blamed the chancellor for not addressing problems directly and making it harder to attract legislative support. “Leaders take accountability, and they don’t point the finger. I’m happy to sit down with Cecil and discuss in great detail the many issues we have had under his leadership that he was in direct control over and has greatly hurt and divided ECU.”

Taft says he’s surprised a veteran politician like Staton didn’t connect better with Raleigh leaders. “He never had many interactions with the legislature, and how he could have overlooked that, given his experience in Georgia, still puzzles me.”

Such bickering has continued nonstop, even after Staton’s announced departure. A recent example: At 10:25 p.m. on April 10, Smith received a text from Shanahan, the ECU board chair, who wrote: “Hey man is it true that u are late (in arrears) on your commitment for Smith-Williams Center — you don’t need more negative press. Just FYI, no need to respond and prefer you don’t.”

The note referred to a $1 million pledge that Smith, a Greenville businessman, made to ECU’s athletics program in 2011. Smith, who has paid $850,000 so far, responded with an email to Shanahan and other ECU trustees explaining that he wouldn’t give more money until campus leaders address enrollment and financial issues. “A simple review of the trend lines shows significant decline in all major areas, increase in expenses … decrease in revenues. Math is math and facts are facts, we can debate the color of the sky but you cannot debate the numbers nor the direction of them. I’m not assigning blame just stating the facts.”

Shanahan didn’t return requests for comment on the text.

All the wrangling didn’t escape Staton’s boss, Margaret Spellings. Performance reviews of chancellors, which involve interviews with trustees, faculty, staff and community leaders, usually occur after several years on the job. With so much controversy swirling, Spellings accelerated the timetable for Staton and completed a report late last year. UNC considers such reviews as confidential personnel matters and has rejected efforts by various N.C. news media to see the document.

But Staton said he wanted the review to be released and told a Greenville radio station on Nov. 5 that it was “overwhelmingly positive,” though it included some “frivolous charges.” Shanahan told Business North Carolina the report showed Staton was “doing an outstanding job.”

When Spellings learned of Staton’s comments, she sent him a Nov. 18 letter calling them “imprudent and reflects a lack of judgment and respect for sensitive personnel information.”
The review is “most accurately characterized as mixed” and included “substantive areas in need of improvement,” according to the letter, which hasn’t been disclosed previously. “To be clear, I do not agree with or accept your characterization of your performance as ‘overwhelmingly positive.’”

With Staton under so much pressure, Shanahan, Hinton and others took aim at the chancellor’s main critic and found a fairly easy target. Since leaving his CEO job at Washington, N.C.-based Flanders Filters in 2014, where he had accumulated more than $13 million in stock, Harry Smith has focused on UNC. While most other system governors have kept a low profile, Smith’s activism has sparked criticism from veteran UNC backers who contend the board is overstepping its authority in local campus affairs. Without naming Smith directly, a petition signed by more than 1,600 former system governors, faculty and alumni criticized the current board for “meddling and micromanaging.”

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Spellings, who left her UNC post in January after three years, shared Smith’s passion for establishing clear measurements for improving graduation rates and other key initiatives. However, his barrage of phone calls and emails also unsettled Spellings, a former U.S. secretary of education, people familiar with the matter say. In her farewell press conference, she criticized North Carolina higher-education governance as overly complicated. “Are we organized for success?” she asked, making clear that her answer is no.

Smith says taking criticism is part of a chairman’s job and notes he has retained his board’s confidence. The media has mostly focused on ECU infighting and the Silent Sam statue controversy that led to the abrupt departure of UNC Chapel Hill Chancellor Carol Folt. But Smith says the board is concentrating on bread-and-butter issues such as sustaining Elizabeth City State University and other historically black universities, reining in expenses to keep tuition affordable, and holding chancellors and trustee boards more accountable. Most UNC campuses are showing good progress, he says. Much of the criticism of the board, he adds, is coming from UNC Chapel Hill-affiliated officials who aren’t familiar with challenges at other UNC campuses.

Smith’s higher profile prompted various N.C. media outlets to publish stories on his aggressive style and potential conflicts of interests. The biggest flare-up involved Smith’s effort in 2016 to convince ECU and UNC officials to partner with an investor group to buy a mostly empty student apartment complex about 3 miles from campus. He suggested that ECU direct students to the complex, then split profits with the investors. Smith later abandoned the plan, which he says would have saved ECU the expense of building more housing and generated positive cash flow. He says he followed proper disclosure guidelines and kept university officials informed of his plans, but “the optics are terrible,” he told the News & Observer.

With Staton headed out, ECU now must face its biggest challenge: attracting more students to Greenville. Freshman enrollment declined by more than 400 students last fall, or 4%, to about 4,175, Chris Locklear, vice provost for academic success, told trustees in April. The percentage of applicants accepted by ECU who enrolled was 29%, a record low. The school accepted 85% of applicants, compared with about 70% at UNC campuses in Boone, Charlotte and Wilmington.

“Enrollment has been my top priority since before the fall enrollment numbers came out,” Provost Ron Mitchelson says. “We’ll have another rough year this year. The market for new students is pretty disrupted right now.”

That disruption involves several factors. First, the UNC System is pressing other UNC campuses to admit more students from counties with relatively low incomes — which includes most of ECU’s traditional region. Second, two smaller eastern N.C. campuses, Elizabeth City State and UNC Pembroke, are offering fixed tuition of $500 per semester under a state-approved plan. Finally, increased population and business activity along the Interstate 85 and 40 corridors is outpacing eastern N.C.

Ron Mitchelson
[/media-credit] Ron Mitchelson

“Urbanization is not our friend right now,” Mitchelson says. Among Wake County students who were accepted at ECU last year, there was a 50% increase in the number who decided to attend Appalachian State University in Boone or UNC Charlotte versus the previous year. Those campuses are reporting steady enrollment gains.

Declining enrollment hurts UNC campuses by reducing tuition revenue and state funding. Moreover, if a campus misses its projections, it typically must refund money forwarded by the state in anticipation of more students on campus. Those factors underlie ECU’s internal projections that cash flow from enrollment, which averaged more than $14 million annually from 2016-18, is expected to be a negative $23 million over the next three years.

For students who come to Greenville, Mitchelson says ECU has a great story to tell. “Our student profile has improved the last three years in a row, whether measured by GPA or SAT and ACT exam scores.” He also notes that the percentage of students who graduate within six years is nearing 70%, sixth-best in the UNC system.

“Who wants to send a student to a state university where an embattled chancellor is embroiled in negative commentary?” Mitchelson says. “I don’t care who is at fault, I just want it to end so that we can go on with our mission.”

Now ECU’s challenges will be shared by Gerlach, current trustees and several new ones selected by Smith and top state lawmakers. Some departing trustees, including Shanahan, make clear their disappointment. Nominees favored by ECU and its board were “ignored in toto,” Shanahan said in March. “We would like to think that an ECU alumnus as chairman of the Board of Governors would deliver for East Carolina,” he says of Smith. “We just have to see how that plays out.”

Taft takes a more positive view: “We might be on the verge of a new era of cooperation and accord with the UNC System and its Board of Governors as we leave the past behind and look to the future.”

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