Distribution of $7m Tyco settlement to UNH and St. Anselm called into question
CONCORD — The state attorney general is considering a request by former gubernatorial candidate Arnie Arnesen to investigate the distribution of $7 million to the University of New Hampshire and St. Anselm College under the terms of a consent agreement reached more than a decade ago with Tyco International.
"From the get-go, these guys have been loosey-goosey about what they want and how they make decisions," said Arnesen, referring to a board headed by Secretary of State Bill Gardner, along with former Gov. John Lynch and former University System of New Hampshire Chancellor Edward MacKay, among others.
The board recently allocated $5 million to UNH and $2 million to St. Anselm without a competitive bidding process that involved other schools.
"We're not talking about chicken feed. Seven million dollars in New Hampshire is a lot of money, especially when you are talking about education," Arnesen said.
Gardner has been directing the effort to come up with the best use for the money since the Tyco deal was struck in 2002. He said the process has been open and fair, and that if he had to do it all over again, he'd follow the same procedure.
"I'm very pleased with the result of this," he said. "The judgment of this decision will be made over a long period of time. People will look back on what we did and be very approving, and that was my goal in the first place."
Arnesen agrees there was no legal requirement for a formal RFP, (Request for Proposals), but she says that's not the point.
"It would be surprising if their answer to the failure to establish an open and competitive process for distribution of the settlement dollars was that it was not required by the terms of the settlement," she said.
"Can you imagine having to tell a secretary of state, a governor, a chancellor of the university system that they need to be open and transparent and fair in assigning public dollars, especially when there are so many fine private institutions in New Hampshire that would be prepared to step up to the job of educating the public on the highest standards of corporate responsibility and investor protection?"
Arnesen's written request to the attorney general is under consideration, according to Deputy Attorney General Ann Rice.
"We are still reviewing the matter to determine the appropriate course of action," she said.
Arnesen said her request is not intended to generate sanctions or even to reverse the actions that have been taken, but to inform future decisions on how settlement funds should be managed when the settlements occur outside the jurisdiction of the Department of Justice and the state Legislature.
An unusual deal
There may never be another settlement like the Tyco deal. It was struck in 2002 between the Exeter-based company's board of directors and the state Bureau of Securities Regulation to avoid an "enforcement action" by the bureau against the board for failing to properly supervise CEO Dennis Kozlowski, who was later convicted in criminal court for defrauding the company of more than $130 million.
"Faced with the prospects of lengthy, costly and risky litigation of an unprecedented nature, the bureau endeavored to engage in this unique agreement to fund programs to address investor education, proper corporate governance and business ethics," wrote Gardner in a letter responding to Arnesen's complaint.
Tyco signed a consent agreement, handing over $5 million to be managed "under the direction" of the secretary of state, with a provision that a portion of the fund be dedicated to business ethics education at UNH. In the 10 years that followed, the money was held and invested by the University of New Hampshire Foundation, and grew to $7 million.
Soon after the settlement was reached, the USNH Board of Trustees created the Center for Public Responsibility and Corporate Citizenship Board, with Gardner as chairman. The board hired Myron Kandel, financial editor for CNN, as its first director in 2005 and sponsored several high-profile forums on ethical business behavior over the next three years.
Kandel and the organization parted ways in 2008, and the board set about finding a permanent solution that would be rooted in programs within a college or university.
The University of New Hampshire and St. Anselm submitted proposals, which were adopted by the board in a resolution signed on June 3 by four of the five members — Gardner, Deputy Secretary of State Robert Ambrose, MacKay and Lynch, whose membership on the board stems from his position as USNH board chairman at the time the deal was struck.
They established a permanent endowment to be held by the UNH Foundation for the full amount of the settlement, plus earnings, with $5 million for the benefit of UNH and $2 million for St. Anselm. Another $100,000 is to be split between the two schools to pay for program startup costs.
Mark Connolly, former director of the Bureau of Securities Regulation and the fifth member of the board handling the Tyco funds, did not support the board's June 3 decision.
The involvement of UNH was appropriate and even required by the Tyco agreement, he said, but he was troubled by the inclusion of St. Anselm, a private school with religious affiliation.
"It was the use of public money for a private institution, and I thought if that was going to take place, there should be more of a competitive component," Connolly said. "I wouldn't use the term RFP, but I would say there should have been a certain time that other schools would be able to explicitly put proposals forward that could be considered by a disinterested body."
Gardner takes issue with the notion that other schools did not have an opportunity to submit proposals.
"All the schools had something to do with this over time," he said. "Other schools did have proposals at different times."
He said a proposal from the Tuck School at Dartmouth College was considered.
"I also met or spoke with the president and faculty of Franklin Pierce College, Southern New Hampshire University and St. Anselm," he said.
Paul LeBlanc, president at SNHU, said any suggestion that his school was approached in any specific way is "nonsense."
"There was no outreach to the other institutions," he said. "No outreach to the New Hampshire College and University Council. If there had been, we would have happily submitted a joint proposal."
Gov. Lynch, now in private life, said he is comfortable with the final disposition of the Tyco funds.
"I think it was a very open process," he said, "and I hope that there will be opportunity for other schools to get involved. I think the teaching of ethics is and should be an important part of an undergraduate curriculum. So I hope that other schools want to and are able to get involved in this process."
LeBlanc said the opportunity still exists to involve other schools through the college and university council, a nonprofit consortium of 22 public and private institutions of higher education in the state.
"If there was outreach to Tom Horgan (council president), I'm sure you'd see a lot of institutions raising their hands to say, 'We're interested,' " LeBlanc said.