America’s Universities Need Serious Regulation

From a Wall Street Journal commentary by Arthur Levitt headlined “America’s Universities Need Serious Regulation”:

Americans who are rightfully appalled by the pusillanimous response to anti-Semitism on college campuses have been pulling their donations and calling for restrictions on anti-Israel student groups. Maybe those tactics will work. But in my experience, if you want real change in large and unwieldy organizations, you need to focus on fixing governance and assigning personal accountability. You need to regulate.

After the accounting scandals of the dot-com and Enron era, Congress passed laws requiring auditors to tighten their operations, establish clear boundaries between their consulting and audit businesses, and assume far more accountability than they had before.

Directors, too, were informed that they bore a personal interest in preventing fraud. One rule made it clear that if a company passed fraudulent numbers off to investors, the person who signed the filing—usually the chairman—would be personally liable.

Lawmakers have also tightened anti-money-laundering statutes, requiring banks to review their customers closely and to ensure they aren’t unwittingly providing services to organized crime, terror entities, tax evaders or other bad actors. The rules are difficult to enforce and require a lot of work. But they come with real penalties for failure: Bank officers can go to prison if they fail to prevent money laundering, and several have.

Think of the difference this makes. When Russia invaded Ukraine, America’s banks and other multinational corporations quickly had to implement sanctions—including anti-money-laundering rules—on Russia’s government, politicians, financial institutions, oligarchs and others who make up the country’s elite. This happened effectively because people had real skin in the game: their own.

Which brings us back to campus. Clearly, America’s universities are in need of similar encouragement.

Universities have lately seen a raft of scandals related to their fundamental mission of scholarship and teaching. Students are graduating unprepared for basic work and deeply in debt. Prominent scholars are found to be fudging their own research. Admissions officers and other officials are found to be engaging in pay-for-admission schemes. Athletic programs are regularly found breaking rules and laws. Universities have taken charitable gifts from questionable sources such as Jeffrey Epstein and Chinese military and Communist Party fronts.

Add the explosion of anti-Semitism. America’s campuses are the source of some of the vilest Jew-hatred America has seen since 1939, when the German American Bund held a pro-Nazi rally at Madison Square Garden. Not only do some faculty and students call for Israel’s destruction; they celebrated Hamas’s brutal massacre as an act of “resistance.”

If public companies featured such systematic failures, they would be visited by regulators and called before Congress. Universities, by comparison, are lightly regulated. There are accrediting agencies, and the Education Department focuses on enforcement of civil-rights laws. In the case of professional education, some membership organizations set curricular standards.

But these don’t constitute regulation in a comprehensive sense. Universities can pretty much set their own rules, and they answer to no one. They face no meaningful external pressure to tell the truth or honor their promises to students and others. They don’t need to report or punish fraud or corruption. They don’t set consistent standards for contributions or spending.

None of this is acceptable. Not to students and parents. Not to alumni and donors. And not to taxpayers, who subsidize universities to the tune of $1 trillion a year. The public has a clear interest in how these institutions operate and deserve to know how they became hotbeds of anti-Semitism.

Imagine what a difference it would make if universities were subject to the same kind of regulatory oversight the Securities and Exchange Commission provides to public companies. Administrators would have to meet basic standards of truthfulness and governance or face stiff financial penalties and sanctions, including permanent bans from working in higher education. If criminal acts were discovered, the Justice Department would step in.

When I led the SEC, I often spoke about my duty to the investing public. I said every public corporation needs to be trusted, and all should treat their investors with respect. Someone who breaks that trust should pay the price—including with time in prison.

Given what we are seeing on college campuses, it is time to impose the same standard on universities, their managers and their directors and trustees. It may be the only way to save them.

Arthur Levitt served as SEC chairman, 1993-2001.

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