UM contract with presidential search firm 'one of most expensive,' experts say

The University of Michigan's contract with a firm hired to help search for its next president is one of the most expensive ever signed for a public university, according to experts who study presidential contracts.

But a UM spokesman said the university's fee is "significantly discounted" below market rate.

The contract between UM and Boston, Massachusetts-based executive search firm Isaacson, Miller shows that the firm will be paid 28% of the next president's base salary during the first year, plus a one-time bonus. The contract authorizes travel expenses not to exceed $35,000 and 12% of the professional fee for administrative costs.

Judith Wilde, a research professor in the Schar School of Policy and Government at George Mason University and an expert in presidential contracts, reviewed the contract at the request of The Detroit News.

Wilde estimated the fees UM will have to pay are likely to exceed $300,000 based on the salary for interim president, Mary Sue Coleman, and what the school was paying former President Mark Schlissel. UM agreed to pay both a base salary of $927,000 annually. Wilde said it's highly unlikely the next UM president will be paid a lower base salary, so the search firm stands to earn 28% of $927,000, or $259,560, along with travel and other expenses.

"It is one of the most expensive, if not the most expensive contracts, we have ever seen," said Wilde. The News obtained the contract through a Freedom of Information Act request.

A study she and collaborator James Finkelstein, George Mason University Public Policy professor emeritus, conducted with presidential search contracts between August 2015 and January 2016 showed the average cost for a search firm was $80,000 and the highest was $160,000.

Finkelstein said the study still is relevant because the figures, adjusted for inflation at $95,000 and $190,000, respectively, are lower than the costs for the firm searching for UM's next president.

UM spokesman Rick Fitzgerald said in an email the university disagrees with the professors' assessment.

"When the master contract was bid out, we found that the market rate for executive searches was in the 30-35% range of starting salary," Fitzgerald said. "UM was able to negotiate a significantly discounted rate of 28%." 

Finkelstein said there are two types of search firm fee structures for university presidential searches: contingency-based, like the one UM is engaged in that pays the firm a percentage of the first year salary of the next president and any bonuses. There is also a flat-fee contract.

The contingency-based contracts range between 30-33%, Finkelstein said.

"But those represent less a third of the search firm contract and they have been decreasing," Finkelstein said. "Much more common have been the flat fee, fixed fee contracts."

In the contingency-based fee structure, the search firm has an incentive to find the most expensive candidates, the professors said.

"If you are a search firm and you are helping the university find a new president, if it is a contingency fee, it certainly behooves you to find the most expensive president you can," Wilde said.

The search firm is expected to provide an applicant pool that is demographically and geographically diverse, according to the contract.

The firm also "shall assist the University as reasonably requested in developing and administering unconscious bias training to University personnel participating in the search and in developing interview questions that prevent gender, racial, cultural, and other forms of bias."

UM launched a search for its next president earlier this month after the board of regents fired Schlissel in January following what the board said was an undisclosed, inappropriate relationship with a subordinate.

The university announced last week that the search had begun with the hiring of Isaacson, Miller, which it described as a national firm specializing in the recruitment of leaders for higher education and many other fields.  Its commitment to diversity led to 45% of the firm's searches resulting in the hiring of women and 25% in the hiring of people of color.

UM also announced that it appointed a search committee that includes the eight members of the UM Board of Regents along with 17 other people chosen by the board. It will be co-chaired by UM regents Denise Ilitch and Sarah Hubbard.

All were expected to sign a non-disclosure agreement to protect the confidentiality of prospective candidates to avoid jeopardizing candidates' current positions, according to the agreement.

The search will include six virtual listening sessions this month.

The firm will report to Regents Chair Jordan Acker.  UM's 15th president is expected to be named by summer.

Wilde and Finkelstein agreed that would be difficult for UM to find a president in such a short time frame since executives generally need to give a departure notice of 60-90 days.

"They are going to have to complete their search four months for the person to disengage," Finkelstein said. "They have work to do."

kkozlowski@detroitnews.com