The Leadership Moment by Useem Michael

Author:Useem, Michael [Useem, Michael]
Language: eng
Format: epub, mobi, pdf
Published: 2012-04-05T06:17:15.371000+00:00

Capping an already extraordinary career as the first African American to head a predominantly white major university and then to run a state system, Wharton was now asked, at age sixty, to take responsibility for more than $50 bil ion of other people’s wealth and to reform a pension system that was direly out of touch with its markets and its customers. The chal enge would be to “transform a major institution from top to bottom”

and “to bring this great company into the twentieth century.” But the terrain was unknown, the players were contentious, the problems profound.

Robert Wilson, the senior personnel administrator at Johns Hopkins University, expressed the view held by many of its customers: “The institution had frozen in place.” Teachers “didn’t listen to what people were saying,” he complained, and it was “completely out of step with the times,” run by

“a self-perpetuating hierarchy that was total y unresponsive.” Teachers was so entrenched, Wharton learned, that he wondered whether it was beyond redemption. “I knew the place had problems,” he remembers, “but could it be changed?”

He accepted the offer. Stil , he wondered how he would be able to make the necessary changes. “I decided to give it a shot, but I didn’t know if it would work,” he recal s. “I was not sure how I would do it.”

Ready for Restructuring

AT THE TIME Clifton Wharton became chairman and chief executive of TIAA-CREF, it was offering a range of products from retirement planning to life insurance, and it was servicing a broad array of nonprofit organizations. In 1918, the Carnegie Foundation had created TIAA with a $1 mil ion gift around the concept of portability: professors could change jobs among any number of institutions and stil keep their retirement fund intact. But portability was gained at the cost of transferability: neither the institutions nor their employees could withdraw their funds once they were deposited.

The Carnegie Foundation had also built Teachers around institutional flexibility: each participating col ege and university could establish its own premiums and define its own retirement age. Unlike many public and private pension funds that preset retirement benefits regardless of the amount contributed by the individual — commonly known as defined -benefit plans — Teachers predetermined no benefit level and paid back whatever the individual and employer had contributed, plus whatever gains it had made with the invested funds — known as a defined -contribution plan.

During TIAA’s first year of operation, $700,000 of its $1 mil ion in assets from the faculty of thirty participating institutions had been invested in railroad bonds, including some of the New York Central with a maturity date of 1997. More than thirty years later — and reinforced by the lessons of the Great Crash of 1929 — the fund was stil gun-shy of stocks. But in 1952, Wil iam C. Greenough, then a young vice president and later chief executive of Teachers, argued that stocks were a sound investment in the long run. At Greenough’s urging, TIAA created the Col

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