Will Rothman clean up UW conglomerate?

Jay Rothman may be just the right choice to deal with UW Madison that has become a conglomerate.

The newly selected UW System president spent his career at Foley and Lardner, the state’s largest law firm, where he dealt with mergers, acquisitions and strategy for big corporations, like UW, they also had complicated corporate structures.

That should help him figure out what to do with the sprawling network of entities that include:

UW Health, a $3.8 billion health system that operates in several states and earned $550 million in 2021. It contributed $50 million to the mother ship, arguably, an inadequate return to UW Madison, which owns its buildings and receives below market rent.

Quartz, an HMO insurance company operates in four states. It had revenues of $1.8 billion in 2021. Its profits are murky because of payments to a range of owners. This is a non-core asset that could be worth as much as $500 million. What is the university doing in the health insurance business? A spin-out, as already done by Northwestern University, could provide funds for other UW System priorities. One example is the strategically necessary expansion of the engineering facilities at our two flagship campuses.

The Wisconsin Alumni Research Foundation (WARF) manages the university’s intellectual property. It has a long track record and now has assets of a whopping $3.9 billion. It runs as a separate entity. Its financials are not consolidated with UW Madison’s. Its license revenues have fallen off.

UW Madison Foundation, is another separate but related entity with more than $3 billion in assets.

At the system level is another complex of resources including 25 other campuses, other smaller foundations and a rich array of “centers” doing work in strategic academic sectors. All of the above require sophisticated, transparent and accountable governance.

The case can be made that financial oversight of the system as a whole and UW Madison in particular has been lacking. Inadequate governance can lead to problems. For example, some members of the Board of Regents in the past and at present have worked for organizations doing major business with UW Madison. Some UW affiliated board members are paid, others are not. The cross-overs may not rise to the glaring example of the Enron mess uncovered in 2001. But the cross-overs are certainly not transparent.

There are solutions to conflicts of interest. Disclosure of cross-overs by directors and executives is a partial cure, as is recusal on key decisions. But major conflicts may require resignations.

With his deep experience in such matters, stemming from the Sarbanes-Oxley Reforms coming out of the Enron scandal and bankruptcy, Rothman will want to do an hygienic analysis of existing and future conflicts. Law firms have client conflict committees to make sure that its lawyers stay in bounds. (With 1100 lawyers at Foley, potential conflicts had to be numerous.)

In addition, the new president will want to do a deep assessment of the patchwork of audits up and down the system, including all related entities. He will want to make sure that national auditing firms are used. Both Ohio State and the University of Michigan use Price Waterhouse. Top level accounting horsepower is needed to track the complex financial dealings of UW Madison and beyond. Small firms can’t cut it.

The current UW financials, like Enron, lack consolidation. That makes its total assets hard to understand. High level university leaders must like it that way, but it’s a recipe for hanky-panky and insider deals. “Everywhere you look, they have created complex structures that are not transparent,” said Tom Hefty, a retired CEO and analyst of Wisconsin politics and economics.

That makes accountability almost impossible.

If Rothman accomplishes nothing else than cleaning up the financial reporting on the UW conglomerate, it would earn him a place in history.

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