Martin Lipton, chairman of the board of New York University, recently took a trustee to lunch at San Pietro, a pricey Manhattan restaurant frequented by the city’s C.E.O.s. Over a meal that lasted several hours, they discussed Mr. Lipton’s plans to step down next year, after 16 years at the helm. “Marty wants his own replacement there a year in advance,” recalled Evan R. Chesler, chairman of Cravath, Swaine & Moore, a leading New York law firm. The reason, he said: “The new chairman would be responsible for the process that selects the president who will replace John Sexton.”
It is Mr. Lipton, though, who will appoint the group of trustees, students and faculty members who will search for the next president of N.Y.U.; he also sits on the committee to select his own replacement as head of the board he created.
More than a decade ago, Mr. Lipton handpicked Dr. Sexton without any systematic search process — and for years the board could congratulate itself on its choice. During Dr. Sexton’s tenure, admission applications have risen 45 percent, and N.Y.U. has attracted top-level professors and administrators.
But under a cloud of faculty unrest, Dr. Sexton announced in August that he would step down at the end of his term, in 2016. In the past two years, faculty anger at Dr. Sexton and the board has marred the university’s increasingly high profile. Much as corporate boards came under public scrutiny in the 1980s, university boards are under pressure from faculty as they grapple with the same questions: Do they look too much like businesses and less like places of learning and to what extent should they globalize? But at N.Y.U., tensions have been particularly visible.
Dr. Sexton has been widely criticized for an aggressive expansion program in Greenwich Village and for erecting campuses in parts of the world with oppressive governments. Faculty members, claiming to be underpaid and excluded from decision making, have struck out at what they view as lavish pay and perks for a few star employees: loans for vacation homes; executive exit bonuses of $1.23 million and near $700,000; a $1.5 million compensation package for the president plus a $2.5 million “length of service” bonus due next year, making Dr. Sexton among the highest paid college presidents in the country.
While Dr. Sexton has taken the heat — five schools passed votes of no confidence last year — the person who has largely escaped attention is Mr. Lipton, who has wielded enormous power at N.Y.U. His tenure provides insight into just how important a chairman can be in shaping a university’s agenda, given that the board’s mandate includes choosing a president, approving salaries for top administrators and overseeing expansion.
At N.Y.U., where Mr. Lipton has headed the highly influential compensation committee since 1998, the board’s approval of generous compensation packages and intense loyalty to management parallel Mr. Lipton’s views in the corporate world.
Even as he retires as chairman, N.Y.U. will continue to bear his imprint. Mr. Lipton, who will remain on the board, is also on the committee that nominates new trustees, and has had a major role in choosing a majority of the 65 members (and two honorary members). That board is 1.7 times as large as the average private research-university board, according to the Association of Governing Boards of Universities and Colleges, and many of its members are, like Mr. Lipton, scrappy self-made entrepreneurs.
Along with a clutch of other N.Y.U. law school graduates, Mr. Lipton formed Wachtell, Lipton, Rosen & Katz in 1965. The upstart firm lacked the pedigree of white-shoe rivals. Nevertheless, in the ensuing decades, it muscled its way into the top ranks by representing corporations in some of the business world’s biggest takeover battles. Mr. Lipton is best known for creating the “poison pill defense,” a strategy to protect existing management by making the company’s stock less attractive to a hostile bidder.
Mr. Lipton sat for an interview in a small conference room in his unpretentious suite of offices at the firm’s West 52nd Street headquarters. A portly 82-year-old with disappearing curly white hair, he talked passionately about his commitment to the university.
Mr. Lipton joined the law school board in 1972, and four years later was named a trustee of the university, working, he said, to help “bring N.Y.U. back from the brink of insolvency and help create a modern global research university.” In 1998, he took over the board from Lawrence A. Tisch, who he recalls telling the trustees: “I am stepping down and proposing Marty as my successor before Marty gets too old to succeed me.”
Over the past dozen years, Mr. Lipton has been deeply immersed in Dr. Sexton’s agenda for growth, making visits to N.Y.U.’s new Shanghai campus and helping establish its Abu Dhabi campus in the United Arab Emirates. He seemed as outraged by the attacks on Dr. Sexton as he might be over efforts to remove a corporate chief. (Dr. Sexton declined to be interviewed for this article.)
“You would think the faculty would recognize the fabulous accomplishments he has made,” Mr. Lipton said. “They thought that by having a vote of no confidence, they would panic the trustees,” he said, just as a vote of no confidence led to Lawrence Summers’s dismissal as president of Harvard.
Mr. Lipton’s indignation does not surprise Jonathan R. Macey, a professor of corporate law at Yale and author of “Corporate Governance: Promises Kept, Promises Broken.” “He has built a reputation for work that is firmly of the view that incumbent management should be protected and that the incumbent board of directors is the only entity whose opinion matters in corporate governance,” Professor Macey said.
“In effect, John Sexton is the C.E.O. of N.Y.U.,” he added. “So if you are facing a revolt of the faculty you can’t be in a better position than John Sexton to ward off no-confidence votes.”
To Mr. Lipton, N.Y.U.’s approach to compensation is entirely logical at a university in one of the world’s most expensive cities. “You have to recognize that N.Y.U. is the largest private university in the country,” he said, “and I don’t think we pay outside the normal rate for similar institutions. You can best say that the policy of the university is to maintain a faculty of excellence and do what is necessary to attract distinguished people to the faculty.”
He added: “It is necessary and good for the institutions, just as it is good for corporate giants.”
Mr. Lipton practices what he preaches. Partners at Wachtell Lipton are routinely the highest paid in the country, according to The American Lawyer magazine. In 2012, they earned an average of $4.95 million.
His board, too, includes hugely wealthy individuals, some of whose own pay has attracted headlines. Barry Diller, a U.C.L.A. dropout and Wachtell Lipton client, was in one year the highest paid executive in the country, with compensation of $295 million. Several board members say they have virtually never seen him at meetings. “But he is a contributor and is always available to me for advice,” Mr. Lipton said.
Other boldface names include Lisa Silverstein, daughter of the real estate developer Larry A. Silverstein, a longtime Wachtell Lipton client. The hedge fund moguls John Paulson and Michael H. Steinhardt are also trustees, as are Daniel R. Tisch, William C. Rudin and Constance J. Milstein, all members of powerful New York clans. Kenneth G. Langone, a co-founder of Home Depot, is on the board. Mr. Langone donated $200 million to the medical center, which was renamed in his honor. (He was recently in hot water himself for sending mass emails to medical school staff, soliciting donations to politicians who had helped the center after Hurricane Sandy.)
The roster includes at least one eyebrow-raising trustee, Leonard A. Wilf. In September, Mr. Wilf and two cousins were ordered to pay $84.5 million to former business partners after a New Jersey judge ruled they had committed fraud, breach of contract and violated civil racketeering laws in a 1980s real estate case. An appeal has been filed. Mr. Lipton declined to comment but William Josephson, a lawyer who specializes in nonprofit institutions, said this: “I cannot recall an iconic American university having a board member with such a history.”
One might argue that a board so loaded with money moguls has lost touch.
In September, a group of faculty activists sent out a “dear colleague” letter complaining that compensation to a select few was excessive relative to what most academic staff earned. Compensation to 25 top administrators rose 20.4 percent from 2010 to 2012. They noted that the average salary increase to faculty was just 2.5 percent at the university and 3 percent at the medical school. The administration’s counterattack: many of the high earners are with the medical school, which operates separately from the university and with a different salary structure.
Board members say compensation issues are carefully examined. “The idea of housing has been our greatest difficulty, and there have been substantial discussions about it,” said William R. Berkley, chairman of an insurance holding company and member of the compensation committees at both N.Y.U. and the medical school. “It is complicated because young, terrific people coming to N.Y.U. have families who have to live in New York, and it is not an ordinary environment.”
In some cases, the university has bought homes for stars, including a $6.5 million apartment for the head of its medical center. N.Y.U.’s newest celebrity hire, the philosopher Kwame Anthony Appiah, whom it lured away from Princeton, is getting university-owned housing — paying rent, according to the N.Y.U. spokesman John Beckman, that is “proportional” to what other faculty members pay in university-owned residences.
To end the “disruption,” as Mr. Lipton refers to the tension gripping N.Y.U. last summer, he announced that the board would no longer make loans for vacation homes. The university has never divulged how many got those loans, though Mr. Berkley said it was fewer than 10 people. Mr. Lipton said he would continue to pay top talent what he views as necessary and to find ways to sweeten the pot.
If there is controversy over how N.Y.U. spends its money, there can be no criticism of how effective the board has been at bringing it in. Since Mr. Lipton took over, it has raised $5.97 billion.
Given the wealth on the board and the amount it has raised, some observers call it a “money board.” Mr. Lipton laughed and said: “Bring us more money.”
While Mr. Lipton has successfully solicited gifts from board members — Shelby White has given $200 million, Helen L. Kimmel $150 million — there is a difference of opinion as to whether he has solicited their viewpoints as well. Mr. Berkley said, “Marty was always open to a dialogue about issues.” Mr. Chesler concurs. But several other board members, who would not speak for attribution, said that Mr. Lipton ran the board with an iron hand. “It is Marty’s board and he controls it,” said one. Another added: “I would go so far as to say that the board has been a near rubber stamp board. And since they are not rubber stamp types, I scratch my head as to why. I think there is a long tradition of the board being quiescent with a management that it feels good about.”
Perhaps confidence in Dr. Sexton left the board blindsided to the degree of unhappiness among faculty. Faculty members have called on Mr. Lipton to resign, citing governance without faculty inclusion and failure to improve the conversation. They also object to how Mr. Lipton embraced Dr. Sexton. He sent out emails from the board supporting the president after the faculty had expressed concerns in no-confidence votes. “That is not listening,” said Robert Cohen, a professor of history and social studies at N.Y.U. “That is broadcasting.”
Mr. Berkley conceded: “John antagonized a lot of people trying to move a large institution into the 21st century. But we believed it was more of a fringe group than it ended up being. The straw that broke the camel’s back was 2031” — the controversial expansion plan, named for N.Y.U.’s 200th birthday. “It was a great idea that was not put forward in a way people understood,” he said.
Over the past several years N.Y.U. faculty members have joined with Greenwich Village preservation groups, celebrities and elected officials to fight the “Sexton plan” — to add roughly two million square feet of space in the Village and six million over all. While Mr. Lipton and others say faculty members were consulted about the expansion, Mark Crispin Miller, who heads N.Y.U. Faculty Against the Sexton Plan, counters that they were not consulted during the planning process.
In the latest development, in January, a Manhattan Supreme Court judge ruled that the university must get state approval for roughly half its plan because it involves removing parkland — a decision that will, it appears, at least slow the timetable. Both sides have appealed the decision. At a news conference shortly after the ruling, Mr. Miller urged Dr. Sexton’s team to “rethink its policy” and “mend fences with its neighborhood and also with its professional body.”
The faculty group continues to fight. To help finance its agenda, it recently held an auction of donations, like a script reading by the author Peter Gethers and an acting lesson with Philip Seymour Hoffman (since Mr. Hoffman’s death, Liev Schreiber has assumed the pledge).
As Mr. Lipton attempts to seal his legacy, the board is scrambling to look more responsive to the issues that have roiled the campus and grabbed headlines. It will involve faculty and students in the search for a new president, and it has announced a drive to raise $1 billion for scholarships.
N.Y.U.’s cost of attendance is about $64,000, and it ranks among the country’s most expensive colleges and universities. On the federal Department of Education’s list of nonprofit private institutions with the highest net price — cost of attendance minus financial aid — only the New School and seven art and music academies cost more than N.Y.U. Asked about students’ ability to afford his university, Mr. Lipton responded: “We do everything we can to provide financial assistance to our students. Our students are not begging in the streets.”
As for his retirement as chairman, Mr. Lipton said, somewhat facetiously: “I am getting too old and have served too long.” Mr. Chesler and Mr. Berkley are leading candidates to replace him.
He seems certain the global mission will not change, in part because his board has been so enthusiastic. “The critics,” he said, “are shortsighted.”
Richard Chait, a professor at the Harvard Graduate School of Education and consultant to nonprofit institutions, has been watching the events at N.Y.U. unfold over the last year and sums it up this way: “If you believe youpainted the Mona Lisa, you don’t want someone to put a mustache on it.”
“At the same time,” he said, “part of what the faculty is saying is: This has been a two-man show; that is not how you run a university.”