Cornell's decision to give former CIO James Walsh a $400,000 bonus in the same fiscal year that the University's endowment fell by one-quarter was not a good sign that Day Hall is reimagining its compensation policies.

The university announced yesterday that Chief Investment Officer James Walsh will be resigning at the end of this academic year. As Cornell begins the process of selecting a new person to manage its roughly $4 billion endowment, it should aim to find a qualified candidate with a sense of pragmatic conservatism and a strong commitment to endowment transparency.

The latter part of Walsh’s tenure, which began in 2006, has been marked by turbulent times for the University’s finances. Cornell’s endowment suffered a drastic loss of about 27 percent last fiscal year. During the same time period, endowments at colleges and universities across the country decreased by 18.7 percent on average, according to the National Association of College and University Business Officers.

The year was 2008 and Cornell was prospering. With the University safely past the halfway point in its $4 billion capital campaign and reporting double-digit returns on its endowment, top administrators were terming the era a “golden age” in higher education.

Little did Cornell — and the rest of the world — know what was in store next.

After a 26 percent decline in its endowment last fiscal year, Cornell has a lot of lost ground to recover. In the first two months of the current fiscal year, the University has been making substantial strides to even out its balance sheet, announcing a 6.2 percent rise in its overall investment performance.

Since reporting a 27 percent loss during the second half of 2008, the endowment rose 2 percent from January through June.

The endowment makes up $4 billion in the University’s $5.1 billion total investment at the end of the last fiscal year, which ended June 30. While the improvement in investment performance has brought more assets to the University, Cornell has taken substantial funds from the endowment in order to pay for operational costs.

This story was originally published on March 16.

Addressing Cornell’s approximately $230 million deficit, President David Skorton summarized the University’s current financial situation and answered pointed questions from an audience of at least 200 this afternoon in an open forum aimed for faculty and staff in Statler Auditorium.

Most of the questions raised were centered on the subject of workforce reduction. Skorton said several times during the question-and-answer session that there would be more layoffs in the future.

The Board of Trustees arrived in Ithaca last night for what will be a series of long and daunting days marked by uncertainty. No one knows when world markets will stabilize or when the job outlook will become sustainable. As the trustees grapple with all of this, we cannot offer any comprehensive solutions. What we can do, however, is posit some advice.

Serving as Cornell’s governing board, the trustees have two overarching responsibilities. First, it is in their power to determine the University’s financial policies, while making decisions pertaining to construction, financial aid and academics. But second, the Board of Trustees must also keep in mind the moral and social responsibilities as managers of a multi-billion dollar investment portfolio.

On Saturday, the Board of Trustees approved cuts to the University’s operating budget, increased the cost of tuition for the next academic year and further extended an external hiring pause and construction pause that were first implemented last October. The move comes as the University reels from a 27-percent decline in its endowment, drastic cuts in state funding and a decrease in philanthropic contributions.

While Cornell was able to largely avoid the Bernard Madoff ponzi scheme that cost other universities millions of dollars in losses, Cornell’s finances were not invulnerable to the economic meltdown that has gripped the country. According to The Cornell Alumni Magazine, Cornell’s endowment, which was valued at $6.1 billion on June 30, 2008, fell 27 percent during the second half of 2008.

Executive Vice President for Finance and Administration Stephen Golding in an interview on CNBC, considered the current economic status “the perfect financial storm.” He explained the complexities and the uniqueness of the current situation by adding, “This is a much broader problem with many more components at one time than what many of us have historically seen.”

Although Bernard L. Madoff’s $50 billion ponzi scheme has burdened many institutions of higher education with unforeseen losses in their endowments, Cornell has yet to report any losses incurred by the scandal.

Federal Bureau of Investigation agents arrested Madoff on Dec. 11 and federal prosecutors charged the 70-year-old man with securities fraud. While Madoff’s investors include wealthy individuals like New York Met’s owner Jeff Wilpon and banks around the world like HSBC and Royal Bank of Scotland, Bloomberg reports that Madoff “had directly affected 400 U.S. nonprofits.”

James Walsh, chief investment officer for Cornell, said in an e-mail, “I am glad to say we had zero exposure to Madoff and strongly believe it would never have found its way into our portfolio.”

This is the second part of a series delving deeper into the economic crisis and its effects on higher education, particularly at Cornell.

Despite having an “all-weather portfolio,” Cornell’s $6 billion endowment is not immune from the financial storm that is sweeping across the nation.

The endowment acts as a stable source of funds for the University, and nearly all of the money is invested long term. Cornell’s endowment makes up about 11 percent of the University’s revenue.