Incubator shakeup puts prez under fire: Rose-Hulman Ventures in turmoil after resignations

January 24, 2005

But outside his camp, others at Rose-Hulman are calling for Midgley's scalp. They fear the man who replaced Samuel Hulbert in July is another George Armstrong Custer.

A pair of sudden resignations at nationally renowned business incubator Rose-Hulman Ventures provoked the skirmish that now threatens to become an all-out assault on Midgley's leadership.

"We cannot trust him," said a Rose-Hulman dean who spoke on condition of anonymity. "This is by far not the only time I have felt this way, but [the departures were] the straw that broke the camel's back.

"I have the belief that he does not respect our students, staff, board and many of the successes we have achieved," the dean continued. "I do not know how many times he has justified change because 'others are doing it.' Rose-Hulman did not become the leader in engineering education by following everyone else, but rather by leading the way."

The future of Rose-Hulman Ventures is at the center of the battle. But the resignations could provoke Midgley's last stand.

Its roots go back to 1995, but Rose-Hulman Ventures was formally organized in 1999. In exchange for equity, it provides high-tech startup firms small infusions of cash as well as the hands-on expertise of Rose-Hulman faculty and student engineers. It has provided technical and business assistance to more than 40 companies.

Since both men who resigned plan to return to the classroom, Midgley characterized the surprise resignations of Rose-Hulman Ventures President Jim Eifert and Chief Operating Officer Brij Khorana as a simple personnel reshuffling.

"In academia, people often move back and forth between faculty and administrative duties," Midgley said. "Jim and Brij did not lose their jobs. They just moved back to their faculty duties. Their reasons are their own."

But that explanation doesn't jibe with the pair's abrupt departure Jan. 11 from the organization they spent most of a decade building. Thanks to $60 million in grants from Lilly Endowment Inc., Rose-Hulman Ventures is the best-funded incubator in the country, said Athens, Ohio-based National Business Incubation Association President and CEO Dinah Adkins.

Under Eifert and Khorana, it became the envy of its industry.

"That's probably the biggest one in the world. Nobody else has that kind of money," she said. "I'm really sorry to hear that Dr. Khorana and Jim Eifert are stepping down. But I can tell you this: The success of any business incubation program is directly related to the quality of the management. I hope their replacements will be of equal [caliber]."

Eifert and Khorana aren't the only highlevel Rose-Hulman administrators to quit since Midgley took the reins. Others include Director of Governmental Affairs Mary Ann Carroll, Vice President for Development and External Affairs Mark Richter and Vice President of Institutional Research Planning and Assessment Gloria Rogers.

In its 28 years under former president Hulbert, Rose-Hulman blazed a trail for the nation's top undergraduate engineering schools. His retirement prompted the national search that yielded Midgley, a West Point graduate with a master's degree in public policy from Harvard's John F. Kennedy School of Government and a doctorate from the Massachusetts Institute of Technology.

Midgley taught social sciences, economics and international politics at Carnegie Mellon University and at the University of Pittsburgh. His military career included numerous leadership positions, but before Rose-Hulman, he never ran a university.

His most recent job was managing director of an international management consulting firm.

One Rose-Hulman trustee, who asked not to be named, said Midgley was "far and away the favorite" to replace Hulbert in a process that came down to three-day campus visits by the final four candidates, followed by a faculty election.

Midgley promised not to make major changes to the university in his first year. But the trustee complained the new president is "not very interested in your opinion."

Heads turned when Midgley ordered trustee Elizabeth Klimes, Eli Lilly and Co.'s president of specialty care products, to undertake an extensive evaluation of Rose-Hulman Ventures.

When Midgley asked Eifert to sign off on a draft of the review, Eifert refused, then resigned. Through his secretary, Eifert declined to take IBJ's calls, but IBJ obtained a memo Eifert distributed Jan. 11 that lays out the incubator's accomplishments as well as his rationale for resignation.

Rose-Hulman refused to confirm the existence of the Klimes review. But in a Jan. 13 memo to trustees obtained by IBJ, Midgley called it a "normal review of operations and lessons learned."

The memo said Klimes' team interviewed Rose-Hulman Ventures' employees, clients and faculty, producing hundreds of pages of documentation.

In the memo, Midgley said he was "personally disappointed with Jim's decision." It said Brad Kelsheimer, Rose-Hulman Ventures' vice president of administration and business affairs, has been made the incubator's acting manager. And, it said, Midgley will attend weekly all-hands meetings at Rose-Hulman Ventures until further notice.

"Moving ahead, I would like to encourage all of us to support the work of the RHV review team," Midgley wrote. "We need to have a sensible, financially sound plan for RHV's future, and then we need to help our investor understand what we want to do and our reasons why."

Questions over ongoing funding are at the heart of the matter. Another Rose-Hulman trustee, who also spoke to IBJ on condition of anonymity, explained the university's dilemma.

The incubator has always had a dual mission: education and economic development. The idea was that mentoring startups would provide a unique learning opportunity for highly skilled students as well as create in-state businesses for them to join upon graduation.

But startup companies are inherently risky. To date, Rose-Hulman Ventures' portfolio has produced little financial return. Other than Suros Surgical Systems Inc., which the trustee expects will eventually net the incubator $7 million to $10 million, its sure bets are few.

Always underwritten by Lilly Endowment, Rose-Hulman Ventures will eventually face a day of fiscal reckoning. The university might have to someday subsidize it. And to some, that would make it essentially a very expensive internship program.

Midgley found that possibility too hard to justify for a university that needs new laboratories, dormitories and all the other traditional amenities.

"I know Jack looked at it and said, 'The strength this school has isn't venture capital. It's educating students,'" the trustee said. "And I think he's right. You start taking a serious look at sustainability of the business."

Eifert clearly disagrees. In his memo, he pointed out that the incubator still has $17 million unspent, enough to sustain its 57 student employees for a long time.

"Today it is time to reassess, refocus and redirect the efforts of Rose-Hulman Ventures," Eifert wrote. "Last week, Dr. Midgley revealed to me the strategic direction that he and the review team have decided upon for the future of RHV. We studied this new direction and reluctantly came to the conclusion that it is not one for which Brij and I are willing to provide leadership."

Under Eifert, Rose-Hulman Ventures was also the recipient last spring of an undisclosed investment from BioCrossroads' Indiana Future Fund. It got the money by forming a partnership with Ann Arbor, Mich.-based venture capital firm EDF Ventures.

EDF didn't return IBJ calls seeking an explanation of how the resignations will affect that partnership.

Midgley is developing a 10-year strategy for the university called "Rose-Hulman 2015: a Conversation about our Future." It includes a new "cabinet" administrative organization. Next month, Rose-Hulman trustees will meet in Florida to talk about it.

Some openly support Midgley, like trustee James Baumgardt, Rose-Hulman Ventures' former chairman.

"I'm very enthused about the early steps that Jack Midgley has taken with regard to driving Rose-Hulman to excellence by 2015. I look forward to the board meetings where we talk about what that looks like," Baumgardt said. "[Rose-Hulman Ventures is] a lot bigger than two individuals."

But others are just as sure Midgley's presidency is leading straight for Little Big Horn.

"I think Midgley is an absolute disaster for Rose-Hulman," said one of two trustees who criticized the president. "If it were put to a vote of the trustees, I would have voted to oust him last August.

"My feelings have only grown stronger the more I understand about him," the trustee added. "It is far better for the board to admit its mistake and correct the situation sooner rather than later."
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