Sallie Mae announced the abrupt resignation of its chief executive officer Thomas J. Fitzpatrick yesterday in what some are seeing as a way to make amends and improve the company's image with federal legislators. Fitzpatrick has been the CEO of Sallie Mae for two years and was expected to remain the CEO even after the $25 billion buyout from J.C. Flowers later this year.
Given the suddenness of the resignation, many are wondering if this is another move by the new management to increase transparency and accountability by the company, two things the Flowers Group announced it wanted to accomplish during the buyout.
"As Congress considers proposals to reform student lending practices and make college more affordable, students will be best served if government, the lending community and higher education institutions work together," stated Chris Flowers, managing director of J.C. Flowers, in a press release Monday. "We are ready to do our part, and look forward to working with Congress to get the job done."
According to The Washington Post, Fitzpatrick's departure is part of a plan by Flowers to "convince lawmakers that there will soon be a ‘new' Sallie Mae that will operate more openly and in closer cooperation with Congress than it had in the past."
Flowers decided that Fitzpatrick had to go after talking to senior members of Congress over the past few weeks, and that the change reflects a series of changes that Sallie Mae will undergo in the near future, according to The Washington Post article.
The move by Flowers has not gone unnoticed by lawmakers. Yesterday, House Education and Labor Committee Chairman George Miller (D-CA) issued a press release saying, "Mr. Fitzpatrick's abrupt departure suggests that the lending industry is beginning to recognize that business as usual is no longer acceptable at Sallie Mae or any other company participating in the federal student aid programs."
Miller went short of exonerating Sallie Mae simply because of an executive change.
"However, while new leadership in the industry is certainly welcome, the fact remains that simply replacing individual executives won't stop the corrupt practices that Congress and state attorneys general have recently uncovered," said Miller.
On Monday, the Flowers Group announced a series of initiatives to "enhance accountability and transparency in student lending" that would be implemented upon the completion of the Sallie Mae acquisition. Some of those initiatives include:
- An entirely new eight-person board of directors, consisting of four representatives of J.C. Flowers & Co. and two each from the Bank of America and J.P. Morgan Chase
- A special independent committee appointed by the new board to conduct a 180 day review of the best business and marketing practices that should guide Sallie Mae's future business conduct
- A report by the committee on the implementation of the Student Lending Code of Conduct recently adopted by Sallie Mae
- A series of voluntary transparency standards and practices to ensure customer accountability, including annual disclosure of the company's top five earners
- An annual student town-hall - or ‘stakeholder' meeting on campus and on-line; continued compliance with the Student Lending Code of Conduct; and continued compliance with all applicable Sarbanes-Oxley requirements
- Enhanced efforts to ensure that students understand all lower-cost options before taking out private loans and require new disclosure and certification procedures for students or parents who choose private loans over cheaper options
- An increase of $30 million over the next five years to the Sallie Mae Fund to support major initiatives to lower college drop out rates and provide assistance to at-risk student populations
According to a Sallie Mae press release, Fitzpatrick will continue to serve the company in an advisory role to help with the transition of the new CEO, C.E. Andrews, currently Sallie Mae's executive vice president and chief financial officer.
"I am proud of the work we have done at Sallie Mae, and pleased to be leaving the company at a time when our business is strong and entering a new phase in its history as a result of the purchase by the Flowers group," said Fitzpatrick. "I wish C.E. and all my colleagues at Sallie Mae all the best in the future."
Other Media Coverage
By Justin Draeger
NASFAA Assistant Director for Communications
Posted 05/23/07 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
