At a recent alumni cocktail party at Virginia Commonwealth University's historic Scott House, Miguel Rao, a tousle-headed 10-year-old, was busy with his homework in a back room as a worker prepared his dinner. When his mother, Monica, the wife of President Michael Rao, called to him, he raced past the grand staircase, scooting by alumni clutching cocktails and screeching to a halt by his mother.

Since July 2009, when the new president took the helm, the university has had a package deal with the Raos. Not only did it get Michael, who had been president of two other colleges, it got Monica, an artist who works in international alumni relations, plus Miguel and his one-year-old brother, Aiden.

In a profile of the president recently posted on the university's website, Rao explains: “Our family is important in our lives, and we have found that involving the family is very helpful in our work. In fundraising, for instance, we know that families give to families. There have been many occasions in which I can certify that people gave generously to the university because of a particular fondness for Monica or Miguel.”

This family-first approach, however, has hit a serious bump. Although Rao has been president for 17 months, several important top management posts remain unfilled. As Rao promotes his wife and offspring, he's yet to put together his management team to pursue his lofty goal of raising the academic bar at the university. Former provost Stephen D. Gottfredson, who left in March, still hasn't been replaced. Rao also faces the prospect of losing John M. Bennett, the university's senior vice president of finance, who is rumored to be considering retirement.

Rao's wife, Monica, has been accused of meddling in personnel matters, resulting in the departure of well-regarded chief of staff Wayne Turnage. Sources say the Raos have regularly asked high-ranking university staff to babysit their boys. And, most damning of all, Rao was forced to rescind an unusual confidentiality compact that forbade members of the president's staff from discussing publicly any matters relating to the Rao family, including the children.

VCU spokeswoman Pam Lepley says that all staffers must sign confidentiality agreements to protect student and hospital patient records. She admits the Rao pact went beyond the norm.

Another oddity is that Rao insisted on the unusual secrecy pacts to protect his wife and family when he was openly trumpeting their role in managing and raising money for the university. In a letter rescinding the pacts, Rao stated that the contracts “unfortunately, have been misinterpreted in terms of what I sought to be accomplished by these agreements.”

Involving family members in the management of a large university, or corporation, could be opening a Pandora's box of ethical dilemmas. James Clawson, a professor of business administration at the University of Virginia, says these days corporations are careful to establish clear ethical boundaries for its employees and managers. High-profile cases of corporate abuse, not to mention a devastating recession, can do that.

“In today's world, employers of all kinds are having to pay greater attention to the whole person,” Clawson says. “Because of large number of abuses, organizations, including large universities, are having to be careful about how expenses are being used.”

Clawson says he can't speak specifically to Rao's case, but advises high-level managers to stay away from the ethical boundaries. As far as Rao's wife and children playing “an important role in helping him execute presidential duties,” which the university highlights in his online profile, Clawson is stumped.

“It's hard for me to understand how a university president can say a 10-year-old boy is critical to my presidential responsibilities,” Clawson says. “I don't understand that.”
The VCU Board of Visitors is also asking questions. The sudden controversy over Rao has become so serious that the university hired a consultant, Stephen Portch, for $16,000 to appraise Rao's performance in office so far. Portch is a former chancellor of the University of Georgia system and also served as a consultant to the university when it was searching for a new president to replace Eugene P. Trani, who ran the university for 19 years.

Lepley says that hiring a consultant to assess a new president is routine, but the board of visitors didn't hire Portch until Nov. 22, well after the Rao controversy broke. Portch delivered his report to the board on Dec. 2, after only 10 days of research. The board is scheduled to discuss the findings with Rao on Dec. 7.
Rao has the strong support of some members of the faculty and is regarded as personable and a good listener. It's a stark contrast to Trani, whose powerful, and at times autocratic, style ruffled feathers. During his last years in office, Trani  confronted a series of scandals including the disclosure of secretive research contracts with cigarette-maker Philip Morris USA and the granting of a degree to former Richmond Police Chief Rodney Monroe, who only took two classes at the school.

When the board of visitors sought a new president, finding one with a diverse background was a guiding principle. Rao, who was born to an Indian-American family in Boston, easily fits that category. He met and married Monica in Mumbai, India, where she is from. Both are proud of their Indian heritage and VCU finds their backgrounds useful as it opens satellite campuses in such farflung places as Qatar, Spain and Italy, seeks students from South Asia and opens student recruitment offices in Northern Virginia, which has a polyglot of residents from many countries.

The Indian nature of the Raos' diverse background has its own characteristics, including being particular about diet and embracing family members. In India, for example, many businesses are run by extended families whose succession plans are certain to include sons, daughters, nieces and nephews. “It's a reflection of society,” Kavil Ramachandran of the Indian School of Business told Forbes.com. “There is a lot of support mechanism — from the family, relatives; this network of people. … This broader system makes sure that trivial issues do not lead to the breakup of relationships.”

The next shoe to drop will occur when the board tells Rao of his performance assessment Dec. 7. It could be that by seeking diversity, the VCU community wasn't quite prepared for such a family-centric way of doing business.