“As the graduate assistant put the sneakers in the locker, he looked into the shower. He saw a naked boy, Victim 2, whose age he estimated to be ten years old, with his hands up against the wall, being subjected to anal intercourse by a naked Sandusky.… The graduate assistant left immediately, distraught.”
I apologize for quoting this abhorrent scene from the grand jury report of the Penn State child sex-abuse scandal, but it helps relay the seriousness of what happened at the university. Universities are historic institutions, steeped in tradition, and many have sorely outdated governance practices. Penn State is a good example.
Penn State prides itself on not changing the size or composition of its board since 1951. What this means is that the entire organization is not keeping up with the times. Thirty-five directors is not a board—it’s a theatre. A board this large means management dominates.
The board of trustees should immediately disestablish the executive committee chaired by the president. An executive committee means a “real” board where management controls rather than the board and its committees. The board size should be reduced to half: sixteen directors maximum and preferably fewer. Multinational corporations have fewer directors. The university president, or any other member of management, should have no influence whatsoever over director selection.
Penn State does not even have an audit or risk committee. What good board does not have an audit committee? The audit committee should oversee conduct and compliance reporting. Where is this obligation overseen by a committee of the Penn State board, I wonder? No committee charters are available, which is another red flag.
A nominating and governance committee should also be established. So should a human resource committee. It’s remarkable that audit, nominating and HR committees don’t exist, and this again suggests undue influence by management.
Penn State’s governance statements are verbose, pompous, self-serving and ineffective, as are those of many of colleges and universities, deliberately so written by management who write for a living. Key governance documents are missing, such as the competencies and skills of each director linked to their responsibilities; the code of conduct; compliance procedures for the code; whistle-blowing provisions; a position description for the president; and position descriptions for the board and committee chairs.
These are now requirements for publicly listed companies all over the world and leading not-for-profit institutions. Is Penn State or any other university immune from best practices?
If these governance and ethics oversight practices exist, they should be documented and accessible on Penn State’s website. That they are not leads me to believe they are ineffective or non-existent. (Note: the Penn State website appears to have changed slightly as of Sunday, November 13, 2011, to include the backgrounds of 32—was 35—directors.)
Next, regarding the alleged sexual assaults on campus property by football coach Jerry Sandusky, there needs to be greater rotation and succession planning at many universities, and Penn State is no exception. The same director, employee, coach or dean at the helm for 20-30 or more years—regardless of performance or money being brought in—is bad governance. Joseph Paterno was coach for 45 years and is 85 years old.
Inadequate succession planning like this would never fly in public companies, where CEO tenure is 4-5 years and good board tenure is 9. People don’t have time to get comfortable—they need to do their jobs. On boards, retirement age is 72+ and good tenure is 9. In professional service firms, it is even earlier, from late 50s to early 60s, to make way for the next generation of leaders.
All allegations in this scandal have yet to be proven, but likely what happened was that people were afraid to speak. If they spoke, they’d have suffered enormous reprisals, like job loss or banishment. The board is at fault if this is the case as a result of a flawed structure (see above) and decisions it took or did not take.
At least half of the Penn State board should be businesspeople and the board should have the same transparent recruitment that companies now have, with directors who are independent, have run businesses and can tell colleges who are behind the times, or who resist reform, that this is what has to happen. Having alumni, the governor or even agricultural societies (likely a historical artifact) appoint or elect directors does not necessarily result in competent directors being at the table or staffing key committees. There needs to be a greater link between directors, their skills and what is required to govern at universities. The days of ceremonial appointments should be over.
Next, all colleges should have whistle-blowing procedures at the same level as companies are obliged to now do. This puts the heat under management to have proper procedures, as employees can go directly to an external ombudsperson or the regulator to get protection.
A code of conduct should be developed by all colleges and universities, as is the case for any leading organization. It should be signed off on by each and every governor, employee and key supplier and be a condition of employment, including for the president. Code compliance should be part of the president’s contract. Everyone has to sign that they do not know of any wrongdoing, anywhere on campus, every year. The sign-off statement should include obligations on how to report, protection and assurances of a proper independent investigation.
All code compliance should be reported directly to the audit committee of the Penn State board (note: non-existent at Penn State), and independently assured. The code must include conflicts of interest statements as well. Training and education should also occur, for each employee. The code should be paramount and override defensive union agreements and guises of academic freedom.
Lastly, Penn State’s internal audit charter—if it exits—should be available on its website. The design and effectiveness of internal controls, including approvals, access to restricted rooms, campus security and lighting, keys, locks, areas of vulnerability, and potential for override should be reported directly to the audit committee. The audit committee should be able to insist upon independent assurance for any risk, based on the audit report. Good audit committees know and do all this. They direct the president and CFO to comply with best practices.
Why would Penn State management do all this, under this resistance? The board has to press them to. This is why a strong board is so essential. The tone at the top starts—and stops—with the board.
Health and education institutions are complex organizations, with interdependent stakeholders and many moving parts. They are sometimes more complex to run than large companies. In the vast majority of cases, they are staffed by committed and well-meaning people. They are, however, hard to manage and especially difficult to govern, given defensive unions, historic tradition and tenured, specialized academics. It is very important that governance standards and practices be current and not myopic, and this is why colleges need strong, proper, effective independent boards to counteract resistance, have the clout to direct management and staff, and impose proper governance, risk management and internal controls—the same as being done for public companies.
Here, Penn State—and perhaps many other universities—have much to learn.