Trustees Ready to Implement Governance Reforms

May 2, 2013 at 8:02 pm 4 comments

During Thursday afternoon’s meeting of the Board of Trustees’ governance and long-range planning committee, when the committee members discussed proposed university governance reforms for the last time before they were forwarded to the full board for a Friday vote, trustee Joel Myers ’61, ’63g, ’71g wanted to know whether the package is “the most sweeping ever made in the history of Penn State.”

From most quarters on the committee, the answer was a resounding yes.

Frank Guadagnino 78, an outside attorney from Reed Smith hired by Penn State for his expertise on governance issues, said that his historical research showed they were “right up there,” and he stressed that previous changes had been made incrementally. He called the package “the most comprehensive review and change found in the historical record.”

Board chair Keith Masser ’73 said he had recently attended an Association of Governing Boards conference, where he discovered that Penn State’s recent governance and compliance initiatives were being benchmarked. “Other universities are looking upon us for the changes we’ve made—they’re studying us,” he said. “That made a good feeling, coming away from that.”

That the proposed changes are particularly important was obvious just from looking around the room. The audience included two members of president’s council—senior vice president for development Rod Kirsch and vice president for administration Tom Poole—along with trustee Linda Brodsky Strumpf ’69 (who doesn’t serve on this standing committee), and at least four alumni candidates for the board: Bill Cluck ’82, Ted Sebastianelli ’69, Ted Brown ’68, and Bill Oldsey ’76.  Trustee Anthony Lubrano ’82 popped his head in midway through but didn’t enter.

But really, not much happened. The committee voted unanimously to recommend approval of its governance reform package. Friday’s single up-or-down vote by the whole board will encompass all of the proposed changes to the bylaws, standing orders, and the university’s charter. A handful of spectators questioned the committee members before the meeting adjourned, mostly asking for more openness and engagement with the public; there was no back-and-forth about the proposed changes.

The major changes are already well-known: The university president and the governor would become non-voting members, the quorum will be increased from 13 to a simple majority, the number of trustees on standing committees will be reduced from six to five (because there are more committees).

Two pieces of the reform package are less well understood: the conflict of interest policy, and provisions increasing the amount of time a university employee must wait before joining the board and vice versa. Slowly, a clearer picture is beginning to emerge.

During the meeting, the committee highlighted the proposed increased waiting period for a university employee to become a trustee—five years, up from the current three. They did not, however, indicate that the reverse would also be true—that a trustee could not step down and immediately become an employee—and that has become a rallying point for many critics of the board.

Asked after the meeting by a group of reporters to clarify, neither committee chair Jim Broadhurst ’59 nor Paula Ammerman, the board’s secretary, were able to pinpoint where the latter provision was in the new bylaws, but they indicated it was there. The new language can be found in the board’s agenda by clicking here for the proposed changes. The exact language can be found under the conflict of interest policy, Section 8.12 in the proposed new bylaws (scroll down to page 53).

It says: “No Trustee may be employed by the University in any capacity before the fifth (5th) anniversary of the date on which such person last served as a Trustee, except as approved by action of the Board of Trustees.”

For comparison purposes, here’s the language for the employee-to-trustee transition, which is found in Section 2.02, Qualifications for Membership (page 18 in the link): “A person shall not be eligible to serve as a member of the Board of Trustees for a period of five (5) years from the July 1 coincident with or next following the date of (a) last employment in any capacity by the University or (b) the last day of such person’s employment with the Commonwealth of Pennsylvania as Governor, Lieutenant Governor, Auditor General, or State Treasurer.”

The difference, of course, is that the “except as approved … by the Board of Trustees” provision appears in the trustee-to-employee transition, but not the employee-to-trustee transition.

Guadagnino, the attorney, explained why after the meeting: “Hypothetically, you could have a situation where the president’s plane goes down, and you need a new president that day. And you decide, for whatever reason, it’s not the provost and it’s not some other officer—so somebody from the board needs to step in and become the president. That wouldn’t be terribly uncommon. It’s very, very unlikely, but who knows?”

The change would not be retroactive, meaning that former trustee David Joyner ’72, ’76g, ’81g would remain as athletic director. Even with the exception, Guadagnino said, such a move would be difficult in the future. “If the board, by majority vote, decides this is the best thing for the university, it’s not really different than anything else the board votes on by majority vote,” he said. “This is the rule; you’d have to really justify an exception.”

The conflict of interest policy itself—which was mentioned, but not discussed in detail, during the committee meeting—has been expanded as well. Broadhurst declined to comment on the policy afterward, telling reporters he didn’t want to miss any of the proposed policy’s many pieces. Guadagnino did comment, but he made sure to refer to the text and his notes for the same reason.

Guadagnino said he considers the conflict of interest change particularly significant; it’s “broader” now, he said. “It’s not just financial. It could be an employment relationship. It could be some family relationship. Anything that if somebody would conclude ‘That’s a conflict’ now has to be disclosed.”

The current policy, found in the current bylaws (click here to download a PDF, and scroll down to the bottom of page 8) runs for about a page, and stipulates that any trustee (or trustee’s spouse, dependent child, or partnership/organization) who has a “beneficial ownership” of 10 percent or more cannot enter into a transaction worth $10,000 or more with Penn State “unless the contract has been awarded through an open and public bidding process.” The policy also lays out a procedure for disclosure.

The new proposed bylaw is more explicit; it runs nearly five pages and specifically defines many of the terms. In Section 8.05 (page 50 in the link), it puts more responsibility on the university officials who may enter into such a transaction with a trustee: “The University official responsible for the matter must first conclude that it is in the best interests of the University to consider entering into such a contract or transaction.” It further states: “The written materials submitted to the board shall include a description of the contracting process, including the use of open and public bidding if possible and practical, and the official’s analysis of why it is in the best interests of the University to proceed with the agreement or relationship.”

Guadagnino also addressed, after the meeting, the proposed bylaw change that provides for removal of a trustee. The board always had the power to do so, he said, under section 5726 of the Pennsylvania Non-Profit Corporation law, but the proposed change spells out the procedure. “The law allows a board to remove a director, a trustee, for any proper cause set forth in the bylaws,” he said. “So we could have made it expansive, but limited it to breach of fiduciary duty. So that’s actually protective.”

The process, which is detailed in Section 2.03 (see page 19 in the link), requires a joint proposal to the board by the chair and the chair of the governance committee 30 days before removal is to be considered by the board. “A cooling-off period,” Guadagnino said, “if things get heated.” A supermajority vote—two thirds of the trustees—would then be needed to remove a trustee.

The proposed changes will be open for discussion by the full board before Friday’s vote.

Lori Shontz, senior editor

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4 Comments Add your own

  • 1. Robert  |  May 3, 2013 at 11:47 am

    What exactly are these awesome changes that were made? If they were so great we must be off the scale in comparison to other colleges because we were already in the top 10-15 persent. And don’t tell me it was because of the Freeh thing!

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