Posts tagged ‘Frank Guadagnino’

Trustees Struggle to Find Consensus on Board Reform

Perhaps in this case, the best place to start is the end.

Two hours into the Board of Trustees’ governance and long-range planning committee meeting Thursday afternoon in Hershey, chair Keith Eckel decided the group needed another session before its next scheduled meeting in May. The board’s governance consultant, Holly Gregory, agreed and pushed for a substantial chunk of time to find some consensus on what reforms to pursue—and to understand why those reforms are needed.

“We need to drill down,” Gregory said. “I’m still really, really challenged because I need to make sure we have a sense of what we are trying to move on. And it’s difficult to come up with ideas of what we’re going to do when we don’t know what we’re trying to achieve. That was my hope. I have some sense of that on the size (of the board) issue, but we haven’t had the time to go down as deep as I’d like.”

Then she added, “I’m supposed to help facilitate. Not come up with my own reform proposal. I can easily come up with one based on what I’ve heard, but that really isn’t the task as I understand that.”

The committee members and Penn State staff pulled out their calendars and started tossing out suggestions. None worked. (Perhaps a suggestion from the media seats—why not do a Doodle poll?—would have helped.) These are busy people, people with calendars full of other board meetings, vacations, grandchildren. The upcoming celebration of Penn State’s capital campaign took up a few days, as did the ag trustees election and the counting of alumni election votes. At one point, Anthony Lubrano ’82, one of the board’s most vocal critics, even after joining it, noted a week he was unavailable, prompting Jim Broadhurst ’64, an executive committee member and former board chair who has served since 1998, to quip, “Might be a good week to have it, then.”

Everyone laughed, even Lubrano, who said, “I gave you a softball, Jim—if you couldn’t hit that one …”

Consensus was almost impossible to find. They tentatively settled on May 7, the day before the officially scheduled governance committee meeting, and according to attorney Frank Guadagnino ’78, responding to a question from Jesse Arnelle ’55, ’62g, that meeting should be open to the public.

It’s no secret, of course, that Penn State’s board is divided and that proceeding on the next part of governance reform, which involves the size and composition of the board, plus qualifications for trustees, was going to be difficult. That’s why the governance committee said it hired Gregory, to help members find the right path.

The board’s stated intent is to vote on a reform package in the fall. But the trustees entered Thursday’s meeting, their first public discussion on reform with Gregory, having not yet determined which data they needed or which universities they wanted to use as benchmarks. After a lengthy back-and-forth, that was settled. (And if they want more data, they are welcome to check out a feature from our July/August 2012 issue in which we compared the size and composition of Penn State’s board to those of other Big Ten, land-grant, and Pennsylvania universities.)

Even a potential reform that has widespread support—the addition of a permanent student trustee, necessary because there’s no guarantee of student representation, only a tradition that a student is of the six trustees appointed by the governor—required a sustained, sometimes contentious, discussion.

The issue has some urgency because the current student trustee, Peter Khoury, is graduating in May, and the board realized that unless it acts, it could be without a student representative when tuition is set at its July meeting. Eckel said Gov. Tom Corbett has assured that he will select Khoury’s successor in plenty of time to have the selection ratified by the state senate, but the committee wanted a back-up plan in case that doesn’t work.

The plan: for the committee to vote on the permanent student trustee reform immediately, but bring the item to the full board for the necessary approval only if the process in place now hasn’t moved forward by the next meeting. There’s a chance that the full board will not vote on this in May. But this action separated the student trustee from the rest of the reform package, which does not yet exist.

The student trustee position involves three changes: The size of the board would increase from 32 members to 33 (both numbers include non-voting trustees) because the governor would still have six appointments. The board itself would select the student trustee, but the University Park Undergraduate Association, the Graduate Student Association, and the Council of Commonwealth Student Governments would recommend that student. And the student trustee term would be two years, not three, to make it less likely that students would have to choose a freshman.

Barbara Doran ’75 suggested that Khoury stay on, that he could still represent student interests as an extremely recent graduate. (His term doesn’t officially expire until November; he has agreed to resign to make way for a student-chosen trustee.) The committee’s student representative, Molly Droelle, the president of CCSG, said that is unacceptable to students: “That’s a very strong point for us.”

Vice president for administration Tom Poole told the committee that the governor makes his decision after student organizations recommend one or two candidates and the state secretary of education (also a trustee) interviews the candidates. Richard Dandrea ’77 noted that the board could decide to make the student trustee position permanent but officially designate that trustee as one of the governor’s appointees.

“Not in the eyes of the students,” Droelle said. “That’s not the proposal.”

“I know that’s in the eyes of the students,” Dandrea said. “I like your vigorous advocacy. I’ll write your recommendation for law school. But I’m just saying, that’s another alternative we should consider.”

That idea was discussed but never brought forth for official consideration.

Lubrano objected to the item because it was separated from other potential reforms and because while the issue of the student trustee has been discussed generally in committee, he hadn’t seen this official proposal until the meeting. He insisted on a roll call vote, and the proposal passed 8-1, with his dissent.

“It’s imprudent to move forward with one part without talking about the whole,” he said.

Dealing with that whole, however, is proving difficult. And the proverbial devil, it became clear as the meeting progressed, is not only in the details, but in the overall philosophies of board members.

Board reform became a hot topic after the Sandusky scandal, when the board was criticized for its actions, particularly not knowing that Jerry Sandusky was under investigation before he was charged, the decision to fire Joe Paterno and how it was carried out, and the handling of the Freeh report. Alumni trustee Marianne Ellis Alexander ’62, who was on the board in 2011 and is not running for re-election, addressed that issue head-on late in Thursday’s meeting.

She referenced a  report by the Association of Governing Boards of Universities and Colleges from the late 2000s that cited Penn State’s board as a model of good governance because of the diversity of constituencies represented on the board (alumni, agriculture, business, state officials) and the diversity of ways in which they are chosen (direct election, self-selection, appointees).

“I don’t want to lose sight of that,” she said. “And also, since eight years ago … there’s been a steady evolution toward board reform that means every member of this board is more included and feels more engaged. Really, it’s been a revolution.

“And I think what we are doing here today is on a continuum. I just don’t want us to lose sight of that. Just because we had a terrible thing happen, suddenly we have this terrible system. I don’t believe that.”

Doran, a private wealth manager at Morgan Stanley who was elected by the alumni post-scandal, answered by citing the nation’s financial crisis of 2008. “Most of the banks concerned were very well run, had risk management systems, everything looked good—and then fell apart when they failed the ultimate stress test. … A stress came (to Penn State), and it hurt us. Wall Street has been undergoing massive reform. I think that’s where we are now. We need to continue to look at how to improve.”

Alexander, one of two voting members of the board with a higher education background, responded, “I don’t like the idea of Penn State being compared to those financial institutions.”

Replied Doran, “It’s out there.”

The back-and-forth called back to how Gregory began her section of the meeting, which was billed on the agenda as “facilitated discussion of governance considerations with consultant.”

She said: “We need to ask, ‘Is change likely to have a positive result on board effectiveness?’ And also, perception matters here—you govern in public, and having the support of the community is critically important. … I think we have to deal with both issues.”

Those issues have many parts. I’m planning to flesh out some of them in future posts.

Lori Shontz, senior editor

March 7, 2014 at 11:56 am 1 comment

Changes may be Coming to Alumni BOT Election

For years and years, the election for the alumni seats on Penn State’s Board of Trustees ran smoothly and under the radar. Then the Sandusky scandal happened, and among the many changes around Penn State came an exponential increase in interest in the election—more candidates, and more alumni interested in voting.

The election process has been confusing and sometimes frustrating for alumni, and the Board of Trustees office was at times overwhelmed with requests for ballots. Which is why vice president for administration Tom Poole, whose office handles the administration of the Board of Trustees, presented suggestions at Thursday’s governance and long-range planning committee to streamline the process and make it less confusing. The goal: To increase alumni participation in the election.

The committee discussion ranged beyond Poole’s suggestions (below) to a broader discussion of who should automatically receive ballots. Currently, ballots are automatically emailed to alumni who have been an Alumni Association member in the previous two years or who have donated to the university within the previous two years. Other alumni don’t receive a ballot automatically, but can get one by making a written request to the Board of Trustees office.

The committee discussed the feasibility of amending the board’s charter so that ballots would be automatically sent to any alumnus with an email address on file with the university. Committee chair Keith Eckel summed up the discussion: “I’m hearing a desire expressed by the committee to expand this as broadly as we can.”

Poole made three suggestions to improve the alumni trustee election:

—Automatically distribute ballots to anyone who requested a ballot the previous year. This would make the process easier not only for alumni, but also for the board office, which fielded 11,000 requests for ballots in each of the past two years.

—Better publicize and explain the election and nomination processes.

—Allow candidates to include their websites and social media links on their official profiles on the Board of Trustees website, something that hadn’t previously been permitted.

The committee didn’t need to vote on the changes, but everyone appeared to be in agreement that those improvements should go forward. The biggest discussion concerned broadening the ballot distribution to alumni who are not members of the Alumni Association, which is the group currently defined by the charter.

Frank Guadagnino ’78, an outside attorney hired by the university to consult on governance issues, said the original language in the charter likely appeared because the Alumni Association maintains the database of alumni. He said the charter could be changed, but that under the Pennsylvania Non-Profit Corporation Law, the board would need to have 10 days’ notice before a vote. While that 10-day notice is possible before the board’s next meeting in January, the nomination period for the 2014 election will have already started by then.

This prompted trustee Carl Shaffer to say, “If we can’t change the charter this year, according to all of the discussion here, then I do think we should have more discussion before we attempt to change the charter.”

Barbara Doran ’75 noted that although the nomination process starts in January, the ballots for the election aren’t distributed until April; she asked if the issue of who automatically gets ballots could be decided after the nomination process has started. Guadagnino said he believes that is possible.

One other alumni election issue came up as well: the nomination process. Doran said she has heard from alumni that needing only 50 signatures to become a candidate is too few. “Because there have been so many candidates the past two years,” she said, “it’s really hard if you want to do your due diligence to get through the candidates.”

Poole said this is another area that may need attention, but he added that changing it for 2014, when anyone planning to run for the board would have spent the past year assuming he or she needed only 50 signatures, would not be fair.

This was a particularly busy governance committee meeting—it approved a recommendation to hire Holly Gregory as a governance consultant, and there was a spirited discussion about the presidential search process. I’ll have more updates later.

Lori Shontz, senior editor

November 21, 2013 at 7:02 pm 3 comments

More on Governance Reform at Penn State

EckelIt appears, more and more, that change in the structure of the Board of Trustees will not end with the removal of the university president and governor as voting members and the other reforms enacted in May. The governance and long-range planning committee, which recommended the May changes, plans to hire a governance consultant by the board’s November meeting. This consultant would help the governance committee to determine what further changes should be referred to the entire board.

This process is moving quickly. Keith Eckel (pictured here) suggested that a consultant was needed in July—his first meeting as chair of the committee–just two months ago.

At Thursday afternoon’s committee meeting, Eckel reported that he, board chair Keith Masser ’73, and Barbara Doran ’75—a subcommittee, I’d note, that incorporates both a veteran and a new member of the board—had reviewed about a dozen possibilities and narrowed the field to four or five people. Doran said they had solicited recommendations for the position “as broadly and widely as we could.”

The idea that Penn State needs to hire another consultant to discuss governance after already receiving reports on the subject from Louis Freeh, former auditor general Jack Wagner, and Penn State’s Faculty Senate has sparked anger and some ridicule among critics of the board. But Eckel said the trustees are not looking for another informational report.

“We want a top expert in the field, but we also want a facilitator, because obviously a number of these issues don’t have unanimous agreement,” he said.

Eckel, Masser, and Doran want to get some additional information on the remaining candidates, they said, and are planning to bring the full committee together again to interview the candidates as soon as possible. Their goal is to have made a hire by the board’s November meeting. Eckel called the timetable “aggressive,” but no one at the meeting objected to it.

Eckel, who talks and explains more in committee than his predecessor, Jim Broadhurst ’65, did, also gave what seems to be his mission statement going forward:

“We can’t emphasize enough, the improvement of our governance is a work in progress,” he said. “There are a number of areas that need to be looked at, need to be reconciled.

“If you’re going to be world-class, each year you ought to have the entire board review the operations of the board and make suggestions for changes as well as committee operations. And, in fact, if we became very aggressive in that area, we might reach a point where the board agreed on an evaluation process of each other by every member of the board in order to create a more efficient process and higher-performing board members. That’s an aggressive step.

“I’m only listing these things to indicate it will be a work in process that I don’t believe is ever completed. But our goal is to have the best governance for this university.”

Other notes from Thursday’s governance committee meeting:

—More information on the formation of a separate compensation committee, including bylaws changes, was given by Susan Basso, vice president for human resources, and Frank Guadagnino ’78, an outside attorney from Reed Smith hired by Penn State for his expertise on governance issues. This committee would help to determine salaries for several tiers of university officials, ranging from the president (its primary purpose) down through top vice presidents, the athletic director, and even some highly paid coaches.

The discussion expanded into Penn State’s structure, in which Basso reports to David Gray, senior vice president for business and finance. Doran asked how this lines up with recommendations in the Freeh report and best practices at other universities.

Making human resources a separate department reporting directly to the president is a Freeh report recommendation that Penn State has decided to not follow, partly because this would give the president of the university another direct report in a time when he has many obligations, and partly because that’s not how most other universities do it. (Sen. George Mitchell, who is assessing Penn State’s compliance with the Freeh report as part of the NCAA-mandated Athletics Integrity Agreement, has signed off on Penn State’s decision.) Guadagnino also said only one or two other universities have the structure outlined in the Freeh report.

Doran said she found the Big Ten’s practices, which are consistent with Penn State’s interesting, saying, “It seems that modern governance is evolving away from” having HR and finance in one department.

Marianne Ellis Alexander ’62 voiced a sentiment that I’ve heard often around campus, but not at trustees meetings: “Freeh was using a corporate standard to apply to higher education. We are going with the best practices of higher education, and there’s definitely a different model. We chose to go with the higher ed model.”

—The committee also engaged in an interesting discussion about how trustees should conduct themselves in public forums, particularly if they disagree with the position the board or university has taken as a whole. Anthony Lubrano ’82, of course, was the focal point of the discussion, which was nuanced and thought-provoking. I’ll delve into that in a later post.

Lori Shontz, senior editor

September 20, 2013 at 9:09 am 4 comments

Trustees Ready to Implement Governance Reforms

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

May 2, 2013 at 8:02 pm 4 comments

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