So in my last post, we discussed at some length the governance structure of the Board and what steps, if any, might be taken to modify that structure.  But I emphasized a key point that I think bears repeating:  all paths for governance reform lead through Harrisburg.  And I believe it is very unlikely that Harrisburg will do anything that would diminish its voice or reduce the political value of its involvement with Penn State.

So, if structural change is unlikely what about the practices, policies and procedures of our Board?

The good news?  In my view. we do have the authority to make the changes necessary to ensure that we never again find ourselves in circumstances like those under which we’ve labored this last year.  No legislative act is required.

Governance:  Delegation and Authority

Governance is not just about structure.  It’s not just about the Board.  It is about the delegation of authority and the tone with which leadership sets that authority.  Strong governance enables an organization, it does not constrain it.  Good governance creates clarity for organizations, to help them make better decisions and better pursue their Mission.

Setting authority means setting the tone and driving true accountability and transparency (words we’ve thrown around a lot in the last few months).  In my experience, the most important thing a Board can do is set the tone . . . demonstrating by example what is acceptable behavior, what the organizational values are, and clarifying for every member of the organization what is expected in their behaviors.  This means rewarding the right behaviors, and rooting out the wrong ones — tirelessly, relentlessly . . . every day.  No one gets a pass.  Everyone signs on to the same values built on shared expectations.

“That should be considered long which can be decided but once.”   - Publilius Syrus

Tone setting is only one step.  Making sure everyone in the Board Room feels not only the weight of their responsibility, but the enabling power of it as well — the ability to speak up, to disagree, to challenge a proposal, to ask for more data, to slow things down when more careful judgements are in order.  That is a function of leadership, but it’s also a function of the way the Board executes its business — the Standing Orders, bylaws, and day-to-day practices that make the Board operate.  In these areas, there are some clear and compelling changes to be made.

(1) Start by strengthening our conflict of interest policy.  The limits are too high on disclosures.  Any financial interest, regardless of its materiality or size, should be disclosed so that other Board members can make a judgement as to whether that disclosure warrants a conflict.  There’s no reason Penn State should not have one of the strongest, most clear and most compelling conflict of interest policies in the country.

(2) Next, strengthen the attendance policy.  At the moment the Standing Order says only that if a Trustee can’t attend four of the six meetings each year, they’ll have a discussion with the President of the Board about their ability to continue.  I’ve never seen anything quite like it.  If someone can’t attend at least four of the six meetings, they should be considered to have resigned their seat. I suspect this is a nod to our “ex officio” members from Pennsylvania, but you already know how I feel about those seats.  If you are going to have a voice in this institution, the first thing you’re going to have to do is show up.

(3) Reduce the privileges of the Emeritus Trustees.  I have enormous respect for those that have served the University with distinction.  But my recommendation is about the function of Boards, not about those that currently hold the title of Emeritus.  There appears to be a very high degree of involvement outlined in the Standing Orders for the Emeritus Trustees.  They’re included in the selection group on Board membership, for example.  Emeritus Trustee should generally be a position of honor.  They should be invited to attend one meeting (perhaps two) per year so that we continue to benefit from their experience.  But their deep inclusion in the regular function and discussions of the Board, despite their lack of a vote or the ability to make a motion, blurs the lines and undermines the clarity of authority necessary for a Board to function effectively.  They have influence, but no true accountability nor responsibility.  (Not to mention one other practical consideration — they make a big group bigger.)

(4) Establish a strong Internal Audit & Control function at the University, with the leader of this function reporting administratively to the Vice Provost or a similarly senior member of the Executive team, but functionally to the Chair of the Audit Subcommittee of the Audit, Risk, Legal & Compliance Committee that the Board established in the March 2012 meeting.  A similar process should be considered for the University’s General Counsel to brief members of the Committee on potential legal matters (not just active, filed cases, but all non-routine matters that could result in significant reputational or financial exposure or the University.)  Routine matters should be tracked and reported in summary and at least once a year the entire Board should be taken through a detailed assessment of the University’s legal exposure.  A similar process should be adopted for the review of items raised through “whistleblower” hotline calls and/or emails.

(6) Clear the room periodically.  The discussion around Open Records Laws and the Sunshine Act complicate life in a non-profit Board like Penn State’s.  But subject to compliance with the law, a best practice among Boards is to conduct executive sessions periodically with individual members of Senior Management, Internal Auditors, and External Auditors during which other staff, press, and attendees (such as Emeritus Trustees) are not present.  The idea is to facilitate an open, candid exchange of issues and ideas without the external pressures often present in the Board room.  This may not be a viable option at Penn State given our structure, but the conceptual intent should be pursued.

(7) Lighten the load and focus the firepower.  Consider other functions that should be delegated to Senior Management in order to provide more time in meetings to deal with the strategic and reputational issues the University faces.  With the right policies in place, agenda items such as naming of buildings, establishment of endowment and scholarship funds, and other actions can be taken in “consent form” which will free up important time in the meeting to focus on more substantive matters that warrant perspective and debate.  Any matter coming before the Board for action should have been communicated to Board members well in advance if action is expected.  (Surprise is not a welcome element in the Board Room).  In addition to the background materials, staff recommendations should be provided along with the basis for those recommendations.  Any member of the Board should have the authority and ability to table any matter for which they feel unprepared to act, abstain from such a vote, or request additional information prior to casting their vote.

Driving the Right Conversation

I have counseled organizations many times that they should not underestimate the transformative power of driving the right conversation, one that equips people with the courage to confront problems, challenge assumptions and constructively disrupt bad habits. This tone-setting starts in the boardroom itself.

This is also incredibly important in establishing the function of the Board relative to the CEO (in our case, the President of the University).  If the Board doesn’t make clear the authority they have to hire, evaluate,and (when necessary) fire the CEO, then authority will vest in the wrong seat and the Board’s ability to set the tone will be dramatically diminished.  Perhaps no other single relationship better drives the organizational tone than that between the CEO and the Board (and more specifically the Board Chair).  If that is a relationship built on mutual respect, with clear authority vesting in the Board, and the dialogue reflecting a commitment to collaborative problem solving and confrontation of the most pressing problems, then the rest of the organization will follow in kind.  If, instead, it is a status reporting relationship built on packaging rather than content and lacking timely transparency around substantive issues. . . problems will follow.

I have found over the years that it is much easier to critique than it is to construct.  Modifying the practices of a Board with a deep history like that of Penn State will not be a rapid task, and despite all the calls for change, it should not be one we undertake lightly.  Reckless, ill-advised governance changes can have catastrophic, unintended consequences.  In my career advising Boards, I’ve often helped them navigate through the complexity of these issues by encouraging them to focus on the key principles upon which they want to build their governance functions.  For Penn State, the key principles must be rooted in restoring our reputation of integrity, restoring trust among our faculty, staff, students and alumni, ensuring our long-term financial viability and our ability to meet our Land Grant mission, sustaining a world-class educational and research institution, and driving innovation and economic growth for Pennsylvania and beyond. These principles, coupled with leading practices in Board governance as outlined above, can help Penn State’s Board function more effectively, even if other structural changes go unmade.

Next up?  Closing the Gap: Restoring accessibility of a Penn State education