Auditor General DePasquale Outlines Specific Changes Needed to Improve Penn State University Governance

March 18 2013

Auditor General DePasquale Outlines Specific Changes Needed to Improve Penn State University Governance

HARRISBURG (March 18, 2013) – Auditor General Eugene DePasquale today outlined specific legislative changes the General Assembly should make to improve governance of The Pennsylvania State University in the wake of the Jerry Sandusky child sex scandal.

“The number one change that must happen is that the university president should be removed from the board of trustees,” DePasquale told members of the Senate State Government Committee. “Effective governance is based on checks and balances. At Penn State, the board must be an effective check on the president of the university and that cannot happen if the president is essentially running the board.”

DePasquale also highlighted the need to change the size of the board of trustees and increase the number of board members needed for a quorum. He continued to advocate for Penn State, and the other state-related universities, to be subject to the state’s Right-to-Know Law.

“The best disinfectant is sunshine,” DePasquale said referring to the state’s Right-to-Know Law. As a member of the House of Representatives, DePasquale introduced House Bill 2051 in 2011 to make Penn State, and other state-related universities, subject to the open records law.

“Records at a public university should be just that — public. The General Assembly has the authority to ensure openness of Penn State records and prevent conflicts of interest now by amending the Right-to-Know Law and Public Official and Employee Ethics Act.”

Last year, former Auditor General Jack Wagner initiated an extensive review of Penn State’s governance, including, research into the schools’ enabling statute, charter, board bylaws and standing orders, analysis of board meeting minutes, comparison with peer institutions, and consultation with national experts in the field. The result was a 124-page special report containing nine major findings and more than two dozen recommendations, including removing the university president from the board of trustees and changing the number of board members needed for a quorum to be a majority of members.

“Penn State is one of the best learning institutions in the country,” DePasquale said. “The report and my testimony are about keeping Penn State as a world-class institution.”

The Auditor General’s special report titled, “Recommendations for Governance Reform at The Pennsylvania State University after the Child Sex Abuse Scandal,” is available online here.

The supplement to the special Penn State report titled, “Legislative and Procedural Guidelines to Implement Recommendations for Governance Reform at The Pennsylvania State University,” is available online here.

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EDITOR’S NOTE: Attached is the text of Auditor General DePasquale’s testimony as submitted.

Submitted Testimony of
Auditor General Eugene DePasquale
Monday, March 18, 2013
Before the Senate State Government Committee
Regarding Recommendations for Governance Reform at the Pennsylvania State University

Good morning and thank you for the opportunity to discuss the specific actions the General Assembly can take now to improve the governance structure of the Pennsylvania State University, which was established by the General Assembly in 1855 as an “instrumentality of the Commonwealth to perform the essential governmental functions of education.”

Penn State has built a world-renown reputation for excellence in higher education, research and athletics. Over the last 158 years, the commonwealth’s flagship educational institution has grown in size and prominence. However, its board of trustees’ corresponding growth has pushed it out of step with its peer institutions, and has yielded an ineffective governance structure.

In the wake of the Sandusky scandal, former Auditor General Jack Wagner initiated an extensive review of Penn State’s governance, including—but not limited to—research into the schools’ enabling statute, charter, board bylaws, and standing orders, review and analysis of board meeting minutes, comparison with peer institutions, and consultation with national experts in the field. I am pleased to present testimony based on that Special Report that found 12 specific actions that the General Assembly could take now to help Penn State restore its reputation and protect students.

Please know that I recognize there are other ideas out there. I applaud this committee for hearing all voices. The first recommendation from former Auditor General Wagner is that the university president should not be a voting member of the board, nor should he/she serve as the board’s secretary or on any of the board’s committees. The president is hired by the board to manage the day-to-day operations of the university. The president answers to the board, yet over the course of its long history, the board has concentrated too much power in its fellow trustee.

We found in our research that this concentration of power that allows the president to determine the board’s agenda, influence its priorities, and control the flow of information to and from the board is unusual and creates a conflict of interest. No other public Big Ten university, or any of the 20 largest universities in the nation, give their president a vote on the board.

The General Assembly has the power to resolve this issue and prevent future conflicts of interest by amending Act 50 of 1855, as amended, (that established the university) to:

1. Remove the university president as a member of the board of trustees,
2. Prohibit the university president from serving as the secretary of the board,
3. Prohibit the president from serving on the executive committee, as well as on any standing committee, special committee, and subcommittee of the board, and
4. Prohibit the president from assigning work to board committees and subcommittees.

Additionally, the board of trustees should amend its charter, bylaws and standing orders to remove or amend provisions that put the university president in a position that outranks the board.

The next major step the General Assembly could take now to improve the governance structure of Penn State is to remove the governor as a voting member of the board of trustees. We again find Penn State out of step as compared to its peer universities in the Big Ten Conference, the 20-largest public universities, and the land grant schools.

In its early years, it may have made sense to include the governor on the board, but in modern times it no longer makes sense because certain expectations and responsibilities of board members to advocate for the university conflict with the governor’s role as head of state. Besides, the Commonwealth already has a strong voice within the Board of Trustees through the governor’s appointments to the board and the ex officio positions of the Secretary of Education, the Secretary of Agriculture, and the Secretary of Conservation and Natural Resources.

The General Assembly has the authority to resolve this conflict of interest now by amending Act 50 of 1855, as amended, to:

1. Make the governor an ex-officio, non-voting member or removing the governor completely from the board of trustees, and
2. Prohibit any of the state’s independent row officers (state treasurer, attorney general, and auditor general), the governor and lieutenant governor from serving on Penn State’s board as a voting member.

Next, I urge you to assess the size of the board of trustees. At 32 voting members, Penn State’s board of trustees is just HUGE and atypical among the largest 20 U.S. universities. Penn State differed markedly from the boards of the other 19 universities, whose governing bodies averaged just 11.6 voting members, or 12.4 total members. And, if you look at the board sizes for the 69 land-grant universities in the U.S., the average was 16.2 voting members and 17.4 total members.

In consulting with experts in the field, we learned that boards of 30 or more are more likely to allow governance responsibility to default to the university president and/or the executive committee rather than to the trustees where that governance responsibility rightly belongs.

The General Assembly has the authority to make the board of trustees more effective and efficient now by amending Act 50 of 1855, as amended, to:

1. Reduce the board of trustees from 32 to 22, to include 21 voting members (including three cabinet secretaries ex officio) and one non-voting ex officio member – the governor. Aside from removing the president, this reduction would be done proportionally, by eliminating three of the nine elected alumni, and two each of the six agricultural representatives, business and industry representatives and gubernatorial appointments.

Turning to the quorum needed for board meetings. As it stands, fewer than half of the board — 13 members to be specific — is required to be present at meetings for the board to transact business. How can 13 of 32 members fairly represent the opinions and interests of the entire board? They simply cannot.

The General Assembly has the authority to resolve the quorum issue now by amending Act 50 of 1855 to:

1. Establish a quorum level as the majority of the voting members of the board of trustees.

Turning to transparency, Penn State has historically opposed opening its records under the state’s Right-to-Know Law and has been largely excluded from that law. Additionally, board members and employees of Penn State are not subject to the state’s Public Official and Employee Ethics Act, including the financial disclosure provisions.

Records at a public university should be just that — PUBLIC. Although exceptions can be made—as they are made in 16 other states—to protect certain intellectual property rights, vital research, and information about donor contributions.

Employees and board of trustee members at Penn State and its affiliates and the three other state-related universities, should also be subject to the state’s ethics act. This would require them to disclose conflicts of interest and their financial interests. Financial disclosure is key to help assure that tax dollars at our state-related institutions are being spent by officials who are impartial, honest and free of financial conflicts.

The General Assembly has the authority to ensure openness of Penn State records and prevent conflicts of interest now by amending the Right-to-Know Law and Public Official and Employee Ethics Act to:

1. Make the Right-to-Know Law fully and immediately applicable to Penn State and its affiliates, as well as to the three other state-related universities. I urge Penn State and the state-related universities to support — and even — request this improvement.
2. Require Penn State board members and employees — as well as those of the three other state-related universities — to comply with the Public Official and Employee Ethics Act reporting requirements.

In addition to these recommendations to the General Assembly, I also urge the board of trustees itself to make Penn State more accountable, better governed and more open to public review, including:

1. Making detailed meeting agendas available online to the public five days prior to their meeting to make it easier for visitors to prepare their remarks when speaking before the board.
2. Establishing a hotline or tip line to allow the public to notify the board of issues that might not otherwise come to the board’s attention.
3. Ceasing the practice of insiders moving back and forth between board and staff by prohibiting trustees from accepting university management positions, and requiring a 5-year waiting period for employees moving to the board. This revolving door creates a cast of influential insiders with the potential to impair objective and independent thinking. A revolving door does not represent good governance.
4. Changing board policy to prohibit anyone on the board or staff from granting emeritus status on an exception basis as was done in the case of Gerald Sandusky; to consider the overall emeritus status procedures; and to disclose per-trustee expenses among other things.

What I have outlined for you today are some actions that I respectfully ask you, as lawmakers to consider in conjunction with the Board of Trustees of Penn State. As an aside, if you look at the Supplement to the Special Report on Penn State, we make specific recommendations for language to amend the specific pieces of legislation I mentioned.

I want to leave you with this — it is a note of caution from the report:
“Changing the governance structure can never prevent what happened at Penn State from happening again as long as there are breakdowns in human character. Still, if implemented, our proposed changes will reduce the potential for breakdowns to remain undetected and will add needed transparency to this flagship public university that Pennsylvania taxpayers have supported for more than 150 years.”

Thank you for your time and consideration. I am happy to answer any of your questions.

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