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Asking More Commentary: Perspectives from Mendoza College of Business

Commentary Post - Thomas Harvey

Greek Tragedy in Happy Valley

June 11, 2012

The entire country was alarmed by the Penn State scandal when it was exposed in November 2011. The events and their repercussions have implications for various nonprofit sector stakeholder groups, one of which is board directors. It undoubtedly left many wondering whether or not something like that could overtake their organizations.

From our perspective, the answer is an obvious yes. To be clear, we are not referring specifically to the allegations of sexual abuse. The indictment of Jerry Sandusky and other Penn State staff happened to be the precipitating cause that exposed the university’s tragic flaws. It easily could have been something else. That scenario is what is called a “black swan” event.1 A black swan event has three components. It’s an event that:

  • no one thought would or could ever happen;
  • does actually happen with devastating impact and effect; and
  • in retrospect, is perfectly predictable.

All the components were there; it was just that no one saw them. Penn State must be an example for all nonprofit board members.

Identifying the Missteps

Problematic Communication. The university’s president had been in his role for 16 years. In addition, Joe Paterno had been in the role of head football coach since 1966, and was employed by the university since 1950. Generally speaking, when someone has been an executive for 10 or more years, he or she is more likely to take on the characteristics of a founder.

Symptoms of “founder’s syndrome” include the exclusion of others and greater control over decision making. This is evidenced in the Penn State situation by the trustees’ reports of hearing about the scandal through the media, rather than university leaders. They also reported that the outside crisis management support team was hired by the university without input from the board.2

Lack of Crisis Management Protocol. The trustees were somewhat lost at sea. This was, in part, because of the lack of timely, frank communication from Penn State’s leadership team. The trustees have since expressed frustration over a lack of adherence to protocol. They accused Penn State’s president of softening the language around the promised investigation in their press release.

Mutual Exploitation within the University. A mutually exploitive relationship existed between Joe Paterno and the university. Both saw opportunities to benefit from each other to the detriment of the overall institution.

What made the situation particularly problematic was his iconic status. His significant donations to the university and considerable tenure created an atmosphere where many could not conceive of a time without him as coach. The blurring of the identity of a leader and his organization is another critical symptom of founder’s syndrome.

Because of these three points, we believe the university was poised to be undone by a crisis. Iconic and comfortable staff prohibited preventive actions around change in the university’s staff and operations, the reported lack of communication made trustee oversight more difficult, and a reported lack of adherence to protocol led to difficulties in responding.

Board directors must learn from the trustees’ lessons and avoid the same blindness by taking an active role in governance.

Adhere to Standards

Boards should set clear standards for the kinds of information they want and need. All too often, especially with long-term leaders, the agenda is driven by the executive. Actually, it should be the trustees that drive the agenda. They are the custodians of the organization’s mission. In fact, the board’s primary responsibility in serving mission involves hiring a chief executive who manages the organization’s assets to attain and fulfill the mission.

Furthermore, it is the board’s responsibility to hold the chief executive accountable in a structured way, regardless of how long he or she has held the position. More and more, the courts are being involved to assure or challenge this accountability.

Avoid Relationships that Are Too Cozy

Beware of the spider web of relationships that long-term executives may enjoy. We feel that 10 years is, generally speaking, a good term limit for a chief executive. This implies having a solid succession plan. We are not saying that board members intend to be overly supportive of their organizations’ executives. However, political scientists have noted that the relationships between “regulators” and “those who are regulated” tend to become cozy over time.

Directors also need to be aware that these improper relationships can emerge early in a chief executive’s tenure. In fact, a case that happened on the West Coast about 25 years ago blew up because of a board’s lack of responsibility in the hiring process. The candidate hired for the position of executive director of a large, religiously affiliated, social service organization listed, on his resume, that he was a religious minister with a master’s in social work. In actuality, neither was true. The board never checked the veracity of this information. Eventually, the executive committed some outrageously unprofessional and illegal acts that put the agency’s reputation in jeopardy.

Fortunately, some courageous staff reported the activity to the United Way, rather than to the board of directors. This entire matter could have been avoided if the board had handled the search process with due diligence.

Emergency Response Plan

It is critical to have an emergency response plan for various crises that involve the organization’s most valuable assets. This includes a succession plan for the chief executive. The importance of this principle is highlighted by The Chronicle of Philanthropy in its marketing materials, which say, “One out of three current nonprofit CEOs will be terminated by a board during his or her career.”

Nonprofit boards and their chosen executives can learn significant lessons from the sad events that happened last year at Penn State, and they must if they are to avoid lawsuits, destruction of reputation, and even bankruptcy. The good news is that there is a real reward for doing things the right way, namely, a successful nonprofit enterprise that continues to benefit the community.

ENDNOTES:

The Black Swan by Nassim Nicholas Taleb was published April 2007.

See a detailed account of the board’s deliberations published by the New York Times: http://www.nytimes.com/2012/01/19/sports/ncaafootball/penn-state-trustees-recall-decision-to-fire-paterno.html?pagewanted=all.  

Read the article and download a PDF on the Alliance for Children & Families' Nonprofit Director website.

This article, written by Thomas Harvey and John Tropman, originally was published in On Board, a publication of Nonprofit Director. Thomas J. Harvey, MSW, is director of the Master of Nonprofit Administration Program at the University of Notre Dame’s Mendoza College of Business. John Tropman, Ph.D., is professor and associate dean for faculty affairs at the University of Michigan School of Social Work. He’s also an adjunct professor at the university’s Ross School of Business. Harvey and Tropman are co-authors of “Nonprofit Governance,” a book published in 2009 that offers modern information and practical guidelines for directors and executives of nonprofit organizations of all sizes.