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The Corporate Governance Lessons of Rutgers Basketball
Note: This is the debut installment of On Board, a regular column about boards of directors and corporate governance issues.
1. Information Reporting
There should be clarity on the type of information the board needs from managementpromptlyin order to perform its obligations. This should certainly include issues that keep management awake at night, as well as other issues so fundamental to the organizations risk profile that they require immediate board attention. It is unlikely that any all-inclusive list can be prepared, so it is best to deal with major issue themes: i.e., major litigation, significant compliance developments, a law enforcement proceeding, a significant human resource crisis, and quality of service/care concerns. These are issues that are central to enterprise risk and that have the potential to create significant reputational harm as well (i.e., shock value).
2. Always Have the Video
The format in which this information is to be shared requires board/management discussion. But for a Rutgers Event, the board must absolutely have the video, By this, we mean the specific document or other material that provides the most complete and graphic description of the underlying problem. It might be a whistleblowers letter, a subpoena, a litigation complaint, a report of counsel or compliance officer, notice of grand jury proceeding, or a video of basketball practices. It is, in essence, that piece of tangible evidence that best illustrates the nature of the controversy. With a Rutgers Event, the board must have the opportunity to experience for themselves the emotion the public or a regulator might experience from seeing the same evidence.
3. Being All In
When a Rutgers Event emerges, the full board must become involved. This may add complexity to the process and is inconsistent with the value of delegating tasks to board-level committees. It may also crowd the CEO. Yet, for an organization to survive a Rutgers Event with its reputation and processes intact, the review of the event must be exposed to the checks and balances provided by full board oversight. A more limited approach is unlikely to be sustainable, given the raw nerve of public opinion to which a Rutgers Event may be subjected. It will be vitally important to demonstrate that the organizational response had the constant attention of the entire governing board.
4. Talk About the GC
Planning for a Rutgers Event invites a discussion of the reporting relationships of the general counsel, who in the current scenario lost his job. Certainly, management has every right to terminate the general counsel, for any number of legitimate reasonsincluding the exercise of poor judgment, or perhaps improperly supervising an internal investigation. But the board needs to know about that decision, to understand the reasons why, and to sign off on it. As with the chief financial officer, a decision to fire the general counsel should set off all sorts of alarm bells, both in the board room and externally. Was it capricious? Punitive? Scapegoating? Legitimate? To protect the organizationas well as the position of general counselthe board must know the answer.
5. Structuring Investigations
An open question is whether the Rutgers scenario willor shouldalter the manner in which internal investigations are structured and conducted in the future. The internal investigation, as led by outside counsel, is a traditional governance response to identified organizational legal crises. Yet, in the Rutgers Event scenario, the internal investigation becomes a separate source of controversywhether fairly or unfairly. Thus, it raises important questions on the scope of counsels engagement, the degree of independence of the outside counsel, the structure of the investigation, the specifics of expected deliverables, and the overall tenor of the report. Management, the board, and the GC should have an open dialogue on these issues, in order to be better prepared for a Rutgers Event.
Michael W. Peregrine is a partner in the law firm McDermott Will & Emery. He advises corporations, officers, and directors on issues related to corporate governance and fiduciary duties. Mr. Peregrines views do not necessarily reflect the views of McDermott Will & Emery or its clients.