Where did corporate governance at Penn State go wrong? As top university officials concealed information about child abuse committed by former football coach Jerry Sandusky—who was convicted on 45 counts of criminal charges last month—the university’s Board of Trustees failed in its oversight functions, producing an environment that allowed officials to dodge the reporting of risks to school trustees, according to an internal investigation led by former FBI director Louis Freeh, which culminated in a 267-page report that was released Thursday. Freeh and his firm were named as special investigative counsel after Sandusky was arrested last November. The probe into how the university responded to Sandusky’s conduct between 1998 and 2011 also pointed to weaknesses in the university’s compliance function, a president “who discouraged discussion and dissent,” and a “culture of reverence for the football program that is ingrained at all levels of the campus community.” It also found that the university’s then-general counsel, Cynthia Baldwin, along with ex-university president Graham Spanier, “did not perform their duty to make timely, thorough and forthright reports” to the board about allegations against Sandusky, Freeh stated in a set of prepared remarks delivered in Philadelphia. Ultimately, the investigation singled out Spanier, former senior vice president for finance and business Gary Schultz, former head coach Joe Paterno, who died in January, and former athletic director Timothy Curley for failing “to take any steps for 14 years to protect the children who Sandusky victimized,” Freeh stated. At the same time, Freeh said, the board failed to foster an atmosphere of accountability, in which those individuals would be compelled to report such risks. “Although we found no evidence that the Penn State Board of Trustees was aware of the allegations regarding Sandusky in 1998 and 2001, that does not shield the Board from criticism,” Freeh said in his remarks. “In this matter, the Board—despite its duties of care and oversight of the University and its officers—failed to create an environment which held the University’s most senior leaders accountable to it.” According to the report, in 1998 and 2001 Spanier learned of allegations that Sandusky had abused children on Penn State’s campus. Nevertheless, he repeatedly neglected to alert the board about investigations into these matters. “Spanier and senior University officials did not make thorough and forthright reports to the Board which itself equally failed in its continuing obligation to require information or answers on any University matter with which it is concerned,” the report states. The investigation did not find the board’s committee structure or its reporting procedures sufficient to “ensure disclosure of major risks.” The board had three standing committees as of 1998: a committee on educational policy, on finance and physical plant, and on campus environment. In 2004, the board added a subcommittee for audit, and in 2008 it established a subcommittee for finance. “Because the Board did not demand regular reporting of such risks, the President and senior University officials in this period did not bring major risks facing the University to the Board,” the report states. Some trustees told Freeh’s team that “their meetings felt ‘scripted’ or that they were ‘rubber stamping’ major decisions already made by Spanier and a smaller group of Trustees,” according to the report. In early 2011, Spanier, Schultz, Paterno, and Curley, among others in Penn State’s athletic department, testified before a grand jury that was investigating Sandusky. The Patriot-News reported on the grand jury investigation and the appearances made by Penn State officials on March 31, 2011. However, Freeh’s investigation found that neither Spanier nor Baldwin “briefed the Board of Trustees about the Grand Jury investigation of Sandusky or the potential risk to the University until the Board’s meeting on May 11, 2011 and, then, only at the request of a Trustee who had read the March 31, 2011 article.” After the May 2011 board meeting, the board did not request further updates on the investigation during board meetings held in July and September. Therefore, the report concludes, “Spanier did not feel accountable for keeping the Board immediately informed on serious developments, such as advance notice that Sandusky, Schultz, and Curley faced criminal charges.” “The Board allowed itself to be marginalized by not demanding ‘thorough and forthright reports on the affairs of the University,’ ” according to the report. Charges were filed against Sandusky, Curley, and Schultz on November 4, 2011, and Sandusky was arrested the following day. At that point, a senior administrator suggested “an independent review of Penn State’s intercollegiate athletics,” the report states. However, Spanier and Baldwin “opposed an independent investigation of the Sandusky issue.” In an email to Spanier, Baldwin wrote: “If we do this, we will never get rid of this group in some shape or form. The Board will then think that they should have such a group.” Spanier agreed with her. As the news of and reaction to the charges against Sandusky reached a crescendo, the Board’s handling of the situation did not improve. The board was “unprepared to handle the crisis” that ensued when Sandusky, Curley, and Schultz were charged, the report states. “This contributed significantly to its poor handling of the firing of Paterno, and the subsequent severe reaction by the Penn State community and the public to the Board’s oversight of the University and Paterno’s firing.” On the compliance front, the special counsel found that while Penn State has more than 350 policies and procedures in place, “oversight of compliance with these policies is decentralized and uneven,” with no centralized office, officer, or committee bearing such responsibility. In particular, the report highlights the University’s lack of compliance with the Jeanne Clery Disclosure of Campus Security Policy and Crime Statistics Act, which requires reporting of sexual violence on college campuses. Until March of this year, when Penn State hired a full-time Clery compliance officer, responsibility for compliance resided with a university police department sergeant, who was only able to devote “minimal time” to those duties. Compliance with the Clery Act, aimed at keeping students informed about campus safety, must be “institutionalized” at universities in order for it be effective, according to Alison Kiss, executive director of the Clery Center for Security on Campus. “There are multiple constituencies involved in Clery Act compliance,” including athletic staff, residence life, fraternity/sorority life, and student-affairs staff, according to Kiss. “These people need to know what to do if a crime is reported to them.” In June of this year, the Clery Center conducted compliance training with 50 representatives from all of Penn State’s campuses, Kiss said. Changing Penn State’s culture and correcting its “tone at the top” was a major theme of the report. Freeh’s team offered a set interim recommendation to Penn State’s board in January, and made more than 100 recommendations in the final report, including further development of the office of general counsel with additional staff and a budget to hire outside counsel when needed. In March of this year the board replaced the three standing committees with five new committees, including a committee on governance and long-range planning, and a committee on audit, risk, legal, and compliance. Venable partner Daniel Moylan, who specializes in the conduct of internal investigations, said the report paints a picture of an “unsophisticated institution” in which “the board was not vigilant enough.” “It appears you didn’t have anyone from the top on down, starting with the board of trustees, to ensure not only that the proper policies and procedures were in place, but that they were being followed in a coherent way,” he said.
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