Board members have a legitimate interest in learning about legal and risk issues the college or university may face so that they can properly exercise their fiduciary duties and avoid unwelcome surprises. At the same time, the institution’s administration has a legitimate interest in avoiding over-reporting that can cause inefficiencies, breaches of confidentiality, unhelpful interference, and micromanagement (herein of “noses in, fingers out”). The purpose of this column is to suggest criteria that a college or university might adopt to guide decisions about when and what to report to the board. The focus here is on legal, risk, and compliance issues, but these or a similar set of guidelines could apply to other issues, such as financial, strategic, and academic matters.
1. The overriding criterion for what should be reported is whether the matter is relevant to the board members’ fiduciary duties. This is an objective standard of reasonableness. The legal standard is what a person of ordinary prudence in a like position and under similar circumstances would need to know to fulfill duties of care, loyalty, and obedience. (See Legal Standpoint, “Fiduciary Duty Is the Law,” Trusteeship, November-December 2017.) Examples that likely would meet this test include a threat to the mission of the institution, protection of financial assets and viability, misconduct by the president or other senior official, and policy (as opposed to operational) matters that relate to oversight and governance functions for which a governing board would typically be responsible. This last category might include employment matters related to high-level employees and key issues relating to budgets, tuition, and admissions.
2. In the related context of requests by board members for access to information, AGB has described this fiduciary duty standard as follows: “Trustees must be able to inquire about matters relevant to the governing board’s policy-making role. But the board as a whole, and not any individual member, holds legal authority to act. An information request . . . can be so excessive that it amounts to micromanagement, or even harassment, of the officials charged with administering the university’s affairs. Conflation of the trustee and administrative roles severely undermines administrative authority. . . . And a request by a single member in opposition to the expressed will of the board distracts the board from fulfilling its fiduciary duties to the institution.” Amicus Brief of the Association of Governing Boards dated June 20, 2016, in Hall v. McRaven.
3. More specifically, a matter may reasonably relate to the board’s fiduciary duties and should be reported if the subject matter is addressed in the institution’s governing documents, such as bylaws, or is reserved to the board by policy or law. For example, issues of conflicts of interest involving board members, delegations of authority from the board, breaches of confidentiality, selection of board members, and compensation of senior officials might fall in this category.
4. Substantial issues of institutional liability or compliance violations also relate to fiduciary duty and may trigger reporting to the board. This category might include a major investigation by the federal government, class action lawsuits, criminal conduct by a high-level official, a major compliance audit, a widespread breach of data privacy, whistleblower claims, and the like.
5. A matter should also be reported to the board if it could trigger significant press coverage and/or cause major reputational harm. This requires consideration of the effect on and reaction of members of the college or university community (faculty, staff, students, and alumni), possible interest of and responses by government officials, and whether board members are likely to be contacted by important constituents (including donors and community members). Issues of press interest and possible reputational harm that may suggest a matter should be reported overlap with other factors and include high-profile litigation, matters affecting athletics, sexual misconduct, misconduct by high-profile employees, matters with political implications, and issues of public interest, including the First Amendment, race, gender, and campus safety.
Ultimately, whether and when to report information to the board is a question of reasonableness and good judgment, by the administration and the board, considering all of the circumstances, including the size and nature of the institution.
Steve Dunham, JD, is the vice president and general counsel for Penn State University.
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