The Smithsonian Institution – Lessons in Governance (Part Two)

The Governance Committee of the Smithsonian Institution consists of three members of the Board of Regents and one outside member – Diana Aviv, President and CEO of Independent Sector.  Below are some of the highlights of the Governance Committee Report to the Board of Regents dated June 14, 2007 (the "Report").  It is important to recognize that the Smithsonian’s Charter is statutory and can only be amended by Congress.  This makes the challenge of governance reforms more complicated than for most other public charities.

The Report identified the following weaknesses in Smithsonian governance practices:

First, the Regents did not routinely receive, nor did they demand, the information necessary to support vigorous deliberation and well-reasoned decision-making.  (Many Regents were unaware of critical details of the executive’s employment contract, the non-uniform application of policies and procedures, objections to certain practices of Smithsonian Business Ventures [the Smithsonian business unit which includes its gift shops, restaurants and magazine], morale issues identified through employee surveys, and increasing tensions between the units and the central administration or "Castle".)

Second, critical relationships necessary to allow key staff to bring forward or highlight important issues and concerns to the Board were lacking.  (The General Counsel, the Chief Financial Officer, and the Inspector General were without the necessary direct access to the Board to be able to raise concerns or serve as effective resources.)

Third, with monitoring systems failing to raise the necessary red flags, the Regents’ ability to provide critical oversight and require compliance with policies and internal controls was crippled.  (The Regents did not question enough the representations of management and misplaced their reliance on other advisors who failed to identify relevant issues and report them to the Board.)

The recommendations made by the Committee are organized into three areas:

  1. Recommendations to Reinforce the Foundation of Integrity and Responsibility;
  2. Recommendations to Promote a Constructive Partnership; and
  3. Recommendations to Strengthen the Culture of Accountability.

1.  Reinforcing the Foundation of Integrity and Responsibility:

The Report provided three guiding principles:

  • Our operations and activities will reflect our status as a public trust administered on behalf of the American people.
  • We remain committed to following the highest standards of ethical conduct.
  • We will conduct our business within an ethos of transparency.

2.  Promoting a Constructive Partnership:

The Committee will examine and report back to the Board with respect to the structure and composition of the Board and the Board committees.  The Report made the following recommendations (among others):

  • Adoption of a description of the Regents’ duties and responsibilities.
  • Adoption of a description of the duties and responsibilities of the Chancellor and Chair of the Board.
  • Holding of a minimum number of regular Board meetings (4 per year) and inclusion within each meeting of executive sessions without the presence of staff.
  • Development of an orientation program for new Regents.
  • Self-reviews by all committees.
  • Implementation of a rigorous, independent and transparent system for evaluating executive compensation and performance following best practices in the nonprofit sector.
  • Development of a mechanism for Board attention to facilities needs (making the ad hoc facilities committee a standing committee).
  • Absorption of the Nominating Committee into the Governance Committee.
  • Provision of direct access by the General Counsel to the Board including attendance at Board and Board Committee meetings.
  • Provision of direct access by the CFO to the Board including attendance at Board and Board Committee meetings.

3.  Strengthening the Culture of Accountability

The Report made the following recommendations designed (i) to increase the ability of the Regents, and in many cases senior management, to monitor critical operations, (ii) to hold the Regents and staff more accountable, and (iii) to increase transparency throughout the organization, ensuring that all stakeholders have access to clear, accurate, and timely information about the Institution and the Regents:

  • Adoption of a Code of Ethics that promotes best practices and the highest professional standards.
  • Development of a strategy to increase available information about the Board and Smithsonian activities, including enhanced use of the internet, and hotlines for staff or the public to bring ethics and compliance issues to the attention of management and the Board.
  • Disallowance of service by Smithsonian senior executives to serve on the board of a for-profit company in order to avoid even an appearance of a conflict of interest.
  • Establishment of rules on expenses for travel, representational activities, and special events.
  • Review of budget formulation and monitoring process to ensure that the Finance and Investment Committee and the Board have adequate opportunities to provide strategic direction in the development of budget priorities and meaningful oversight of the Smithsonian’s budget and financial resources.
  • Review of financial reporting systems and internal controls to ensure that appropriate systems and controls are in place to enable the Audit and Review Committee and the Board to provide meaningful oversight of the accuracy and integrity of Smithsonian financial statements and reports.
  • Development of a unified compensation philosophy and structure.
  • Development of a policy on Smithsonian contracting to ensure that all Smithsonian contracting activities are conducted with integrity, fairness, and openness and in a manner that will best achieve Smithsonian mission requirements.

Click here for the full Report.