The University of Virginia Debacle – A lesson in being responsible about your responsibilities

IStock_000020195203XSmallOne of the most important responsibilities of a board of directors is to oversee and, when circumstances dictate, terminate the chief executive officer. Boards should recognize that proper procedures, tact and management of potential interpersonal conflicts will be critical in managing any termination of an organizational leader. However, according to The New York Times, the governing Board of the University of Virginia took actions quite opposite to what one would expect when seeking the resignation of the University’s President, particularly with respect to the authority exercised by its Executive Committee in accepting the President’s resignation.

For example, The Times reports that the decision to ask the President for her resignation was not raised at a board meeting but rather discussed between the Board chair and individual Board members and that the President’s resignation was accepted by a vote of the Executive Committee (with only three of the six committee members present). The poorly handled decision by current accounts quickly fueled a fire of backlash including a critical statement published by Virginia Governor Bob McDonnell and 16 days of protest on the University campus by students, faculty, and other members of the community. Although the Board ultimately retracted and unanimously voted to reinstate the President, the stability and ability of the Board leadership continues to be debated. It is an important lesson for all nonprofits about the role of the full board and responsibility of individual directors when handling sensitive or particularly important board decisions.

The power of a board to take actions on behalf of and to bind or otherwise direct the corporation is an authority rooted in the collective decision of directors to take board actions, which generally must be done either at a meeting or by written consent of the directors. Boards may also however delegate some of that authority to appropriate board committees. While legally an executive committee could be delegated with the power to act with the authority of the board on a wide range of decisions, this does not mean that a board should necessarily do so. Delegation to any committee should be carefully considered, and this may be especially true with an executive committee which is often created due to a board’s desire to delegate responsibilities such as acting with the authority of the board between board meetings when necessary, for example, in handling a time-sensitive matter when the full board is unable to meet. While executive committees can help to streamline decision-making and improve productivity and timeliness of board action, a board should be cognizant of not creating an executive committee that starts to replace the role of the full board or is delegated responsibilities that should be left to the entire board.

Of the various committees that may be created by a board, an executive committee is generally the committee that will be delegated the most authority. A board will generally pick executive committee members that instill decision-making confidence such as the most involved directors or directors who also serve in officer positions such as the chair or president. A well-composed executive committee cannot however diminish or replicate the diverse perspectives and fuller discussion that should be a by-product of making decisions as a full board and the added assurance to your supporters or critics that a particular decision has been diligently thought through by the entire governing body.

In the case of the University Board, it was particularly puzzling that a monumental decision such as accepting the President’s resignation was left to a committee, as opposed to the full Board; and that the Executive Committee continued to take action despite having only half of the Committee present. For critical decisions, like those involving a change in executive leadership, delegation to the executive committee should never be “Plan A” absent very unusual circumstances.

Furthermore, even if a board determines that an important decision is appropriate for the executive committee to handle, it does not eviscerate each director’s responsibility to stay informed and fulfill his or her fiduciary duties. Especially where an executive committee is delegated with broad responsibilities, it carries the risk that other directors will become disengaged or may incorrectly perceive their role as advisory to the executive committee. An executive committee serves at the pleasure of the board. At a minimum, all directors should be aware of the responsibilities that were delegated to the committee, the limitations imposed on the delegated authority, and the decisions made by the committee. A board may also want to consider whether it should require board ratification of all or certain executive committee decisions at the next board meeting.

Here, the questionable delegation to the University Board’s Executive Committee to decide whether to accept the President’s resignation was further complicated by the reported informal conversations between the Board chair and individual Board members. It is unclear at best how informed individual Board members felt about the problems with the President as well as the other Board members’ opinions on the matter prior to the Executive Committee vote. Without appropriate procedures at the outset that underscore rather than discount the full board’s role, board members are only setting themselves up to face serious difficulties in meeting their individual responsibilities of care and loyalty to the organization.

There is a time and a place when the use of a smaller group of the board, such as an executive committee, can be appropriate. However, boards cannot forget that competing forces can arise between acting swiftly and acting prudently, and between delegating responsibility to committees and engaging the full board. The recent story regarding the University of Virginia Board and the re-instatement of the ousted President is a reminder of how these competing interests can make a bad situation much, much worse when they are not carefully balanced.