IU Trustees

The Chronicle Article on the IU Presidential Search

   The IU Administration  won't comment on whether they're looking through Steve's emails to find out who he was talking with about the presidential search and whether they're formally or informally investigating him for misconduct. They were intemperate in criticizing him publicly. And they won't admit to what might be inadvertent misconduct in the McRobbie payment, making it look more like their standard operating procedures are unlawful and sloppy. 

The Presidential Search and the McRobbie Payment

I haven't had time to read the documents carefully, so I might well be wrong on he facts, but I hope this analysis might be useful.

1. The Trustees didn't like any of the 4 finalists from the Search Committee, so they restarted the search by themselves.

2. Since a new search probably wouldn't be successful in time, they asked McRobbie to stay on a semester, Trustee Chair Michael Mirro signing a formal agreement, though one of disputable legality. He agreed to pay him a pro-rate share of 1.25*$633,504 (plus benefits, presumably). McRobbie signed too. (Note a mistake: they should both have agreed upon what would happen if IU *didn't* need him in Fall 2021-- say, paying him $200,000 for the OPTION of him staying. Formally, the agreement would allow them to stiff him though, pro-rating him to 0% and $0.)

3. Presumably McRobbie had possible post-presidential jobs lined up, quite possibly ones paying a million dollars per year. He would have had to say No to those so he could stay on a semester if needed.

4. The Trustees did find a candidate they liked, Whitten, so they told McRobbie they didn't need him for Fall 2021.

5. At this point, McRobbie perhaps had a sound legal claim for $500,000 in damages from having relied upon the Trustees' representations, even if the contract was invalid. In fact, if the contract was invalid, his claim might be stronger than if it was valid, since the literal, formal, agreement would pay him $0 even if that were not the intent of the parties. He also has a strong moral claim, since he really did give up a lot of money to help them out.

6. The Trustees needed to convey $500,000 to McRobbie at this point. How? A good way would be to hire him as a Consultant to the new President, for services he'd probably be doing for free anyway, since advising one's successor is one's moral duty.

7. Rather than put this on the agenda, explain what was going on, and have a formal vote on it, one trustee authorized the payment as "an administrative action" and did no more than notify the rest of them. It seems he did have the delegated authority from the Trustees to make payments of this magnitude, but that is something to check.

8. The other Trustees made no objection to the payment, which is probably enough for it to be legally ratified by them, even if the one trustee did not have legal authority to make it.

9. When Steve Sanders pointed all this out, the Trustees doubled down and said it was all legal, rather than admitting mistake and either redoing it the proper way or saying it was harmless error.

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Corporate Law

(A)   "Corporate law" applies here, because it is the part of law that is concerned with how decisions are made in profit and nonprofit corporations. It is distinct from the issue of the Open Doors law.  The Sanders complaint says:

First, a violation by the trustees of the Open Door Law became complete when, in the internal memo of May 6 [Exhibit 3] and letter to McRobbie on May 13 [Exhibit 2], they decided and promised to pay McRobbie $582,000 in new compensation in exchange for six months of new “consulting” services.

Second, even if that had not happened, IU says it believes that its trustees were allowed to discuss and decide, in a later executive session, a new agreement to pay over half a million dollars in new funds for new services to an outgoing administrative employee. Without more, this also is plainly in violation of the Open Door Law.

As the Public Access Counselor advised Complainant in an email on October 1: [A] new contract with a former employee containing new terms and an extension of funds would need to be discussed and ratified by the full board. There is no executive session provision for these matters either. Contracts by governing bodies are always to be discussed and vetted in public, regardless of subject matter or contractor. (Emphasis added.)

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The Treasurer

Also relevant is the Indiana statute section about the Treasurer, an officer of the Board of Trustees: 

IC 21-20-4-1 Board; organization
Sec. 1. The board of trustees shall elect:

(1) one (1) member as president;

(2) one (1) member as treasurer;

(3) one (1) member as secretary; and

(4) any other officers the trustees consider necessary.


The board of trustees shall prescribe the duties and fix the compensation of the officers elected under this section.
[Pre-2007 Higher Education Recodification Citation: 20-12-23-2(c) part.]
As added by P.L.2-2007, SEC.261.

IC 21-20-4-3Treasurer; duties
     Sec. 3. The treasurer of Indiana University shall do the following:
(1) Keep true accounts of all money received into the treasury of Indiana University, and of the money's expenditure.
(2) Pay out Indiana University's funds on the order of the board of trustees, certified by the board of trustee's secretary.
(3) Collect the tuition fees due Indiana University.
(4) Make semiannual settlements with the board of trustees.
(5) Submit a full statement of the finances of Indiana University and the treasurer's receipts and payments at each meeting of the board of trustees.
(6) Submit the treasurer's books and papers to the inspection of the board of trustees and visitors.
[Pre-2007 Higher Education Recodification Citation: 20-12-23-17.]
As added by P.L.2-2007, SEC.261.

http://iga.in.gov/legislative/laws/2017/ic/titles/021#21-20-4

 
(C)    The Board of Trustees website does not make it clear who are  President, Treasurer, and Secretary, though  [ https://trustees.iu.edu/about-the-board/committees.html  it says the Board has six officers.]  I wonder if they are complying with the statute, and whether they can really authorize any Trustee except the Treasurer to make payments. Exclusio unius would seem to say no: since the statute explicitly authorizes only the Treasurer to make payments, I would think it implies that no other Trustee can make payments (though the Board could delegate this authority to non-Trustees such as the IU President (as opposed to the Board President). Note, too, that even the Treasurer can only pay out money “on the order of the board of trustees”, though that order could perhaps be “You are authorized to make any payment of less than 1 million dollars at your discretion”.

(D)   In fact, though, I then looked up the Bylaws of the Indiana University Board of Trustees 
The officers of the Board of Trustees shall consist of the Chair and Vice Chair, who shall be elected from members of the Board of Trustees, and a Secretary, Assistant Secretary, Treasurer, and Assistant Treasurer, who need not be members of the board. 
     This is in blatant violation of the statute, and seem completely illegal. How can they have outsiders, random people who need not even be in the state,  be Secretary and Treasurer? What about the office of President, required by statute? 

(E)   The Chronicle article says: 
 
But the board decided to pay McRobbie anyway — about $582,700, which included his base presidential salary, a bonus, and deferred compensation — and to change what the payment was for. Now, according to a May letter to McRobbie signed by Mirro and the board’s then vice chair, he’d be paid the same amount, not for continuing as president but for consulting services to the new president, to be provided when requested by Whitten.

One board member, James T. Morris, who was then chair of the board’s compensation committee, had told his fellow trustees in a May letter that McRobbie “had a reasonable expectation that the signed contract was valid, and he advises us that he therefore delayed his sabbatical opportunities at two institutions by one semester.” (Under his original presidential contract, McRobbie was to be given a yearlong sabbatical when he left office, during which he’d be paid his presidential salary to provide “strategic advice and counsel to the trustees on changes and developments in higher education.”)

Paying McRobbie would “uphold the integrity of the board’s commitments to Michael” and would also “assure that when the chair of the board [Mirro] acts on behalf of the trustees, those commitments are honored,” Morris wrote.

 


(F) It looks like the Board of Trustees’ governance is all messed up. It is fine to delegate authority to make certain kinds of payments to employees--- to give the Dean of SPEA open authority to spend a budget, for example, without every order of tissue paper being voted on by the Board of Trustees.  Thus, from a 1987 Board resolution: (“President” here means the President of IU, not the President of the Board)
 
FURTHER RESOLVED, that the President is granted such authority by the Board to develop documents, execute contracts and agreements in behalf of the University or authorize others to do so in his stead, and promulgate and distribute notification of policies and to perform such other acts reasonably necessary and convenient to fulfill the purposes of this Resolution.

 

(G)    But as far as I can see, no single member of the Board or even two members (e.g., not the Chair and Vice Chair) are authorized to make contracts on behalf of the Board. But they tried to do that anyway.  They rely in their Nov. 3 answer to the Sanders Complaint on this provision of the Bylaws, C(1): 
 
The Chair of the Board shall be empowered and authorized to execute such instruments and documents, which would devolve upon the principal corporate officer.

 

Besides being ungrammatical, this has no plain meaning. How can documents devolve on someone?  Maybe it is a term of art in law, though. Its brevity contrasts with the details in the 1987 resolution I quoted above which delegates authority to the President of IU. 


(H)    Suppose, though, that the Board did try to authorize one Trustee to make contracts on behalf of the entire Board, in the same way it authorized the President of IU, who is NOT a board member. I wonder under standard principles of corporate law whether that would be legal for every kind of contract.  Could a single Trustee, for example, be authorized to hire and fire the President of IU? I don’t know, but it’s worth checking into.  In any case, it would take a formal vote by the entire Board to give him that power.  And I don’t think a vague delegation would be enough. 

(I)    I really wonder whether the Board of Trustees has competent legal counsel.  They don’t seem to understand the basics of either contracts or corporate governance. 

(J) My guess is that spending state money  without authorization is a crime. Have the Trustees been doing this? If one, unauthorized, Trustee gives $500,000 of state money to someone, and he tells the rest, and the rest do nothing about it, then are they criminally complicit?  I know nobody would prosecute in this particular case, but there may be other cases like it.

(K) Separate from criminal liability, there may be civil liability of the Trustees. If one, unauthorized, Trustee gives $500,000 of state money to someone, and he tells the rest, and the rest do nothing about it,  have they violated their fiduciary duty?  If so, they are jointly and severally liable for paying back the $500,000--- that is, each Trustee is liable for the entire $500,000 if the other Trustees don’t pay anything.  This is probably so even if the University received value in exchange for the $500,000. 

(L) Director’s insurance pays for damage due to negligence on the part of trustees of a corporation. It does not, I think, pay for damage due to reckless or criminal behavior. Thus, it would not cover the $500,000  civil liability due to fiduciary duty violation if that violation is a criminal act, even if no criminal prosecution were brought. 

(M)  On another point in the Nov. 3 University Response to the Sanders complaint. They say it is time-barred, because
Indiana Code section 5-14-5-7 requires that an Open Door Law complaint with the PAC be filed “not later than thirty (30) days after: (1) the denial; or (2) the person filing the complaint receives notice in fact that a meeting was held by a public agency, if the meeting was conducted secretly or without notice.

It may be true that the Sanders Complaint is time-barred, but it is a stupid point to bring up. It is stupid because even if HE is barred because he found out too long ago, he can always find someone else, a distant cousin perhaps, who hasn’t heard about this yet, tell him, and have the cousin refile the complaint.  In addition, the main reason for bringing a complaint isn’t that the law will give a remedy for the misconduct, it’s to publicize the misconduct. So IU escaping on a technicality isn’t really a victory for IU; in fact, it would be a defeat if IU were innocent, because it’s worse publicity.