The Biggest Little Law Firm® Examines Freeh Report on Penn State

The recent disclosures by the Freeh Report at Penn State are detailed in an excellent synopsis by Tony Gosserand on our website. Extrapolating one significant concept from the report, local non-profit Boards and Executives should expect a heightened degree of scrutiny with regard to the management of schools, youth programs and other organizations involving community directors or Trustees. The report severely criticized the Board of Directors of the college for not exercising sufficient oversight of management. In college sports, it is called “lack of institutional control.” In the law it is called MISFEANCE or MALFEASANCE. Basically, it means that Directors of a public organization have a duty to that public to make sure that the organization is not abusing the public trust because they just aren’t paying attention, as Directors should. THE NCAA levied a $60 million dollar fine against Penn State for lack of appropriate oversight. Liability from individual lawsuits by injured victims could dwarf that number. People serving as unpaid directors of charities have generally had a free ride from liability for actions by the charity, unless their actions showed complete lack of responsibility. The Freeh report found the Penn State directors had a duty to do better than they had, and that as a result there was a failure of their duty to the public and to the poor young men who were abused. The liability ramifications for the University are enormous, including the possibility of individual liability for the Directors. Directors of non-profit organizations everywhere should take note of this situation and guard against similar criticisms of them and their organizations, especially where the organization works with a vulnerable population. An understanding of the applicable laws and execution of the organization’s mission by management will be expected by the public. Executives should anticipate more thorough oversight and accountability. It is more important than ever to do things the right way and to document that behavior through careful notes and minutes. We at Van Osdol & Magruder are particularly skilled in assisting organizations to do just that.