By Suzanne M. Dugan
Shareholder Advocate Summer 2023
There is no doubt that boards of trustees perform an essential and critically important function in the oversight of pension plans in the United States. There is also no doubt that the quality of governance matters, as research has shown that a high-functioning board leads to better outcomes. So, how should a board react when a single trustee seems to be operating at cross-purposes to the rest of the board and behaving inappropriately?
A bedrock of an effectively functioning board is for all trustees to demonstrate respect for the board’s collective decision-making process. To be effective, the board must speak with one voice. This does not mean that there isn’t a full and frank airing of views and that there aren’t disagreements—indeed, there can, should, and inevitably will be disagreements at some point in the operation of a board. Trustees need to encourage and engage in open discussions and respect differences of opinion while weighing decisions. But once the board has voted in favor of a decision, the board should speak with a single voice and give direction as a whole—no matter whether that direction is to staff, members and beneficiaries, legislators, the public, or other stakeholders.
This leads to the question of how to rein in a rogue board member. One potential action is for the board to censure the offending trustee. The U.S. Supreme Court considered this topic in 2022 in a case, Houston Community College System v. Wilson, that did not involve a pension board but is nonetheless illustrative. After years of acrimony, the Board of Trustees of the Houston Community College System (“HCC”) censured one of its members, Mr. Wilson, who responded by filing a lawsuit challenging the Board’s action. The issue before the Supreme Court was: Did the Board’s censure offend Mr. Wilson’s First Amendment right to free speech?
Mr. Wilson’s tenure was marked by controversy from the start. He often disagreed with the Board about the best interests of HCC, brought multiple lawsuits challenging the Board’s actions, and assisted others in filing lawsuits. Four years into his tenure, he had filed four lawsuits costing HCC more than $300,000 in legal fees. He also was accused of leaking confidential information, publicly denigrating parts of the College’s anti-discrimination policy, and drawing media attention in a variety of ways. For example, after the Board voted to fund an overseas campus over Mr. Wilson’s opposition, Mr. Wilson orchestrated a wave of negative robocalls targeting other board members’ constituents. He gave local radio interviews accusing Board members of illegal and unethical conduct and stated that they were not representing the public. He also hired private agents to investigate a fellow Board member and HCC itself, and maintained a private website that used HCC’s name in violation of Board policy.
These escalating disagreements led the Board to reprimand Mr. Wilson publicly. After Mr. Wilson continued to charge the Board—in media outlets as well as in state court actions—with violating its ethical rules and bylaws, the Board adopted another public resolution, this one censuring Mr. Wilson and stating that Mr. Wilson’s conduct was “not consistent with the best interests of the College” and “not only inappropriate, but reprehensible.”
The Supreme Court, in a unanimous decision, held that Mr. Wilson did not possess an actionable First Amendment claim arising from the Board’s purely verbal censure. The Court noted that bodies in this country have long exercised the power to censure their members, as far back as colonial times. The Court stated, “[t]he censure at issue before us was a form of speech by elected representatives concerning the public conduct of another elected representative. Everyone involved was an equal member of the same deliberative body.”
Importantly, the issue before the Court was a narrow one that did not, for example, involve expulsion or exclusion. The censure neither prevented Mr. Wilson from doing his job nor denied him any privilege of office, and Mr. Wilson did not allege it was defamatory. As such, the Court found that the censure was not a “materially adverse action” capable of deterring Mr. Wilson from exercising his own right to speak. Left for another day was the question of how the Court would treat the board’s imposition of other punishment—such as limiting his eligibility for officer positions— that might be a “materially adverse action” deterring the trustee from exercising his own right to speak.
This case involves many of the very same issues that are regularly discussed in this column. Short of formal censure, what other tools in the pension board tool kit can be used to address the rogue trustee situation?
- Education: A regular and ongoing program of fiduciary education can help trustees understand the fiduciary principles that govern the exercise of their duties and how to apply those principles in real world situations.
- Board governance manual: A roadmap to guide board operations, the governance manual may include charters for the board and the committees of the board. It should be a living document. Rather than “set it and forget it,” you should regularly review and revisit the board governance manual to determine if it reflects the system’s values, is a tool for board accountability, and is meeting your needs—especially as times change and the operating environment evolves.
- Policies and procedures: These may be free-standing or contained in the board governance manual. As an example, the Supreme Court case cited above highlights the importance of having a solid Communications Policy that addresses when trustees may speak to the media on behalf of the board. Another important policy that could address the situation of a rogue trustee is a code of ethics for the board. Other policies may address such topics as board delegation; board training, reimbursement for travel and other expenses; service provider selection; succession planning; and periodic reviews of the executive director and any other direct reports to the board. Just as pension systems are not all alike, policies and procedures should be customized and tailored to fit the particular needs of a pension system.
- Consulting services: An independent outside source can prove invaluable in reviewing governance structure and suggesting ways to enable boards and executives to become more effective. Other ways in which boards may benefit from the use of a consultant includes strategic planning, messaging, and stakeholder relations.
- Self-evaluation: Does your board conduct annual board selfevaluations? These can confirm strengths and reveal areas for improvement to help the board fulfill its responsibilities and fiduciary duties.
Implementing some of all of these strategies may help a pension system board avoid and address a fellow trustee’s inappropriate behavior.