A few months ago, Renee Tartaglione, a member of a well-known Philadelphia political family, was indicted on allegations of bilking the Juniata Community Mental Health Clinic out of hundreds of thousands of dollars.
Tartaglione is, of course, innocent until proven guilty. But if she ultimately is proven guilty of the charges, it will be a remarkable story of bottom feeding off public funds intended to help poor people. And it could not have happened without the consent of the organization’s board, chaired by Ms. Tartaglione.
Board members had to agree (or not know that they were agreeing) to contractual relationships with Tartaglione’s real estate company, which is alleged to have egregiously overcharged the Mental Health Clinic.
Asking no questions or not knowing the right questions to ask is a prerequisite for civic mediocrity. We assume a right to self-governance in civic and public affairs but too often overlook its requirements.
Six years ago I penned an op-ed about simmering scandals at the city’s housing (PHA) and regional port authorities (DRPA) that dealt with governance more than management. Were directors adequate to the task? And how do we hold board members who are appointed by politicians accountable?
We never think to do an audit of public sector board competency. Yet the city, region, and state are governed by hundreds of boards that represent the public interest. But what do we know regarding their capacity to oversee complex institutions and significant assets?
Questioning governance capacity and integrity is not limited to public or nonprofit sectors. In the midst of the 2008 financial crisis, governance was on the minds of business analysts, regulatory agencies, politicians, and consumer advocates.
Did the board members of large financial institutions understand the risks on their balance sheet? Did they ask the right questions regarding compensation and how that affected business strategy? Were board members themselves incentivized in ways that made it less likely they would ask the right questions?
It is difficult to explain the collapse of Bear Stearns, Fannie Mae, or Countrywide Mortgage without considering the failure of governance. And prior to the banking crisis there were spectacular examples of the absence of judgment from the boards of Enron and WorldCom.
Even the most responsible governance does not preclude businesses or large nonprofit organizations from making mistakes, taking the wrong risks, and failing. In the business world, failure is part of the churn of markets. You can make informed and ethical decisions and get it wrong. It happens all the time.
The question is whether key decisions related to financial and reputational risk are discussed and approved by those charged with exercising independent judgment. Do conflicts of interest get properly disclosed and managed? Do board members have adequate information to make informed judgments?
Quality organizations maintain a balance of power between management and governance, and they evolve through that tension. Governance is art as much as science, experience as well as law: Experienced directors and managers have a feel for the tension between oversight and operations and they make adjustments based on context.
When the complexity of operations exceeds the capacity for a board to exercise judgment, problems fester. If board members seek to influence daily management or operations through self-interest, grave consequences surface, as may have happened in Juniata.
When the U.S. Treasury Department pushed Citigroup to swap out several of its directors as part of the 2009 bailout, it was based on the view that existing directors could not provide adequate oversight.
Like most boards, Citigroup’s board in 2009 had its share of vanity appointments: people appointed because of marketing status that could represent the bank and bring in business, but who might be ill-equipped to evaluate performance. They were people of accomplishment, but many had no ability to peer into the bank’s mortgage backed securities and subprime market strategy and ask the right questions.
This does not mean that every board member has to be an expert on every dimension of an organization they govern. Nor does it preclude the need for diversity in expertise and representation. But there has to be a critical mass of competence and independence among board members, such that they can do their job as a board—rather than as individual agents.
In the political realm, board appointments are naturally doled out to political allies. Board assignments are functions of the spoils of a campaign, rewards for those who help candidates succeed. A politically motivated appointment does not mean the appointment is unsound. They often are.
But a recurring problem with many political appointments arises when the board position is viewed as a reward more than a responsibility. I thought about this last week when Kevin Vaughan was appointed to chair the board of the Pennsylvania Inter-Governmental Cooperation Authority (PICA).
PICA is the city-state oversight board created in 1991 to bail the city out of its financial crisis. It continues as a fiscal watchdog, providing policy reports and approving five-year budget projections.
Vaughan is a very decent guy who has served the public sector well in many different roles. But is this the case of a great guy in the wrong position? He was most recently the head of a super-PAC in support of the Mayor’s election and has no background in public finance.
Not that Vaughan’s position on PICA is different from other members, several of whom are more prolific fundraisers than Vaughan. And that is the problem.
Asked about Kenney’s proposed soda tax, Vaughan was all for it. But it might have been a good idea to wait a bit before responding, look at various economic projections and opine as part of a measured review of the budget and the city’s overall tax burden.
We do not want to lose PICA as an independent source of judgment. We want an oversight board, asking questions and creating accountability in line with legislatively designated duties. PICA published a first rate report on city pension fund issues fifteen months ago. It needs to stay awake. Otherwise, disband it. It is a waste of resources.
Kevin Vaughan as chair of PICA may be a case of a great guy in the wrong position. He was most recently the head of a super-PAC in support of the Mayor’s election and has no background in public finance. We do not want to lose PICA as an independent source of judgment.
Poor governance ultimately results in civic turmoil, poor social outcomes, and a loss of capital. The city’s school district is still paying for the consequences of bad governance decisions from a whistle blower case under former school superintendent Arlene Ackerman. It’s the gift that keeps on giving for everyone involved, except the public. That same board executed a contract and severance package with Dr. Ackerman that could be a human resources case study of what not to do.
The downfall of a number of charter schools in Philadelphia can also be traced to a lack of quality governance. We frequently evaluate charter schools in terms of academic outcomes or their adherence to fairness in admissions, but the failures are often related to a lack of organizational capacity and accountability, beginning with boards.
Schools whose charismatic founders handpick their own boards often exacerbate these failures, leaving limited opportunity for the right checks and balances. Smart leaders surround themselves with boards and management staff that challenge them and have the independence to review their performance. When a publicly-funded organization becomes the embodiment of an individual with too much power, problems are sure to emerge.
We do not know if Congressman Fattah will be found guilty of charges brought against him when his case goes to trial next month. The case will involve a web of private firms and nonprofit organizations closely tied to Fattah. But it will be interesting to know who was on those nonprofit boards and how any alleged misappropriation of funds could have been transacted without their knowledge.
Two weeks ago we learned that the District Attorney in Philadelphia is going to pursue criminal charges against the former CFO of Visit Philly, Joyce Levitt, for embezzlement. Visit Philly is the quasi-public arm of the city responsible for tourism marketing.
Four years ago, the board of Visit Philly chose not to turn the case over to the authorities but instead sought a private settlement. While restitution was made, it would have been a better idea to ensure that the theft of public assets was prosecuted and not only remediated. The board sought legal advice and says it followed the recommendation of its lawyers. If that was the case, I recommend changing law firms.
We never think to do an audit of public sector board competency. Yet the city, region, and state are governed by hundreds of boards that represent the public interest. But what do we know regarding their capacity to oversee complex institutions and significant assets?
One of the early reform efforts of the Nutter administration was to disband the Penn’s Landing Corporation and replace it with the Delaware River Waterfront Corporation. Those efforts have paid off: An organization long viewed as an insider political system was replaced with a more transparent governance body that represents a broader constituency.
After I wrote that op-ed asking questions regarding governance at the Housing Authority, I received a call from one of the board members. We met and had a lively exchange over lunch. What struck me in learning about the board was the extent to which board members represented constituency interests more than the public interest. The constituency interest might be labor unions or contractors, or a section of the city, or the tenants of public housing. All of those interests are important and legitimate.
But the Housing Authority is funded by federal taxes, so the question I kept coming back to was who on that board viewed their job as representing taxpayers? Who was trying to get the best social outcomes for the dollars allocated, in line with the mission of the agency? Who was protecting the public trust? I should note that since that time, the board of the Housing Authority has seemed to improve in terms of capacity and representation.
If Renee Tartaglione is found guilty, it will be another example of someone who viewed public money as a personal account. In contrast to some of the Wall Street scandals, the loss of money at Juniata is not even a rounding error. But that is no excuse and thus it needs to be addressed through the full force of the law.
Citizenship is something to be claimed and not just assumed. And the claim emerges, in part, through the activities associated with self-government. That means demanding more from ourselves and from those appointed to manage public assets. Otherwise we lose our most important inheritance.
