Penn State, the Freeh Report and Implications for the FCPA Compliance Practitioner

The Freeh Report was released last week. It detailed a series of actions and inactions taken by officials at Penn State University (Penn State) which allowed Jerry Sandusky to continue his abuse of young boys from at least 1998 up until the time he was arrested. This incident is the worst scandal involving the American higher education system…

that I have witnessed in my lifetime. As noted in a New York Times (NYT) articled published on July 13, entitled “In Report, Failures at Every Level of Hierarchy”, the Freeh Report found a series of failures all the way up the Penn State chain of command. The article stated, “shortcomings that were the result of any insular and complacent culture in which football was revered, rules were not applied and the balance of power was dangerously out of whack.” As bad a situation as the Freeh Report portrays, I believe that there are significant lessons for the Foreign Corrupt Practices Act (FCPA) compliance practitioner and this post will try draw out some of these lessons learned.

I. Insular and Complacent Culture

A. Failure of Top Officials and Role of a Board of Directors

The Freeh Report portrayed the Penn State Board of Trustees, the University equivalent to a corporate Board of Directors, “as passive overseers, so in thrall to the president and the coach that they failed to demand even the barest displays of accountability.” Even if the University President actively withheld information from the Board, a Board has the responsibility to ask tough questions. The NYT article quoted Anne Neal, president of the American Council of Trustees and Alumni for the following, “For too long, the boards have been viewed more as boosters that as legal fiduciaries.”

In the aftermath of the Wal-Mart scandal, the FCPA Professor opined that the problems Wal-Mart encountered were largely a failure of corporate governance ...

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