Ka Wai Ola - Office of Hawaiian Affairs, Volume 12, Number 12, 1 December 1995 — Trustees obligated to monitor administration [ARTICLE]

Trustees obligated to monitor administration

(Editor's note: the following is a joint eolumn submitted by Trustees Beamer, Akana, and Keale.) It is prudent for us to reeognize the tectonic shift to accommodate management in a responsible way. These are excerpts paraphrased from a Luneheon Address given in 1992 by William T. Allen Chancellor of the Delaware Court of Chancery (jurisdiction in equity). Delaware Leads the nation as the legal authority on Director's fiduciary responsibilities: "The Same message is reiterated by the National Association of Corporate Directors, that Evaluation of senior management is a fundamental duty of Directors, that a corporation must be managed by or under the direction of a Board of Directors." (NOTE: Italicized statements describe the resultant OHA situation when this management theorem is not incorporated.) 1 . Allen: The historical tenure of senior management has been immune from accountability. Our govemance system provided little constraint. The trend was to lionize the manager in whom ultimate power was entrusted. The Military or Poliee model prevailed. 1.1 OHA's deterioration and eomplaeen t hulging bureaucracy grew steadily in the last 15 years and has ballooned without accountability in the lastfive years. 1.2 HRS 10-12 was changed to give the administrators more power, their salaries made comparable to Department heads, making circumvention of the BOT possible. 1.3 The recent attempl to terminate the services of Dante Carpenter, ended in a fiasco where the Administrator and his deputies said we, the trustees had no authority to terminate them. Trustees were at the behest of the chair, his vice chair and the administrator, the troika ofpower backed by a eompliant majority. 2. Allen: Globalization taught us that closer monitoring of management by financial intermediaries produces more efficiency and predicates more modest compensation scales. 2.1 Monitoring is resisted by the OHA majority and called meddling or micro-managing. 2.2 Senior Management resents intrusion due to board dichotomy. See letter to staff. 3. Allen: Instead of being loyal to beneficiaries, trustees gave more loyalty to the CEO in whose hands they placed the future of the entity. 3.1 There are many instances of critical

Management actions taken with out Board Cognizance, the transfer of 10.5 million from cash to commercial paper with out full board aeknowledgement. Yet the Minority cannot eall for an investigation. 3.2 Transfer of $500,000 without Board Cognizance 3.3 Hiring ofTrader of Record who earns near $500,000, without Board Awareness. 3.4 Payment of perks to Administrator without Board Notice 4. Allen: Board members must adapt, must redefine its management ethic. The old concept that the Board responsibility is to appoint, senior management, to pay them well and then step back, is badly deficient and outdated. It ignores a basic trustee responsibility, to be informed enough to monitor senior management. 4.1 OHA board never audited management. We are without financial statements, internal audits, evaluations, controls, performance indices. 4.2 For five years we have not updated or evaluated our systems, there are no toolsfor scrutiny. 4.3 Board was just busy spending money, whieh to most is taking care oftheir people. 4.4 Because we have lost the ability to approve hiring and firing we have lost control. Senior Management refuse to leave as with the Carpenter Case. 5. Allen: Boards must be more than advisors, they must have direct access to corporate information and personnel, they must meet periodically with themselves and beneficiaries and they must define their own responsibilities and progress from time to time. 5.1 There is no Policy archives at OHA 5.2 BOT minority are criticized ifthey ask information from employees, see memo enclosed from Beamer to Employees. Aiona letter. 5.3 Chair and Vice Chair discourage inquiry or monitoring. 6. Allen: Boards who view their role as mere advisors who do not insist on assuming the real monitors role, do small service to any one and deserve little respect. Boards must fully accept the burdens of their office. In playing the comfortable role of genial advisor, there is little honor, there may, ultimately, be dishonor. 6.1 Certainly OHA ean avoid dishonor by heeoming more proactive and alert.