Institutional Control and Corporate Governance

56 Pages Posted: 28 May 2015

Date Written: May 28, 2015

Abstract

In January, 2015, the NCAA agreed to restore Penn State’s football wins, vacated as part of sanctions imposed for the University’s handling of the Sandusky sex abuse scandal. This represented a curious end to one of the most attention-grabbing and unusual NCAA enforcement actions in history. In the summer of 2012, the NCAA had strong-armed Penn State into accepting draconian sanctions based on the conclusion that the University failed to exert proper “institutional control” over its athletics program as required by NCAA rules. The foundation for that conclusion was the Freeh Report, which faulted Penn State’s senior leaders and Board members for their role in failing to stop Sandusky’s abuse.

This paper steps back to consider an unexplored aspect of the Freeh Report. In describing the University Board’s obligations, and failings, the Freeh Report relied upon two Delaware business law cases on the fiduciary duties of corporate directors. The connection between corporate oversight and NCAA “institutional control” is intriguing, since fiduciary duties typically arise in absence of contract and the NCAA is a voluntary association arising from contract.

By exploring the parallels and divergence between Delaware fiduciary oversight obligations and the NCAA “institutional control” rule, important insights regarding the development of compliance and enforcement regimes can be gained. Delaware fiduciary law arises through vigorously contested, adversarial litigation. This gives clarity and nuance to its rules and standards, and provides direct implementation guidance on best practices to business firms. By comparison, the NCAA’s institutional control rule is rarely subject to clarity and the process for enforcement used by the Association is far from adversarial. Important lessons about the potential of private associations to engage in self-governance and the value of an adversarial approach to deriving oversight obligations can be gleaned.

Keywords: corporate governance, penn state, ncaa, sports law, fiduciary duties, oversight

JEL Classification: K00, K22, K20, K40, K41, K42

Suggested Citation

Rapp, Geoffrey Christopher, Institutional Control and Corporate Governance (May 28, 2015). Brigham Young University Law Review, Forthcoming; University of Toledo Legal Studies Research Paper No. 2015-09. Available at SSRN: https://ssrn.com/abstract=2611630

Geoffrey Christopher Rapp (Contact Author)

University of Toledo College of Law ( email )

2801 W. Bancroft Street
Toledo, OH 43606
United States

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