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Using the Sandusky Scandal as a Case Study: Due Diligence Requirements of Corporate Board Members in Profit and Non-Profit Organizations Larry Cat BackerW. Richard and Mary Eshelman Faculty Scholar & Professor of Law, Professor of International Affairs 2012-13 Chair University Faculty Senate, Pennsylvania State University

Remarks to the Berks County Bench-Bar Conference April 17, 2013Reading Pennsylvania

Introduction and ContextJerry SanduskyCurley and SchultzSpanier and PaternoBoard of TrusteesFreeh Group ReportNAACP

Fiduciary Duty OverviewSubstantive StandardLiability StandardBusiness Judgment RuleRule of non interferenceRule of processEntire fairnessRatification

Governing the UniversityFaculty ControlOxfordDirect State ControlContinental Europe; AsiaLay BoardsU.S.Who appoints (looking for shareholder substitutes)Shared Governance

Diligence Obligations of the BoardRecent casesAmericanWest VirginiaIllinoisLegal FrameworkModel Non Profit Business Corporation Act

Core IssuesBlindness to RiskBoard awareness of risk Obligation to inform the boardWhistleblowingLoyaltyConflict of InterestEthicsRelational ConflictSeverance and Benefitsaccountability

Application to Penn State

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