Improving Public Education through Strengthened Local Control Roger T. Severino & Robert P. Strauss Becket Fund Heinz School Federal Reserve Bank of Cleveland Cleveland, Ohio November 19, 2004
1.0 Some Disclosures and Introduction • Disclosures about the research team: • Mrs. Carrie Severino, legal researcher Michigan native, Grand Rapids, product of public k-12 education graduate of Harvard Law School clerk for federal judge David Sentelle • Roger Severino, co-author California native, LA , product of public k-12 education graduate of USC, The Heinz School graduate of Harvard Law School lawyer for Becket Fund for Religious Liberty in DC • Robert Strauss, co-author native of University Heights, product of Cleveland-University Heights Schools former Teamster, former Browns fan product of Big Ten (Michigan, Wisconsin) economist, professor and pretty good legislative draftsman primarily responsible for revisions in Pa. teacher certification rules in late 1990s full story is at: www.heinz.cmu.edu/~rs9f
Introduction and Objectives of Paper: -- Origins of Paper, Earlier Studies of Teacher Preparation & Selection for Pennsylvania State Board of Education -- Compare Corporate Governance Mechanisms to Typical School Director Governance Mechanisms (41 States Reviewed) -- Focus on Oath of Office and Ethics Requirements on School Directors -- Devise Model Oath of Office, Related Obligations and Incentives for School Board Directors -- Hope to Convince Audience that Adopting the Proposed Model Oath of Office will improve Student Performance
Focal Point of Paper is the Proposed Oath of Office: I do solemnly swear: to Support the constitution of the United States and to support the constitution and laws of the this state, to allocate school resources and effect educational policy solely for the purpose of ensuring that each student learns to his or her intellectual capacity, and to discharge these duties faithfully,honestly, impartially. and to the best of my ability, so help me God.
Argument 1 in favor of proposed oath: History Lesson: Economics, the Law, and Oaths of Office • Textbook Microeconomics of the Firm: Maximize Profits • Does this Happen Because of Just Greed or Legal Obligation? • What do Sole Proprietorships have to do? • What do Widely Held, Publicly Traded Corporations have to do? Henry Ford and the Michigan 1919 decision Conclusion: What’s good enough for Henry Ford is good enough for public education.
Argument 2 in favor of proposed oath: An Experimental Approach: CEI & Public Schools • Step 1: Lights Off, Please • Step 2: Lights On, Please • Analysis: Why did Step 1 Work? Why did Step 2 Work? • CEI is a Regulated Monopoly • CEI is Heavily Unionized • CEI is a Big Bureaucracy • CEI is Responsive • Aren’t Public Schools like CEI? Conclusion: What makes CEI works should be good enough to make public schools work.
2.0 Duties of Corporate Directors and Officers • Controlling Sources of Authority: The Corporate Charter and State Corporation and Case Law, Federal Securities Law • The Duties of an Elected Corporate Board Member • The Duty of Care and the Business Judgment Rule • The Duty of Loyalty • Derivative Law Suits
2.1The Duty of Care and the Business Judgment Rule • Duty of Care: positively obligates director to perform duties with the diligence a reasonable person in similar circumstances would so perform • Did the Director Meet his Duty of Care? The Business Judgment Rule is Met and Duty of Care is Fulfilled when: • Director is not interested in the subject of the business judgment; • Director is informed with respect to the subject of the business judgment to the extent the director or officer reasonably believes to be appropriate under the circumstances; and Director rationally believes that the business judgment is in the best interests of the corporation.”
2.2 Duty of Loyalty • Self-dealing by director occurs when personal interests conflict with interests of corporation (and thereby shareholders) • Self-dealing can be avoided by prior disclosure, and by a majority of disinterested directors or disinterested shareholders approving the transaction after the disclosure.
2.3 Derivative Law Suits • Problem: who has standing to sue corporation and directors for inaction? • Authority by shareholders to sue in court is called a derivative lawsuit
3.0 Public School Board Directors • Source: Review of 40+ State Statutes (Table 1, Appendix 1) • Qualifications – General, Resident of Age, Perhaps Good Moral Character • Duty/Oath of Office (Table 1 Page 16-17 of Paper) • All Require Upholding State and Federal Constitution • 4.9% of States Require Directors to Perform Honestly • 7.3% of States Require Directors to Avoid Conflicts of Interest • 50% of States Require Directors to Perform Best of Abilities • 25% of States Require Directors to Perform Impartially
3.0 Public School Directors (continued) • School Directors Generally Not Compensated for Their Time
3.1 Sovereign Immunity and Schools • Sovereign Immunity – syllogism that since government is of the people it can not be sued by the people • State law and School Codes provide immunities for various bad acts • Liability can be created if School engages in proprietary or non-governmental activities
3.2 Conflict of Interest and School Directors • General observation: prohibitions are more apparent than real • Personal interest prohibitions usually overcome by disclosure and/or non-participation • Personal interest prohibitions in state law are often only prohibitions on direct interest being in conflict, and not indirect interest being in conflict • Two areas most often mentioned: contracts and nepotism in hiring • Areas often not regulated: real estate transaction interests, interests in debt issuance, attorneys and accountants fees. • Note that school code ethical prohibitions are often more narrow than those obligations on other public officials
4.0Some Comparisons • Selection: corporate directors face annual election, school directors face overlapping 4 year terms in many states; less accountability • Corporate monitoring responsibilities are explicit, school monitoring responsibilities only beginning to be realized. Few states require board members to review achievement progress of students; only NCLB is forcing accountability data systems to be put in place • Case Law views Pay for Corporate Directors Ensuring Duty of Loyalty, no counterpart in School Director Case
4.0 Comparisons (continuted) • Corporate director malfeasance is a matter for the courts • School director malfeasance is a matter for state Ethics Commission which tend to be remote geographically, and narrow in their interpretation of violations Conclusion: merit in grafting corporate governance model onto school directors
5.0 Proposed Model for School Governance I do solemnly swear: • to Support the constitution of the United States and to support the constitution and laws of the this state, • to allocate school resources and effect educational policy solely for the purpose of ensuring that each student learns to his or her intellectual capacity, and • to discharge these duties faithfully,honestly, impartially. and to the best of my ability, so help me God.
Proposed School Judgment Rule for Directors & Senior Education Officials • “A school director or senior education official who makes a school judgment in good faith fulfills the duty of care if the school director or senior education official: • i) is not interested in the subject of the school judgment; • ii) is independently informed with respect to the subject of the school judgment to the extent the school director or senior education official reasonably believes to be appropriate under the circumstances; and • iii) rationally believes that the school judgment is in the best interests of the school district in ensuring that each student learns to his or her intellectual capacity.”
Some Implications of Proposed Oath and Judgment Rule • a) a duty to monitor, • b) a duty of inquiry, • c) a duty to make prudent or reasonable decisions on matters that the school board or senior education official is obliged or chooses to act upon, and • d) a duty to employ a reasonable process to make such decisions.
6.0 Conclusions • Focusing an oath on each student learning to the best of her or his intellectual capacity is a huge step forward for School Board Directors • Paying them and the Proposed Oath of Office creates Liability • The proposed School Judgment Rule Organizes their Activities and those of Superintendents and Creates Safe Haven from Liability • Any District can adopt this Model Language as can any State • Without Governance Reform First, School Reform Unlikely to Happen