Faulty public boards behind recent scandals

By Jeremy Nowak

The thread that ties together recent revelations at the Philadelphia Housing Authority and the Delaware River Port Authority is a failure of governance.

As with many private firms that vanished during the financial crisis, the boards of PHA and DRPA were ill-equipped to oversee their agencies. Board appointments were conceived as rewards rather than public responsibilities. And board members saw themselves as political arbiters of exchange rather than guardians of public goods.

High-quality governance of public, nonprofit, and private corporations is a pillar of democratic societies, particularly those that pride themselves on the devolution of power. Forms of governance are determined by regulation and legislation, but the substance of governance is social engagement and personal character.

The craft of governance has eroded over time. At the heart of this erosion is our unwillingness to cut through the complexity of organizations, markets, and politics to ask basic questions: For whom is the company being run? What are the responsibilities of the trustees? Are the customers being given the best product possible? Are we balancing short-term returns and accomplishments with longer-term sustainability?

In his book Enough, former Vanguard CEO John Bogle reminds us of the nature of true financial stewardship, attempting to recover the ethical foundations of capitalism from the predatory behavior of some financial-services companies. Where is the analogous critique of our public and nonprofit boards and commissions? We seem to be running such agencies with the same kind of expedient, hands-off approach to executive accountability that characterized too many financial-services companies.

The DRPA is not a principality of the governors of New Jersey and Pennsylvania. It must ultimately be run for the benefit of those who pay its bridge tolls and train fares. But its trustees apparently did not worry about whether wasteful patronage and largesse would lead to higher tolls.

Then there is the PHA, the state's largest landlord and one of the city's largest developers during the past decade. The authority's recent successes were the result of a federal policy shift that dates to the Clinton administration, which supported demolition of older public-housing units and replacement with new developments. Contrary to the hyperbole characterizing Carl Greene as a turnaround genius, this was a public-policy turnaround that occurred in every major city in the nation.

Greene effectively oversaw that policy shift, but in the process he created an authoritarian regime, protected by a political culture that got what it needed in contracts and consideration in return. For more than a decade, the Housing Authority distributed millions of dollars to almost every major law firm in the city, while largely eliminating its internal legal capacity. Many of those firms are prodigious campaign donors staffed by political insiders.

Greene also ably managed relationships with building-trades unions, local politicians, and select tenant activists. It was in everyone's interest to pretend that all was well.

But it was common knowledge that the agency was an organizational nightmare. Believe no one who acts surprised by the recent allegations: The political class was well aware of Greene's temperament and the rumors dogging him.

So whom should we count on to prevent this kind of malpractice? Fortunately, we have a newspaper that exposed it. But that's not good enough.

It's the trustees' job to know that all is not well. It's fair, therefore, to ask whether they were compromised by a political culture that accepted dysfunction.

In this regard, we might ask who conducted Greene's annual performance review and whether his immediate subordinates were privately questioned as part of it. Reviewing the CEO's performance is one of the most important governance functions in every organization. This was a major problem with many financial-services companies, whose capacity to judge their CEOs became clouded by other considerations.

And then there is the U.S. Department of Housing and Urban Development, which oversees housing agencies and has authority over their operating expenses. Did it approve some of the legal payments and settlement costs now in contention? Was it in over its head or just complicit in Philadelphia's go-along-to-get-along ethos?

However we answer these questions, the important point is that the public interest has to be represented on these boards and commissions. That's not happening today.