Ka Wai Ola - Office of Hawaiian Affairs, Volume 12, Number 8, 1 August 1995 — Board reform [ARTICLE+ILLUSTRATION]

Board reform

by Rowena N. Akana Trustee-at-large We hear a lot today about the need to "reinvent government" in the image of business, to

make it leaner and more responsive to its constituents. This ean be seen in the skyrocketing popularity of pub-lic-private partnerships, from the munieipal to the federal level. Given this sea change in the attitude of the public

towards govemment, it would be valuable to look ai how these ideas could be applied to the Office of Hawaiian Affairs. On June 21-23. Trustee Billie Beamer and I attended a conferenee at Stanford University Law School called "Tools for Executive Survival," whieh examined corporate governance reform. Although the conference focused on the private sector, there were also a tremendous amount of information relevant to public trusts such as the Office of Hawaiian Affairs. Like our counterparts in the board rooms of corporate America, the Board of Trustees of the Office of Hawaiian Affairs is liable for any actions taken by the office. If something goes wrong, the buck stops at the top. Many speakers at the eonference stated that scrupulous honesty and the strict following of pre-existing procedures is the best protection available to

Directors or Trustees against liability. Levi Strauss board member James Gaither asserted that the process by whieh boards arrive at decisions and allocate funds

provides an indispensable benchmark against whieh legal judgments are made. Delaware Supreme Court Chief Justice Norman Veasey called on directors or trustees to be independent and free of any conflicts

of interest. He also urged them to follow appropriate procedures, including such means as eonducting annual evaluations of the Chief Executive Officer, ensuring board-level access to senior management and making board decisions on the basis of adequate information. Carol Bantz, Chairman, CEO and President of Autodesk ine., the fifth largest PC software company in the world, urged companies against appointing directors who were either of retirement age or politicians. Clearly, this is advice of special importance to the Office of Hawaiian Affairs, whose trustees tend to be aged, career politicians, or both. A passive board, whieh simply rubber stamps the decisions of senior management, is the type of board most often sued. The present trend is in favor of more active boards, ones that get involved in strategic planning

and decision-making, without interfering in the day-to-day operations of management. With the recent infusion of over $120 million in the ceded lands settlement monies, the Board of Trustees has been forced to accept vastly increased management responsibilities. Such a broadening of duties requires correspondingly stricter requirements on the trustees. Contrary to the advice of investment managers, boards are not protected from liability simply because important decisions are made by outside hired eonsultants. In class action suits, boards, as well as a wide variety of outside consultants, are all held mutually liahle. Since boards are measured in court by their conduct and the process by whieh they make decisions, it is incumbent upon trustees to maintain the highest degrce of loyalty to the purposes of the trust, and to exhibit exemplary characters of integrity and honesty. Indeed, breach of loyalty to the trust purposes ean itself be grounds for a lawsuit.

The Office of Hawaiian Affairs has a lot to learn from recent developments in corporate governance, especially in the areas of structural reorganization, procedures and limitation of liability. The Board of Trustees of the Office of Hawaiian Affairs should take a close look at models from the business world that might enable them to better serve their beneficiaries and the long-term goals of the public land trust.