Trenton,
NJ – The board of trustees of Stevens
Institute of Technology have agreed to adopt
sweeping corporate governance changes to settle
a 16-count civil complaint filed by Attorney
General Anne Milgram in September alleging
that the Hoboken-based school, its president
and its board chairman mismanaged Stevens’
finances and endowment, and excessively compensated
its president.
Stevens’ president, Harold J. Raveche,
will resign as president of the Institute
and will leave his position on July 1, 2010.
In accordance with the terms of his employment
agreement, Stevens will pay him his base salary
until July 1, 2011, and compensate him for
non-compete and consultancy arrangements until
July 1, 2014.
Under the consent judgment entered into by
all parties, the Audit Committee will immediately
be vested with control over Steven’s
finances and the president will cease to be
a voting member of the board of trustees.
Stevens and Raveche will be required to agree
on terms for full satisfaction of the loans
that were the subject matter of the state’s
lawsuit.
The board also agreed to retain former New
Jersey Supreme Court Chief Justice James R.
Zazzali as Special Counsel for a two-year
period to ensure Stevens’ implementation
of the governance reforms. Zazzali will have
access to all board minutes and other relevant
documents and will be permitted to attend
board or committee meetings. Zazzali will
issue quarterly and annual reports regarding
Stevens’ compliance with the consent
judgment. Zazzali had previously been hired
by the board to look into allegations raised
by the Attorney General’s civil complaint.
In addition to Zazzali, Stevens will retain
three consultants to advise the board on issues
relating to corporate governance, executive
compensation, and finance controls.
“The
corporate governance structure agreed to by
Stevens’ board of trustees will significantly
reform past management practices and procedures
and serve as an example to other not-for-profit
organizations,” Acting Attorney General
Ricardo Solano Jr. said. “These changes
are ‘best-in-class’ in our judgment.
Our goal has been to put the school on a path
to sound financial management to ensure that
Stevens Institute of Technology provides a
top-notch education to its students well into
the future.”
The
settlement converts what was a powerful Executive
Committee, which was comprised of Raveche,
the board chairman and two vice chairmen,
into an advisory committee, and vests key
powers and duties to the full board of trustees,
including the power and duty to approve contracts
and compensation for the president and other
top officials; elect new trustees, committee
members, committee chairs and board leadership;
approve the spending rate and investment policy
of the general endowment; review financial
results at every meeting; approve the annual
budget; meet with the external auditor annually
and review internal control problems; review
the performance of the endowment; and prepare
assessments of the committees and board performance.
Under
the new structure, the Nominating and Governance
Committee, instead of the chairman of the
board, will propose trustee and board leadership
candidates for election by the board.
The
Audit Committee will be chaired by a compensated
financial expert, and vested with the power
and duty to review all financial statements,
review internal and financial controls, and
audit the expenses of the president and other
top employees each year.
The
Human Resources Committee will, among other
things, retain an independent consultant to
improve the processes used to establish employee
compensation, establish a presidential evaluation
process, and review and recommend to the board
the annual compensation of the president and
the other five most highly compensated employees.
The
Investment Committee will be responsible for
monitoring and evaluating the endowment’s
asset allocation and investment performance,
and overseeing the distribution of funds from
individual endowment funds.
Stevens
will also set term limits for its trustees
and board leaders. Under those term limits,
the board will elect new chairs of the Audit,
Human Resources, Investment and Nominating
Committees. Also, a 15-year limit for the
board chairman and vice chairman will be implemented.
Lawrence Babbio, the incumbent chairman, may
stay on as chairman for approximately three
more years.
In
addition, Stevens will hire an in-house counsel.
Stevens will also adopt a Donors’ Bill
of Rights and Gift Acceptance Policy, and
post all financial statements, credit rating
agencies’ reports, annual budgets, investment
performance and key governance documents on
its website. Stevens has also agreed to no
longer extend loans to any officers or act
as a guarantor for any loans to a school officer.
An
investigation by the Attorney General’s
Office, acting under the authority of the
New Jersey Nonprofit Corporation Act and other
laws, found that beginning in 1999 annual
financial reports to the public and the Stevens
board misstated the school’s financial
results during certain years.
Outside
auditors regularly warned school officials
on deficiencies in management and financial
policies. The Attorney General’s complaint
also alleged that Pricewaterhouse Coopers,
the financial firm which served as Stevens’
independent accountant from 2000 to 2005,
“fired” the school as a client
due to the high risk the school posed to the
accounting company.
Former
trustees told investigators that the board
was kept in the dark about key financial information,
including reports on endowments and reports
from Stevens’ auditors, and about information
related to annual hikes in salary and bonuses
earned by Raveche, whose salary and bonuses
went from less than $365,000 in 1999 to $1,089,780
in 2008. His base salary is $550,000 under
a July 2007 employment agreement.
The
Stevens’ investigation, litigation and
negotiations leading to the consent agreement
were led by Deputy Attorneys General Megan
Lewis and Samuel Scott Cornish of the Affirmative
Litigation Section, under the supervision
of Division of Law Director Taysen Van Itallie.
Division of Consumer Affairs Investigator
Patrick Mullan worked on the investigation.
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