Governance Changes Improve Business Outlook at Penn State

Major governance changes that Pennsylvania State University’s Board of Trustees approved this month are likely to improve the university’s creditworthiness, according to a report released last week by Moody’s Investors Service.

The governance reforms were a response to some of the problems that may have exacerbated the scandal sparked by Jerry Sandusky, the former football coach convicted last year of more than 40 counts of sexual abuse against young boys.

Among the board’s changes, adopted on May 3, were making the state’s governor and the university’s president two out of six ex officio board members who may not vote; increasing the number of trustees required for a quorum; imposing term limits on all but the ex officio members; and “enhancing” the board’s conflict-of-interest policy.

The changes not only will help prevent future problems stemming from a lack of board oversight, but will be viewed as a “credit positive” for the university, according to the report issued last Wednesday by the credit-rating agency. Moody’s had downgraded Penn State’s credit rating in October 2012, citing the possibility of numerous lawsuits from Mr. Sandusky’s victims.

The agency is not upgrading its rating of Penn State, but in the report, which is available only to Moody’s subscribers, it says the “significant changes” in Penn State’s governance structure and oversight practices “are a credit positive because they strengthen the oversight and management of the university, allowing emerging risks to be appropriately assessed and not overlooked.”

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