CCSA GOVERNANCE ACADEMY: John Lemmo May 2019 - Procopio
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CCSA GOVERNANCE ACADEMY: Brown Act, Conflicts of Interest and Best Practices for Charter School Board Members and Officials May 2019 John Lemmo Procopio Cory Hargreaves & Savitch, LLP
Topics we’ll cover
A. SB 126 and its effect on all this
B. Roles and Responsibilities of Board Members and CEO
C. Running public meetings (Brown Act and corporate Bylaws)
D. Public Records Act
E. Duty of Care – informed decision-making
F. Duty of Financial Oversight
• Board duty to ensure sound financial management
G. Duty of Loyalty (conflicts, confidentiality)
H. Questions?
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPSB 126
• The charter “transparency” bill goes into effect January 1,
2020
– But no time like the present to prepare!
• Applies to charter schools and “entities managing charter
schools”
– Brown Act (plus more!), Public Records Act, conflict of interest
rules under Political Reform Act and Gov. Code 1090
• We’ll cover more specifics when we hit each topic
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPRoles and Responsibilities
Independent charter schools are run by nonprofit
corporations:
– Board of Directors has legal and fiduciary responsibility for the
charter school. Typically, the Board is responsible for providing
fiscal accountability by approving and monitoring the budget.
– Directors nominated in accordance with bylaws and relevant
board policies
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPBoard’s Role
Board ensures long-term viability of the organization
• Ultimately responsible for assessing how the schools are
doing
• Board members have a duty to support the overall health and
performance of the charters
• Board monitors schools’ performance and other data to
inform its decisions
• Board hires, compensates, and evaluates CEO
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPTypical Roles and Responsibilities
• Board approves the “big stuff”:
– Annual budget
– Major educational and operational policies
– Major contracts (leases, loans)
– Reviews and monitors financial policies and procedures, budget,
and finances to inform and evaluate resource allocation
– Hires and evaluates CEO (and CFO)
• CEO:
– In charge of day-to-day operations
– Selection of all other staff
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPWhen does Board get involved?
Level of Board oversight or
decision-making
Responsibility
of Decision or
Oversight
Hiring Hiring Operational Hiring middle Hiring teachers Day-to-day Rank and file
CEO CFO policies managers and staff office matters HR Actions
Budget
approval
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPBrown Act (Open Meeting Law)
Holding meetings
• Boards take action at “meetings”
• SB 126 makes clear that charters comply with Brown Act
– Most charters and/or bylaws already require compliance.
– If bylaws inconsistent, Brown Act controls
• What if we have non-charter business? Do we need to
comply with Brown Act for that, too?
– No, if “unrelated to the operation of the charter school.”
(SB126)
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPHolding meetings
What is a meeting?
“Any congregation of a majority of the members of a legislative body …
to hear, discuss, or deliberate, or take action on any item.”
You may not, “outside a meeting … use a series of communications …
directly or through intermediaries, to discuss, deliberate, or take action
….” (Gov. Code sec. 54952.2)
So… avoid inadvertent serial meetings through email or text
communications.
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPBoard “Committee” meetings
• Brown Act applies to committees created by board, even if just
advisory:
– Applies to “standing” board committees (e.g., finance committee, audit
committee, executive committee)
– “Ad hoc” committees exempt, but must be board members only, less
than quorum, limited existence (until purpose fulfilled)
– Board can delegate some authority to standing or ad hoc committees,
but committee authority strictly limited to the four corners of that
delegation
– Tip: Brown Act is inapplicable to non-board committees. The CEO can set up
her/his own advisory teams instead, which can also inform and ultimately
advise the board.
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPSpecial Rules for Audit Committee
• If your nonprofit is not primarily a charter school, then follow
Nonprofit Integrity Act
• IRS rules mandate Audit Committee if your gross revenue
greater than $2M
– Chair of Audit Committee cannot also serve as a member of
Finance Committee
– Finance Committee members cannot be majority of the Audit
Committee (so mix it up)
– No employees, CEO or CFO on Audit Committee
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPHolding meetings
• Brown Act “types” of meetings
– “Regular” meetings require 72 hours posting of notice
– “Special” meetings require 24 hours notice
– Teleconferencing
• Notice in agenda
• Identify teleconference location
• Roll call vote
– What about an “emergency” situation?
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPHolding meetings
• Brown Act limits meeting to posted agenda:
– Brief general description of business to be transacted (20 words or less)
– Post in publicly accessible place at/near location
– Consent agenda for routine items
– Don’t create “information only” vs. “action” items if you want flexibility
– Adding items to regular agenda
• Must post agenda on website if you’ve got one
– “One click” rule—don’t get caught violating this easy rule!
• Record how members vote
Tip: If you miss 72-hour posting deadline to include an item on regular agenda, you can still
post a special meeting agenda with 24 hours notice for same time and place.
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPNew Rules Under SB 126 regarding meeting
locations and multi-site teleconferencing
• SB126 imposes additional rules as part of Ed. Code for charters—not actually
part of the Brown Act
– Likely enforceable only by your authorizer through oversight
• Meeting location requirements vary depending on number of school sites and
counties you operate in
ENTITY WITH MULTIPLE CHARTERS
ENTITY WITH SINGLE CHARTER
SAME COUNTY MULTIPLE COUNTIES
Meet within boundaries of county where Meet within boundaries of county where Meet in county where greatest number of
authorized and located authorized and located pupils reside (might change over time)
Two-way teleconference from each site* if
Two-way teleconference from each site* Two-way teleconference from each site*
you have more than one
Audio/video record and post to website
* Includes schoolsites and resource centers.
• But the Brown Act teleconferencing options and rules still apply.
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPHolding meetings—Closed Sessions
• Brown Act limits “closed” sessions:
– Statutory basis must be identified in agenda, such as ….
• Litigation (identify matter)
• Personnel evaluation, termination (identify position)
• Collective bargaining strategy (identify negotiators)
• Real estate negotiations (identify property)
– Look for “safe harbor” descriptions in the Act
– Not for budget discussions, general planning
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPHolding meetings
• Rights of public:
– Speak before action taken on any item (including closed
session)
– Publicly accessible location (with disabled access)
– Public comment can (and should) be time-limited
– At regular meeting to address board on something not on
agenda
• No non-agenda comment required at special meetings, but you can
allow if you want to
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPAre the Charter School’s records open to the public?
• Yes and no.
• Public Records Act applies to your charter school under SB 126
• But lots of exempt records:
– Identifiable student records (FERPA)
– Personnel and medical records
– Pending litigation
– Preliminary drafts
• But email, and material kept in ordinary course of business may
be public
– What about my private email account?
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPPublic Records Act, cont.
• When/how do I respond?
– Send determination about whether you’ve got responsive records within 10 (or
maybe 24) days from receipt of the request, but you have a “reasonable” time
to produce records. It could likely take weeks or months.
• Costs
– You can charge reasonable per-page copy cost, e.g., $0.25/page (adopt admin
policy for that)
– If requests seeks data extraction, then requestor is required to pay all costs (
can be several thousand dollars)
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPFiduciary duties of directors
Directors owe fiduciary duties to the corporation—
• duty of care
• duty to provide financial oversight
• duty of loyalty
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPDuty of a fiduciary is to:
• Act with care, skill, prudence and diligence
• Under the circumstances
• Of a prudent person acting in a like capacity
• With familiarity with those matters, and
• Considering the background and experience of the director
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPBoard member exposure to personal liability?
• There is broad nonprofit law immunity for volunteer board
members*
• D&O insurance to defend claims against board members
acting within scope of duties
– Make sure your organization has it
*But not immune under federal law
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPBoard members can be personally liable when:
• Acting outside course and scope of duties (such as
managing rank-and-file employees, rather than policy-
making)
• Breaching fiduciary duties
• Conflicts of interest create personal benefit
• Intentional or willful misconduct
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPBoard members can rely on staff, but….
• Board members can and do rely upon agency staff
– How deep should director look into agency business,
transactions, and exposures?
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPWhat a Board Member Needs to Know:
Duty of Care
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPRoles and responsibilities of Board
• The Board makes policy, and is protected from liability when
doing that.
• The CEO is accountable for implementing all Board policies.
• The Charter and/or policies further delineate roles and
responsibilities, including delegated authority.
• Board members should not get involved with day-to-day
business operations of the school
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPBe informed, stay informed and be proactive
in your role.
• Ask questions to seek clarity before voting.
• Listen to all perspectives and test your understanding of
information and implications.
• “Own your decision”
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPWhat a Board Member Needs to Know:
Duty of Financial Oversight
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPCharter School Finances
• It’s a business
• Annual budget is blueprint for school year, setting spending
priorities and goals
– Throughout the year, Board monitors annual budget and finances
– Financial reports are presented to the Board, such as balance sheet,
income statement, cash flow
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPBoard Must Ensure Adherence to Fiscal Policies and
Sound Financial Management
• Lots of talk about charter (mis)management of finances
– Emphasizes how important this topic is
• Your authorizer will likely seek background information about
your board members to help ensure they have sufficient
“capacity” to manage finances of the school
• Scrutiny of and adherence to sound financial policies is the
norm
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPDuty of Financial Oversight
• Potential for charter revocation due to failure to meet GAAP, or
“fiscal mismanagement.”
– Ed. Code, § 47607(c)(1)(C)
• Chartering authority to assess and monitor fiscal condition of
charter school.
– Ed. Code, §§ 47604.32(d) & 47604.33(b)
• Periodic financial reports are required.
– Ed. Code, § 47604.33(a)
• Annual, independent financial audits are required.
– Ed. Code, § 47605(m)
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPCharter School Finances -- Audits
• Required annually.
• It validates the schools reported finances.
• Audits are also used to validate the charter schools internal
controls.
• Board must approve Audit Agreement in Spring of the each year.
• Board must approve the audit prior to submittal to oversight
agencies.
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPWhat a Board Member Needs to Know:
Duty of Loyalty
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPDuty of Loyalty
• General Rule: Individuals in a position of public trust
must avoid conflicts of interest which prevent them from
fulfilling their duties in an impartial manner.
• Legal presumption is that a person with a conflict of
interest cannot be impartial
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPDuty of Loyalty—avoid conflicts of interest
• Directors’ duty of loyalty
– Conflicts of interest must avoided
• disclosure of personal financial interests
• disclosure of duties to other corporations
• “interested” directors can’t be board majority
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPNonprofit directors’ “self-dealing” transactions:
• For most charitable nonprofits:
– Majority of Board must affirm “fairness” of self-dealing
transaction
– Is it “material” to business of corporation?
– Financially interested board member must disclose and
disqualify
…but wait, there’s more!
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPCharter Boards also subject to Political Reform Act:
• Fair Political Practices Commission says charters subject to
Political Reform Act, and now so does SB 126
• Requires school to adopt conflict of interest “code”
– Different from your nonprofit conflict “policy”
• Requires annual financial disclosures by designated officials (the
“Form 700”)
• Requires disclosure, disqualification from any decision that may
affect material financial interests
• FPPC approved a draft “model code” for all charter schools
– LA County has different process and policy
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPConflicts of Interest Under Political Reform Act:
• Interests of spouse and dependents count
• Civil and criminal penalties for violation
• No defense or indemnity by school or insurers
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPGov. Code section 1090
• SB 126 applies it to charters
– Many charter petitions and MOUs already require compliance
– Explicit carve-out for conflicts created by employment relationship (OK
for employees to be board members)
• Strict rule to “void” conflicted contracts
– Check your charter and/or District MOU
• Section 1090 provides that a public agency officer or employee
may not make, participate in making, or attempt to influence a
contract in which he or she is financially interested
• Disclosure and recusal not enough
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© 2019 Procopio, Cory, Hargreaves & Savitch LLP“Entity Managing a Charter School” and SB126
• SB 126 definition not clearly drafted, so expect
disagreement about who it applies to
– District authorizers are likely to apply the for-profit definition to
nonprofits
• Goods and task-related services exception
– “not an ‘entity managing a charter school’ solely because it
contracts with a charter school to provide to that charter school
goods or task-related services that are performed at the direction
of the governing body of the charter school and for which the
governing body retains ultimate decisionmaking authority.”
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© 2019 Procopio, Cory, Hargreaves & Savitch LLP“Entity Managing a Charter School” and SB126
• For-profit definition in Ed. Code 47604
“Operate as, or be operated by,” as referenced in paragraph (1), means services provided by a for-profit
corporation to a charter school that include any of the following:
(i) Nominating, appointing, or removing board members or officers of the charter school.
(ii) Employing, supervising, or dismissing employees of the charter school, including certificated and
noncertificated school personnel.
(iii) Managing the charter school’s day-to-day operations as its administrative manager.
(iv) Approving, denying, or managing the budget or any expenditures of the charter school that are not
authorized by the governing body of the charter school.
(v) Providing services to a charter school before the governing body of the charter school has approved
the contract for those services at a publicly noticed meeting.”
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPCharter School Governance Best Practices
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPBest Practices in Charter Schools
• Board helps recruit diversity of expertise and experience on
Board
– Political
– Financial
– Fundraising
– Goal-setting/vision
– Community outreach
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPBest Practices in Charter Schools
• Board meets monthly or less often (e.g., quarterly)
– Varies with maturity of organization
• New charter boards tend to meet more often
• More mature boards tend to meet less often
• Board reviews and approves annual management goals, in-
line with vision/goals of organization, as part of CEO
evaluation
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPBest Practices in Charter Schools
• Board receives governance training
• Board members can identify a potential conflict of interest
• Board members review documents, ask questions, stay informed
• Board stays informed on financial condition of school
• Board puts school first
• School has system of evaluation for administrators/ teachers/
staff, and key vendors
• Administrators/ teachers/ staff receive professional development
• School has robust stakeholder communication system (e.g. key
items available on website, active parent council)
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPBest Practices in Charter Schools
• CEO in charge of certain levels of contracting within budget
(e.g., vendor contracts up to $XX dollar amount)
• CEO hires/fires/disciplines employees
• CEO sets “efficiency” policies (e.g., photocopy per-page
charge, employee absence protocol, etc.)
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPBest Practices in Charter Schools
• Management meets Board expectations
• Management provides complete and timely communication
to Board on key issues
– Agenda materials conform to mutual expectations
– Periodic updates via “Friday Letter” or other vehicles
– All Board members get the same info at same time
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPThe End
• Any questions about these topics, or any other charter
school topic?
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© 2019 Procopio, Cory, Hargreaves & Savitch LLPThank you!
Questions? Please contact me.
John Lemmo
Procopio, Cory, Hargreaves & Savitch LLP
John.Lemmo@procopio.com
619.515.3294 48
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