Above suspicion? SAG members pension fund in governance crisis – UPDATED

Several months ago the Executive Director of the Screen Actors Guild members pension fund was accused in a letter from a former fund executive of embezzlement and other misdeeds. Apparently, other executives under the Executive Director’s supervision were dismissed (or “resigned”) for involvement in some of these misdeeds. The text of the letter from the former  executive can be found here.

Now, some SAG members are complaining that to defend itself the the board of trustees of the fund, which includes David White, the Executive Director of SAG, asked an attorney whom these SAG members contend is a friend and possible former colleague of White, to investigate the CEO of the pension fund!

Of course, the trustees of a pension fund are responsible for hiring and overseeing the CEO of the pension fund, just as the board of directors of SAG itself has the power to hire, fire and oversee its Executive Director.  In light of that role, the trustees themselves may bear some responsibility for the problems at the fund, if any are found. The trustees have a responsibility to insure that the CEO of the fund acts as a good faith steward of the retirement assets of SAG members. Their failure to do so or their failure to put in place adequate internal controls to detect and prevent fraud or embezzlement might open them up to liability.

In these circumstances the best practices approach would be, first, to avoid at all costs any attempt to add to the problem by engaging someone who might either have a conflict or be seen to have a conflict in such a situation. More importantly, though, the board should not be involved in investigating itself. To avoid that the board should bring on to the board two or three new trustees who have no prior relationship to either the producers or the actors’ guild who are then placed in charge of the investigation. This special committee of the board would then hire independent counsel to investigate the charges and decide whether any action is required to defend the funds’ beneficiaries.

It may, in fact, be the case that there is nothing to the charges, that they are indeed simply unjust accusations brought by a disgruntled ex-employee. But certainly the risk associated with these charges coming as they do when the Guild is engaged in the middle of complex merger negotiations with its sister guild, AFTRA, where the future health of the pension fund is very much a key issue, would reinforce the need to engage someone who is “above suspicion” to ferret out precisely what happened, or did not, and who bears responsibility, or does not.

UPDATE: The morning after this post the SAG pension fund trustees issued a letter that summarizes their response to the allegations of the former executive of the fund. The letter can be read here.

The letter says the trustees did in fact hire an independent investigator but, oddly, they do not name her (she is identified by gender) and they do not respond to the allegations that she may have a relationship with David White, SAG’s NED and a trustee of the pension fund. The letter says that most of the charges made were not valid but it does not say which charges have in fact been found valid. It also says that the evidence found by the investigation was reviewed by PriceWaterhouseCoopers, the large auditor, but it does not say that PWC was able to conduct its own investigation directly.

The letter is likely to raise as many questions as it answers particularly in the contentious climate inside SAG. Who is the independent investigator? Does that person have any relationship to any of the trustees? Why wasn’t PWC allowed to conduct an investigation itself instead of only being presented the material found by the investigator? Which charges made do have in fact some basis?

Interestingly, the letter mentions an earlier incident where some $2 million was lost through fraudulent practices in 2008. Although the money was paid back by the fund’s insurer, there is no indication that the board itself altered its governance practices or that the fund’s CEO, the subject of the current charges, was held responsible in any way. (One actors’ blog, SAGWatch, which is a strong ally of the current SAG leadership, contends that the 2008 incident led to reforms of internal controls, which apparently have now failed.)

No doubt there will be renewed pressure on the fund for full disclosure of the report and perhaps a full and genuinely independent review of what has been going on at the fund over the last few years. As I suggest above the best approach would be to bring on to the board two or three new trustees who have no relationship with SAG or the Producers to comprise a special investigations committee. Instead, the Trustees have self-appointed current trustees to a subcommittee to review their own behavior.

UPDATE 2: SAGWatch blog states that PWC is the SAG PHP’s regular auditor. They provide this link to the Fund.  So PWC missed the $2 million fraud in 2008 and they missed some of the allegations made by the former executive but are now investigating what they missed. More evidence of the need for a truly independent audit and investigation.