In 2011, the Pennsylvania State University commu- nity was stunned by multiple charges of child moles- tation

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In 2011, the Pennsylvania State University commu- nity was stunned by multiple charges of child moles- tation committed by former assistant football coach Jerry Sandusky. Sandusky had used Penn State’s facilities, with permission, for a children’s charity organization with which he was affiliated. Soon after the initial charges were filed, allegations of per- jury and failure to report the situation were brought against Penn State management. Joe Paterno, the legendary head football coach, was found to have been aware of the situation. Penn State’s athletic program motto is “Success with Honor.” The foot- ball program had never been charged with a severe NCAA rules violation, and the program enjoyed a high graduation rate. A subsequent investiga- tion showed that Coach Paterno did in fact report the incidents to his superiors but had not taken any independent action. As a result of intense media coverage, a former university vice president and the former athletic director were implicated in a cover- up, along with the university president, Graham Spanier. Spanier and Paterno were fired. On June 22, 2012, Jerry Sandusky was convicted of 45 of 48 counts of sexual assault involving 10 boys. In addi- tion, many of Sandusky’s victims filed civil lawsuits

against Penn State for damages. On October 28, 2013, Penn State University reached settlements with 26 of Sandusky’s victims, costing the univer- sity a total of $59.7 million.

Not all victims settled with Penn State. One vic- tim (identified only as “Victim 9” in court docu- ments) sued Penn State on November 21, 2013, citing that the victim had been unable to reach a settlement with the institution, and in a separate case involving another victim (“Victim 6”), a U.S. District Judge in Philadelphia ruled on November 6, 2013, in favor of the university, stating that Penn State could not legally be held liable for Sandusky’s actions simply because he was employed there. The judge stated that Victim 6 failed “to explain how molestation was the kind of act that Penn State employed Sandusky to perform.” But on April 9, 2015, Penn State trustees voted to approve a con- fidential settlement with “one or more” victims from the child sexual abuse scandal involving Jerry Sandusky.

As of 2015, the total amount that Penn State owed victims of the Sandusky child sexual abuse scandal was close to $93 million. An audit of the university’s financial statements for the 2015 year (ending June 30) revealed that Penn State had made new payments totaling $33.2 million that were all

148 UNIT ONE | Fundamentals of the Legal Environment of Business

related to the actions of Jerry Sandusky. The audit also indicated that Penn State had already paid or agreed to pay 32 claims relevant to this matter.7

Severe sanctions were also levied against the uni- versity by the NCAA, including (1) a fine of approx- imately $60 million, (2) exclusion from postseason bowl games for four years, and (3) a reduction in football scholarships. Additionally, the football pro- gram was stripped of all wins from 1998 through 2011 and the entire athletic program was put on pro- bation for five years.

Aside from paying the fine, Penn State has had to pay millions of dollars in investigation costs and has expended considerable resources in an attempt to rebuild its image.

Answer these Questions:

1.Coach Paterno said that he fulfilled his responsi- bility by reporting what he knew to the university management. Could he have done more? Should he have done more? If so, what specific steps should he have taken?

2. Who are the primary and secondary stakeholders in this dilemma?

3. Once the university administration became aware of the Sandusky allegations, what specific actions should it have taken?

4. Is it fair for current Penn State student-athletes to be affected by incidents that they had nothing to do with and that happened before many of them entered the university?

5. Did Coach Paterno and the university manage- ment demonstrate a commitment to their stated expectation, “Success with Honor”?

6. Was the cover-up intended to preserve the uni- versity’s reputation? Is that a justification for the university’s failure to act? Are there ever any cir- cumstances in which a cover-up is ethical? Can any ethical theory justify the university’s failure to act?