Chair Blasts SCRA in Resignation Letter, Report

February 10, 2011

Investigative Reports

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The NerveS.C. Research Authority Chairman Bill Masters’ resignation letter to Gov. Nikki Haley, submitted earlier this month, contains an accompanying report that paints a damning picture of the agency charged with leading South Carolina’s knowledge-based economy.

According to the eight-page report sent to Haley and obtained by The Nerve, Masters states that “SCRA has evolved over the past five years from a scientific research organization into a political organization using its core competency of data and information manipulation to market itself and benefit top management and its allies.”

SCRA is “run mostly for the benefit of its top management for monetary benefits and for exerting control and power;” is “exceptional at manipulating government contracts and data to pass audits;” and management “does not fully comply with the constitution of South Carolina in arms length handling of monies of affiliate SC Launch,” Masters also states.

In addition, his report asserts that in 2008 SCRA spent approximately $600,000 on an investigation directed mostly at Research Authority Chief Executive Office Bill Mahoney, performed mainly by SCRA’s law firm of choice (believed to be Nelson Mullins Riley & Scarborough), and paid for by SCRA funds.

“It is common knowledge of those close to SCRA that some of these alleged questionable dealings may concern some (SCRA board) trustees,” Masters states, indicating that the findings of the report have not been shared with the governor or the Legislature.

He also implied trustees of having “input into issues and decisions from which they benefit directly and/or indirectly without prior disclosure of their affiliations,” adding that trustees can freely support issues in discussion and only have to recuse themselves when it comes time to vote.

Among recommendations Masters includes in his report to improve SCRA and help it adhere more closely to its mission: Institute term limits for board members; break off affiliate SC Launch and place it other another state entity or make it independent; and record all board meetings electronically, to improve accountability.

When reached by e-mail, Masters declined to comment, stating the “report covers over 85 percent of the issues that need to be addressed.” Masters is remaining as chairman until a replacement is found.

Mahoney did not return calls from The Nerve seeking comment on Masters’ report.

The Legislature’s top four leaders – Senate President Pro Tempore Glenn McConnell, R-Charleston; Senate Finance Committee Chairman Hugh Leatherman, R-Florence; House Speaker Bobby Harrell, R-Charleston; and Dan Cooper, R-Anderson and the House Ways and Means Committee chairman – also did not respond to messages from The Nerve.

Haley spokesman Rob Godfrey did not get back to The Nerve before publication of this story.

SCRA is an amorphous entity, difficult for outsiders to understand, in part because of vague language and jargon employed by company officials. But in laymen’s terms, the Research Authority is, in essence, a state-created and controlled technology and real estate company.

SCRA specializes in applying research to commercial uses, but for the most part does not perform such technical work itself. Rather, the Research Authority acts much like a general contractor, winning bids on projects – many of them from federal agencies and the U.S. military – and bringing subcontractors and other partners together to execute the work outlined in its contracts.

SCRA’s planned role in South Carolina’s future was underscored in a July 2008 news conference in which Harrell, other legislative leaders and business executives unveiled a schematic aimed at making the knowledge economy happen in South Carolina.

Dubbed the “South Carolina Knowledge Economy Strategic Framework,” the economic development plan depicts a layered pyramid featuring higher education institutions, economic development entities and state agencies. The executive committee of the SCRA board sits atop the pyramid underneath “Ultimate Outcome: High-Paying Jobs.”

In conjunction with the news conference, the South Carolina Chamber of Commerce issued a release stating the economic development blueprint “was formulated by the collective efforts from legislative leaders, the South Carolina Research Authority (SCRA), our state’s research universities and private sector leaders.”

The release says Harrell, McConnell, Cooper and Leatherman explained the plan “in a letter sent to economic development contributors all over our state.”

‘Silos and Bureaucracy’

Despite being created by the General Assembly in 1983 with a gift of $500,000 and 1,400 acres of undeveloped land, and having received additional land grants since then, SCRA’s dominant culture today is one of secrecy and obfuscation, a culture that begins at the top, according to Masters.

Mahoney, Masters writes, is protected by some members of the agency’s executive committee board, and as such feels “confident in ignoring and dismissing many requests or directives of the governor’s envoy, the chairman, or of misstating issues openly to the chairman ….”

Masters’ tenure as SCRA chairman, which began in mid-2009, opened on a rocky note, though not because of difficulties with SCRA trustees or executives.

Gov. Mark Sanford appointed Masters, a retired Greenville businessman who holds more than 30 patents in boat design, plastic manufacturing, computers and heat transfer, to the Research Authority’s board of trustees in April 2009. As the governor’s appointee, he was automatically to serve as chairman.

But the following month, Harrell sponsored a state budget proviso to rescind the governor’s power to appoint the SCRA board chairman. Sanford vetoed the proviso, stating at the time that he believed some legislators wanted to keep Masters from being chairman because he would ask tough questions about the authority.

Once past that hurdle, though, Masters quickly began butting heads with many SCRA trustees and managers, owing in no small part to his desire to focus on transparency and accountability.

For example, earlier this year, Masters questioned a plan approved by the rest of the executive committee that would have boosted salaries of a significant number of SCRA employees.

The pay raises came as the result of a recommendation of Philadelphia-based management consulting firm the Hay Group.

Not only would SCRA officials not give reporters copies of the study following approval of the salary boost, but Masters himself said he was not allowed to keep a copy, either. He was able to review it during an SCRA Compensation Committee meeting, but management would not let him take it with him to review afterward, he said.

Masters believes that the problems he ran up against reflect SCRA’s culture.

The ability of any governor-appointed chairman to make effective changes within SCRA is limited because long tenure of trustees “fosters compromising and mutually supportive relationships which creates a de facto shadow board that sides with and does management’s bidding” and interferes with effective independence of the board’s decision-making process, he wrote in his letter to Haley.

Masters categorized SCRA’s culture as one of “silos and bureaucracy,” which does not bode well for “change in an organization charged with the new knowledge economy since accountability, transparency, and adaptability within a nimble learning organization is requisite if SCRA is to truly serve South Carolina in this capacity.”

Questionable Activity?

While Masters didn’t come out and explicitly accuse SCRA trustees or executives of criminal activity, it appears some actions violated the spirit of good corporate governance, including:

  • SCRA’s handling of assets, such as bequests of land by the state and state-assigned monies, are directed primarily to maximize top line and bottom line numbers in order to increase management largesse. This includes possibly selling or booking land to cover losses or increase profits.
  • SCRA charges overhead to South Carolina customers at a rate considerably higher than it charges for a large percent of its other contracts whose monies and jobs may not be South Carolina bound.
  • SCRA executive committee and top management controls 100 percent of the money given through the Industry Partners Act, rather than the contributions being controlled, as many believe, by SC Launch. The Industry Partners Act established the Industry Partners Fund. Donations to the fund, set up to provide working-capital seed grants to new technology companies, are good for a 100 percent, dollar-for-dollar credit against state taxes. Less than 50 percent of funds contributed actually finance the SC Launch entrepreneurial equity initiative; the rest goes to SCRA overhead, the universities or in some cases, other alliances, Masters stated.

Masters’ report includes a number of recommendations for what he sees as needed reforms at SCRA.

He thinks SC Launch should be removed from SCRA and either placed under the S.C. Department of Commerce or made a stand-alone agency, in order to allow it to more efficiently invest in South Carolina’s entrepreneurs.

Masters writes that it’s in the best interest of the agency to institute term limits for board members, and set the limit at two three-year terms; and he says the board should be mandated to meet at least eight times a year, with six mandatory face-to-face meetings. At present, SCRA management spends approximately nine hours or less per year in board meetings, too little time for effective oversight of such a complex organization.

Masters believes it’s crucial SCRA develop an honor code that specifically states that no trustee derive any economic benefit from SCRA board membership, directly or indirectly.

To boost transparency and accountability, he states that all board meetings should be recorded electronically and draft minutes should be made available to board members within a week. This, Masters writes, would eliminate the ability to recreate minutes between meetings to support management’s goals for the next meeting.

He also contends that a governor-appointed task force should be appointed to investigate employee turnover and ensuring that management policies are applied fairly and consistently while examining diversity and minority hiring practices and treatment, with recommendations made to the organization.

Finally, Masters believes it’s imperative that SCRA be forced to acknowledge on its website that the agency does get taxpayer money and that it show transparently to South Carolinians how it uses that money.

Reach Dietrich at (803) 779-5022, ext. 110, or kevin@thenerve.org.