Four critical questions on NCInnovation’s governance and the state budget
It is state budget season down on Jones Street in Raleigh, and numerous large dollar amounts are floating back and forth between chambers at the North Carolina General Assembly. One number has caught the business community’s attention — a $1.4 billion allocation in the state Senate’s budget to go to a non-profit organization called NCInnovation.
A press release from NCInnovation says the funds will be used “to improve applied research outputs at UNC System schools and to help commercialize the results of that research, particularly in regions outside the state’s urban centers.”
The allocation to NCInnovation and the organization itself, chaired by retired Truist Financial Corp. CEO Kelly King, raises healthy discussions about the proper place of universities in research, a transition from high research to applied research, and where state government fits into those calculations.
However, looking at the Senate’s legislation, I have four critical questions about the governance structure for an organization that could receive such a large public (read: taxpayer dollars) investment.
First, why are the state Department of Commerce and the executive branch excluded from this board of directors? The board of NCInnovation is to comprise 13 members. The leaders of the General Assembly — the Speaker of the House and the President Pro Tempore of the Senate — will get eight appointments to the board of directors. The executive branch of state government is excluded.
I am no apologist for the Cooper Administration, but I am skeptical of amassments of political power. This concentration of legislative power raises concern about the separation of powers, as the General Assembly will significantly influence NCInnovation’s decisions, considering its majority presence on the board. Excluding the executive branch is a concerning deviation from the usual oversight process, particularly related to economic development organizations. For example, the Golden Leaf Foundation and the Economic Development Partnership of North Carolina receive board appointments from the General Assembly and the governor. The governance structure should allow for a fair balance of power to avoid undue influence and maintain accountability.
Second, why are there no Environmental, Social, and Corporate Governance (ESG) investment guardrails in the legislation, especially when the majority of the board will be determined at the will of the General Assembly, regardless of which party is in power?
Conservatives have expressed concern about companies’ emphasis on ESG investing at the expense of return on investments. While the Senate’s version of the state budget mentions NCInnovation reporting on investments and equity stakes to the General Assembly, there are no ESG investment guardrails in the legislation. It’s possible that, in the future, political considerations may outweigh financial prudence. The lack of investing guardrails raises concerns about the organization’s future mission, accountability, and transparency.
Third, how will NCInnovation guarantee research collaboration with North Carolina’s public universities? Currently, the university chancellors of East Carolina, NC A&T, UNC Charlotte, and Western Carolina are all on the current NCInnovation board of directors, along with the University of North Carolina System President Peter Hans, which makes sense if the goal is to “improve applied research outputs at UNC System schools and to help commercialize the results of that research.”
However, the Senate legislation says that for NCInnovation to receive and retain the $1.4 billion, it must guarantee that any “officer, employee, or member of a governing board of NCInnovation is not a State employee.” In other words, all five current university executives will have to come off the board, and no one on the future board can be employed by a North Carolina public university. It isn’t easy to understand how collaboration will happen without the board of directors involved on both sides of the equation.
Finally, the Senate budget legislation states, “NCInnovation is not subject to the Open Meetings Law as provided in Article 33C of Chapter 143 of the General Statutes and the Public Records Act as provided in Chapter 132 of the General Statutes.” Why will NCInnovation not be subject to North Carolina’s open meetings or public records laws?
Open meetings and open records laws for organizations receiving funding from state governments are critical in maintaining transparency and accountability. They allow citizens to track the decision-making process of state-funded organizations and hold them accountable for their actions. These laws create transparency and accountability and mitigate the risk of fraud, waste, and abuse. If state lawmakers appoint 62% (eight of 13) of the board of directors, and taxpayers are providing $1.4 billion as an endowment, then citizens deserve to know what is happening with their hard-earned money.
NCInnovation is seeking to undertake a herculean task that has laudable goals. However, it is critical to ensure that governance structures are well thought out to ensure transparency, accountability, and public success. Taxpayers and legislators need answers to these four critical questions before leaping to such a significant investment.