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USA Cycling retroactively absolves Ochowicz in conflict-of-interest case

USA Cycling board president Jim Ochowicz’s failure to properly disclose details of a financial relationship with a sponsor of the national governing body does not constitute a conflict of interest, USAC’s board of directors has decided.

While concluding that Ochowicz’s paid consulting services with Zürich World Cup promoter Upsolut do not constitute a conflict, the panel has also noted that he had violated the letter of USA Cycling rules by not formally requesting the board’s approval.

In an August letter (posted below), John Tarbert, then board vice president, acknowledged that Ochowicz had notified USA Cycling staff – most notably former chief executive officer Lisa Voight and chief operating officer Sean Petty – that he was paid to help BMC assume title sponsorship of the UCI’s World Cup event in Zürich. USA Cycling’s bylaws, however, require that its full board of directors review such arrangements.

Prior to the arrangement, BMC had an established sponsorship agreement with USA Cycling. Because of that contract, BMC approached USA Cycling in early 2002 about helping it secure an event sponsorship in Europe. According to USA Cycling board member Mick Hellman, Petty initially asked Ochowicz to lend BMC a hand.

“This is the sort of thing Och’ does for a living and he said he expected to be paid for it,” Hellman said. “Lisa and Sean said, ‘Fine.’”

The result was a contract involving USA Cycling, BMC and Zürich World Cup promoter Upsolut.

Six months after current CEO Gerard Bisceglia took over the post, he learned of the arrangement and voiced his objection.

“I asked Jim about it and he was open about the details,” said Bisceglia. “I said I wasn’t comfortable with that sort of arrangement and let him know how I felt and that I wasn’t going to approve of that in the future.”

A year later, Bisceglia learned that simply objecting to such arrangements wasn’t adequate under USA Cycling rules. After seeking legal counsel on the matter, he referred it to the full board of directors for review.

In 2003, Ochowicz also filed a brief disclosure of the arrangement in USA Cycling’s annual 990 form, an IRS report required of non-profit organizations. Ochowicz also made note of an ongoing consulting arrangement he has with the Phonak professional cycling team.

Hellman said rules require such notification of a potential conflict to be filed almost immediately after such an arrangement is established.

“But in practice, the board has never spent a lot of time going over the exact procedure,” Hellman said. “That’s why only now we are retroactively approving the contract, because before no one really knew just what the procedure should be.

“The assumption was that as long as the CEO of USA Cycling knew about it that it was okay. It was also assumed that the CEO would take responsibility for bringing the issue to the board in the event of a conflict … which is also the impression I had.”

The letter of the law
According to Hellman, chief financial officer Todd Sowl pointed out that USA Cycling bylaws define the arrangement as a conflict and that as such it needed the approval of the board of directors.

“It’s not enough to simply provide disclosure,” Hellman said. “It actually needs prior approval.”

On the advice of an attorney, Bisceglia notified the board, and then the board asked attorney Dan McCloud to serve as outside counsel in the matter, a service Hellman says the attorney performed pro bono.

McCloud concluded that no conflict existed and recommended that the board approve Ochowicz’s arrangement with Upsolut. Nonetheless, Hellman said the case raised several questions about conflicts of interest and how the board should handle them.

“We can’t have people not understanding what these procedures are,” Hellman said. “That’s just a recipe for future problems, and that’s not a risk we want to take. So we are spending time as a board getting oriented on the conflict question, so that we can avoid a situation like this again.

“Having done that, we see now that there are still some areas of ambiguity in the rules, so we are putting together another group on the board to look at those ambiguities. One example is to clarify who is responsible for approving the personal expenses of the CEO and the president of the board. Obviously, you don’t want a situation where they are approving each other’s expenses, because there is potential for ‘back-scratching.’”

Hellman said that he and other board members are uncomfortable with having the organization’s CEO decide which disclosures need to be reviewed by the board of directors. As an alternative, Hellman suggests that the board may put a subcommittee in charge of reviewing disclosures, again to avoid the potential for conflict of interest.

“My guess is that people are willing to take the transparency thing up to a point,” Hellman said. “That would mean making the disclosure forms available to the public. One question still out there is whether people should be required to disclose the dollar amounts associated with a potential conflict.

“Some argue that the question should only revolve around the relationship and whether a conflict exists at all. The other point of view is that knowing the dollar figure can help in clarifying which conflicts are significant and which are not. I mean, people probably don’t care if there is a conflict involving six dollars. They probably care a lot if there is a conflict involving $600,000. Some argue that the dollar figure should be attached to the disclosures. Others argue that it should not in that it’s really not anyone’s business. That hasn’t resolved and hasn’t yet been decided.”

What about Phonak?
However the Upsolut case is resolved, it also raised questions about Ochowicz’s ongoing role as a consultant to the Phonak cycling team. Critics have suggested that Ochowicz’s six-figure consulting relationship with the Swiss-based pro team also holds potential for conflict.

“It didn’t come up in this case,” Hellman said. “The point is that the promotions agreement is subject to greater scrutiny than his arrangement with Phonak because the BMC deal involved a USA Cycling sponsor. BMC had a contract with USA Cycling. That’s where the conflict lay. He was paid to facilitate that arrangement and that’s why it needed to be reviewed by the board. Phonak, meanwhile, is not a USA Cycling sponsor and the overlap isn’t there. “The question one asks in that case – if you think about it from a governance standpoint – is where his role as director or even as president of USA Cycling would be compromised in return for something good happening to his own pocketbook for the Phonak relationship. To me, that relationship is indicative of the problem we have as a board in general. It’s not just Och’. Virtually everyone on this board has some sort of financial stake in the sport.”

Indeed, Hellman doubts that anyone without an interest in the sport would want to become involved in USA Cycling and its board.

“It’d be wonderful in an ideal world to have a board of volunteer directors, who out of the goodness of their hearts were doing this and could spend all sorts of time on it,” he said. “In reality, we’re never going to have that. No NGB is going to have that.”

The following letter was sent to USA Cycling president Jim Ochowicz by vice president John Tarbert on August 9, 2004.

August 9, 2004Dear Jim Ochwicz;On July 27, 2004 and August 9, 2004, the Board of Directors, not includingyou, of USA Cycling Inc., met by  conference call to discuss yourcontract with Upsolut as it relates to the Upsolut/USAC/BMC event sponsorcontract for the Zurich World Cup.The Board found the subject contract between Upsolut and USAC for thebenefit of of BMC’s sponsorship to be not only on fair and equitable termsas to USAC and BMC, and consistent with the terms of other similar sponsorshipagreements, but in fact, the terms were very favorable to USAC and BMC.It is undisputed that disclosed your proposed agreement with Upsolutand intent to be compensated for facilitating the USAC/Upsolut agreementto USAC staff, including the previous and current CEO. The Board foundthat your disclosure to staff reflects your intent to disclose to USACas an organization, your intended agreement with Upsolut.As you are now aware, USAC has certain policies, procedures and bylawprovisions that govern your arrangement with Upsolut. However, the Boardhas further found that all such policies, procedures and bylaw provisionsshould be reviewed, clarified and modified as necessary to assure thatin the future, all individuals subject to the disclosure requirements havefull knowledge and understanding of their disclosure obligations.Having found that the sponsorship contract you facilitated with Upsolutto be of great benefit to the USAC and BMC and that you did make an effortto fully disclose your proposed agreement the Board voted to ratify andapprove your agreement with Upsolut as of the date you disclosed it toUSAC staff in advance of you entering in to it with Upsolut.This letter is approved by the Board of Directors of USA Cycling.Sincerely,John F. Tarbert (Signing for the board)
Vice-President, USA Cycling

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