First, this was
not an attempt to
fire Paterno. It was an attempt to get him to leave voluntarily. Spanier and Curley were unwilling to pay the price of Paterno not raising funds anymore.
The thing was, the reason they wanted Paterno to retire was that he had several losing seasons, at that point. Six months after that meeting, Paterno said, "'If we don't win some games, I've got to get my rear end out of here. Simple as that.''
http://www.gainesville.com/article/20050514/GATORS20/50514005 Looking at the context, Paterno knew that either had to win or leave. He had a great season, and the pressure was off.
Second, you are confusing political clout with administrative authority. Spanier could have easily said, in 2004, "Well, Joe, you are destroying the football program, and even your fundraising won't make up for it. You retire, or you will be fired."
There was that thought out there at the time:
http://www.athlonsports.com/college-football/joe-paternos-last-stand Spanier
always had that ability, but lacked the will to use it. Now, with 20/20 hindsight, Paterno was right. 2005 was a great season. The football program continued to be a moneymaker; Paterno continued to raise funds. If, at the end of 2005, Paterno would have had another losing season, all of Paterno's clout would not have saved him.
Had there been strong opposition from Paterno about reporting Sandusky to DPW in 2001, that would have been the same situation (and there is no suggestion that there was
strong opposition). Spanier, Schultz and Curley still the authority to order it reported. The administrative responsibility rested with them, not with Paterno.
No, if they felt that a subordinate was not acting properly or successfully, they either should have ignored his advice or fired him.