Princess Health and John Stossel Discovers Health Care Dysfunction, Blames it on "Socialists" - Like Maurice Greenberg (AIG), John Thain (Merrill Lynch), Sanford Weill (Citigroup), and David H Koch? . Princessiccia

Princess Health and John Stossel Discovers Health Care Dysfunction, Blames it on "Socialists" - Like Maurice Greenberg (AIG), John Thain (Merrill Lynch), Sanford Weill (Citigroup), and David H Koch? . Princessiccia

boards of trustees bureaucracy finance generic managers managerialism New York - Presbyterian Hospital

Gusty 19:47 Add Comment

We have been ranting for a while about the dysfunctionality of the US health care system.  Unfortunately, many people only realize how bad things are when they become patients, when they have bigger things to worry about than complaining.   Furthermore, even if they complain, many patients may not feel they understand enough about what has gone wrong to suggest solutions.

Bad Customer Service at New York Presbyterian

This may not apply when media pundits, especially those with strong ideological views, become patients.  So this week Fox News commentator and well known libertarian John Stossel disclosed his new illness, and vented his opinions about his hospital stay.   Mr Stossel unfortunately developed lung cancer, although he was optimistic about his prognosis: "My doctors tell me my growth was caught early and I'll be fine. Soon I will barely notice that a fifth of my lung is gone."

However, he was not happy about his hospital's customer service:

But as a consumer reporter, I have to say, the hospital's customer service stinks. Doctors keep me waiting for hours, and no one bothers to call or email to say, 'I'm running late.' Few doctors give out their email address. Patients can't communicate using modern technology.

I get X-rays, EKG tests, echocardiograms, blood tests. Are all needed? I doubt it. But no one discusses that with me or mentions the cost.

Also,

I fill out long medical history forms by hand and, in the next office, do it again. Same wording: name, address, insurance, etc.

And,

In the intensive care unit, night after night, machines beep, but often no one responds. Nurses say things like 'old machines,' 'bad batteries,' 'we know it's not an emergency.'

Finally,

Some of my nurses were great -- concerned about my comfort and stress -- but other hospital workers were indifferent.

Unfortunately, long wait times, poor communications, excess paperwork, and misapplied technology are all too familiar problems to those in the health care system.

Moreover, this all was happening at one of the most highly rated US hospitals, 

After all, I'm at New York-Presbyterian Hospital. U.S. News & World Report ranked it No. 1 in New York.

Were "Socialist Bureaucracies" Responsible?


Mr Stossel had his own ideas about the causes of these problems. 

Customer service is sclerotic because hospitals are largely socialist bureaucracies. Instead of answering to consumers, which forces businesses to be nimble, hospitals report to government, lawyers and insurance companies.

Whenever there's a mistake, politicians impose new rules: the Health Insurance Portability and Accountability Act paperwork, patient rights regulations, new layers of bureaucracy...

Also,

Leftists say the solution to such problems is government health care. But did they not notice what happened at Veterans Affairs? Bureaucrats let veterans die, waiting for care. When the scandal was exposed, they didn't stop. USA Today reports that the abuse continues. Sometimes the VA's suicide hotline goes to voicemail.

Patients will have a better experience only when more of us spend our own money for care. That's what makes markets work.

A "Socialist Bureaucracy" with a VIP Penthouse?

I am sorry to hear Mr Stossel has lung cancer, and hope that his prognosis is indeed good.  I am a bit surprised that a media celebrity who became a patient found big issues with "customer service" at such a prestigious hospital.  After all, many big hospitals have programs to give special treatment to VIPs (for example, see these posts from 2007 and 2011).

In particular, back in 2012 we posted about the contrast between the VIP services specifically at New York - Presbyterian Hospital and how poor patients are treated there.  Then we quoted from a 21 January, 2012 article from the New York Times focused on the ritzy comforts now provided for wealthy (but perhaps not very sick) patients at the renowned New York Presbyterian/ Weill Cornell Hospital.  It opened,

The feverish patient had spent hours in a crowded emergency room. When she opened her eyes in her Manhattan hospital room last winter, she recalled later, she wondered if she could be hallucinating: 'This is like the Four Seasons � where am I?'

The bed linens were by Frette, Italian purveyors of high-thread-count sheets to popes and princes. The bathroom gleamed with polished marble. Huge windows displayed panoramic East River views. And in the hush of her $2,400 suite, a man in a black vest and tie proffered an elaborate menu and told her, 'I�ll be your butler.'

It was Greenberg 14 South, the elite wing on the new penthouse floor of NewYork-Presbyterian/Weill Cornell hospital. Pampering and d�cor to rival a grand hotel, if not a Downton Abbey, have long been the hallmark of such 'amenities units,' often hidden behind closed doors at New York�s premier hospitals. But the phenomenon is escalating here and around the country, health care design specialists say, part of an international competition for wealthy patients willing to pay extra, even as the federal government cuts back hospital reimbursement in pursuit of a more universal and affordable American medical system.

Additional amenities include:

A waterfall, a grand piano and the image of a giant orchid grace the soaring ninth floor atrium....

Also,

the visitors� lounge seems to hang over the East River in a glass prow and Ciao Bella gelato is available on demand....

An architect who specializes in designing such luxury facilities for hospitals noted:

'These kinds of patients, they�re paying cash � they�re the best kind of patient to have,' she added. 'Theoretically, it trickles down.'

It appears that someone failed to book Mr Stossel into the penthouse.  Instead, he found out what service was like for the masses.

Perhaps this was why Mr Stossel railed at the "socialist bureaucracies" he perceived as running New York - Presbyterian Hospital.  However, calling the hospital management "socialist" seems - not to put too fine a point on it - wrong.

A "Socialist Bureaucracy" Paying Millions to its CEOs?


First of all, New York Presbyterian is hardly a government agency.  It is a private, non-profit corporation.  Every year as such it files a form 990 with the dread US Internal Revenue Service. (The latest publicly available version is from 2013, here.)  Obviously, US government agencies do not file with the IRS.


In fact, the New York Presbyterian system seems about as far from a federal government agency as one can imagine.

First, its top managers are paid like for-profit corporate executives.  In 2014, we posted about the humongous compensation given to its previous, long-serving CEO, Dr Herbert Pardes, who received multi-million dollar compensation every year through his 2011 retirement, and then continued to receive several million a year from the system in his retirement.  His successor, current CEO Dr Steven Corwin, received $3.6 million in 2012.  (More recent compensation figures are not yet available.)

A "Socialist Bureaucracy" Dominated by Managers, with Stewardship by Top Financial Executives, and one of the Koch Brothers?

The current leadership of New York Presbyterian is dominated by businesspeople, not physicians, nurses, or other health care professionals.  Only 10 of 33 listed senior leaders are health care professionals.  The rest have administrative/ management or legal backgrounds and training.  Many appear to be generic managers, that is, people with background and experience primarily in administration or management, but not in medicine, health care, public health, etc.


The hospital system's board of trustees was and is filled with some of the top business executives in the US, including some finance executives who have been cited as responsible for the global financial collapse/ great recession.

For example, we wrote about Mr Dick Fuld, a trustee until recently.  Mr Fuld was the CEO who presided over the bankruptcy of Lehman Brothers, which heralded the beginning of the great financial crisis/ great recession of 2008 onward.  Mr Fuld seemed to lack the sort of compassionate approach one might expect from someone charged with the stewardship of a big hospital system.  He had once publicly said about those who sold Lehman Brother stock short: "what I really want to do is I want to reach in, rip out their heart, and eat it before they die."



Another recently retired board member was Sanford I Weill, architect of the mergers that created the now federally bailed out Citigroup.  In 2014, we posted about how Mr Weill, contemplating retirement from the board of trustees of Weill Cornell Medical School, one of the two medical schools with primary affiliations with New York Presbyterian, managed to bequeath his board seat to his daughter, Ms Jessica Bibliowicz, also the CEO of a finance firm, National Financial Partners.  Ms Bibliowicz now also seems to have Mr Weill's seat on the New York Presbyterian board. 

Also, still on the board are two top finance CEOs who have been blamed for the global financial collapse.  These are  Maurice R Greenberg of the federally bailed out AIG, and John A Thain, CEO of the nearly collapsed Merrill Lynch (merged into Bank of America).  See this post for more information about their roles in the global financial collapse.

Finally, one other board member is David H Koch, described by Wikipedia

Koch is an influential libertarian. He was the 1980 candidate for Vice President of the United States from the United States Libertarian Party and helped finance the campaign. He founded Citizens for a Sound Economy. He and his brother Charles have donated to political advocacy groups and to political campaigns, almost entirely Republican

With socialists like these ...?   

Summary

I do not doubt that John Stossel found the customer service at New York Presbyterian not up to his expectations.  And I actually have no doubt that New York Presbyterian has to operate within a complex health care system in which government bureaucracy plays a large role, and sometimes a counter-productive one.  Furthermore, I have no doubt that the management of New York Presbyterian is very bureaucratic, and this may in part may be a reason for poor customer service, and other failings.

However, to say that the management and governance of the hospital system is "socialist" is dead wrong.  In fact, like many other large health care organizations, the New York Presbyterian system appears to be run largely by "managerialists," that is generic managers who have little experience or background in health care, may have little understanding or sympathy for its values, and approach health care with the same management techniques that might be applied to selling soap powder.  Furthermore, the stewardship of this particular hospital system seems to be largely up to some of the biggest, and loudest "capitalists," and one of the most prominent "libertarians" in the US.

But to someone with a hammer, most problems look like nails.

Maybe Mr Stossel needs to complain to Mr Koch.

In conclusion, I am glad that some of the problems in the dysfunctional US health care system are getting more public attention.  However, now we need to calmly and rationally consider what is causing them and what to do about them without the blinders of ideology or vested interests. 

IMHO, true US health care reform would put the operation of US health care organizations more in the hands of people who have knowledge and experience in health care, and are willing to be accountable to support health care professionals' values.  Furthermore, oversight and stewardship of these organizations should represent the patients and public which the organizations are supposed to serve. 

Princess Health and Generic Management of Health Care Non-Profits, Brought to You by Leaders of (Sometimes Failed, or Bailed Out) Finance on the Board?. Princessiccia

Princess Health and Generic Management of Health Care Non-Profits, Brought to You by Leaders of (Sometimes Failed, or Bailed Out) Finance on the Board?. Princessiccia

boards of trustees finance generic management generic managers managerialism

Gusty 13:55 Add Comment

Introduction - Managerialism

 We have frequently posted about what we have called generic management, the manager's coup d'etat, and mission-hostile management. Managerialism wraps these concepts up into a single package.  The idea is that all organizations, including health care organizations, ought to be run people with generic management training and background, not necessarily by people with specific backgrounds or training in the organizations' areas of operation.  Thus, for example, hospitals ought to be run by MBAs, not doctors, nurses, or public health experts.  Furthermore, all organizations ought to be run according to the same basic principles of business management.  These principles in turn ought to be based on current neoliberal dogma, with the prime directive that short-term revenue is the primary goal.

One Explanation - Finance Leaders Ascendant on the Boards of Health Care Non-Profits

I just found a useful article that provides one explanation for the rise of managerialism in health care non-profit organizations.  It postulated that the increasing prevalence of leaders of finance firms on the baords of trustees of such organizations led to increasingly managerialistic leadership.

Thanks to a link from Naked Capitalism to a post on ShadowProof that led to an article in the Stanford Social Innovation Review by Garry W Jenkins, entitled, "The Wall Street Takeover of Nonprofit Boards."  It described a study of the membership of the boards of 23 of "the nation's leading private research universities," most of which have medical schools and academic medical centers, and all of which have major biomedical and/ or health care research operations, as well as leading liberal arts colleges and large New York City non-profit organizations, including a few hospitals.  (We will restrict our discussion of the quantitative results to the former group of leading universities.)

The most important result was that 40% of trustees of the universities in 2014 "had a substantial professional career in finance," up from 19% in 1989.  Futhermore, in 2014, 56% of university board leadership positions were held by people from finance, up from 26% in 1989.   The author noted that the prevalence of people from the finance sector on university boards was far bigger than their prevalence in the population.  Only 6% of the private non-farm workforce in the US was in finance in 2012.

The author summarized his findings:

Over the past twenty-five years the compostion of the boards at some of America's most important nonprofit organizaI I has dramatically changed. Without much notice, a legion of Wall Street executives (investment bankers, hedge fund managers, and others) has taken a growing number of seats in nonprofit boardrooms. Not only that, they hold a disproportionate share of the leadership positions on these boards.

He then linked the increasing dominance of non-profit governance to the increasing tendency of these organizations to be run like for-profit businesses, that is, the rise of "managerialism."

Scholars and practitioners have documented various pressures placed on nonprofit organizations by donors and private foundations to adopt business approaches.

Although some of the pressure to adopt business approaches has come from external forces, it may also be true that the concepts and norms of philanthrocapitalism are also now carried into nonprofit organizations by the directors of public charities themselves.

He then provided a much more detailed discussion:

As financiers come to dominate the boards of leading nonprofits, it is not surprising that their approaches and priorities have made their way, very explicitly and fundamentally, into the governance of the nonprofit sector. Practices such as data-driven decision-making, an emphasis on metrics, prioritizing impact and competition, managing with three- to five-year horizons and plans, and advocating executive-style leadership and compensation have all become an essential part of the nonprofit lexicon.

Nonprofit leaders regularly hear about these finance practices from board members and donors whose native habitat is the financial services world. Moreover, nonprofit managers have come to accept them as reasonable principles upon which donors base their giving. More often than not, organizations are also expected to incorporate these principles in the management of the not-for-profit enterprises for which managers and boards share responsibility.

Although many of these business approaches may strengthen nonprofit capacity, we should also be mindful of the ways in which these same tools can morph into pathologies, ignore the costs or trade-offs associated with extending business thinking to the charitable sector, or distort organizational priorities. Numerous critics have written thoughtfully about the ways in which market-based thinking and approaches applied to the nonprofit sector provide false promise, with the potential to dilute charitable values, undermine long-term mission focus, incentivize small, incremental goals, and threaten shared governance and other forms of participatory problem-solving.

Beyond leading to the borrowing of financial concepts and tools in the boardroom, the rise in the number of nonprofit directors with ties to finance may also contribute to deeper changes in the underlying institutional values and motivations, a trend that economic sociologists refer to as the financialization of the nonprofit sector.

Financialization describes a spread of financial logics, influence, and strategies into new fields and organizations in ways that transform the culture, policies, and values of institutions.  Indeed, wealthy nonprofits-like colleges, universities, and museums-have long engaged with financial markets as endowment investors, but the scope and scale of today's nonprofit borrowing, aggressive debt financing, securitization transactions, and complex real estate transactions is unprecedented. Such shifts may affect the organization's strategic direction and orientation in a number of ways, including directing board and management attention to debt service, incentivizing organizations to invest resources on activities that return higher profit margins to cover debt service, elevating the centrality and importance of financial managers in strategic planning and decision-making, and increasing the need for and power of senior staff well versed in complex financial instruments.

The list of practices above and the description of financialization sound very much like standard operating procedures of generic management which we have previously described.  The discussion of pathologies above sounds similar to our discussions of how managerialism distracts from or undermines the mission.


The one quibble I have with Jenkins' discussion is that it puts almost the entire onus on the financial leaders on the boards of trustees, rather than the top managers of the organizations.  It may be that increasingly financialized boards hire increasingly generic managers, but there may be a symbiosis between the two groups.

So Jenkins' conclusion seems reasonable:

if boards are to operate as designed, and if they are to be maximally effective, then the composition of nonprofit boards must be more diverse and not dominated by financiers. 

But the problem of financial sector domination of health care non-profit boards may be even worse than that Jenkins describes.

The Dark Side of Finance

Even though Mr Jenkins is concerned about excess of influence of too many financially oriented people on the boards of non-profits, he is quite respectful of those in the finance field. "Individual finance professionals do bring skills, wisdom, and other positive attributes to nonprofit boards."  He also wrote, "This is not to say that finance professionals care less (or more) about a nonprofit organization or its mission.  Nor do I believe that all finance professionals think alike."  Many finance professionals may be very well-intentioned, of course.  But Jenkins seems to thus ignore the dark side of finance's recent history.

Finance firms are certainly known for the use of "financial logics, influence and strategies," and the employment of specific practices.  However, after 2008, they were also known for dangerously slipshod, if not unethical, sometimes corrupt management.  


In 2008, the global financial collapse/ great recession reshaped the global economy, and has been linked to the stagnation of the middle class and growth of plutocracy.  There have been numerous discussions of the role of the leadership of financial organizations in these events.  The blog Naked Capitalism has been covering these issues from the global financial collapse to the current day.  Some of the very many excellent sources on this era include the movie Inside Job,



and books such as Predator Nation by Charles Ferguson, 13 Bankers by Simon Johnson and James Kwak, and Bailout Nation by Barry Ritholtz.

A chapter in Predator Nation was entitled "Crime and Punishment: Banking and the Bubble as Criminal Enterprises.  In it, Mr Ferguson noted the following list of

prosecutable crimes committed during the bubble, the crisis, and the aftermath period by financial services firms ...

Securities fraud (many forms)
Accounting fraud (many forms)
Honest services violations (mail fraud statute)
Bribery
Perjury and making false statements to federal investigators
Sarbanes-Oxley violations (certifying false accounting statements)
RICO offences and criminal antitrust violations
Federal aid disclosure regulations (related to Federal Reserve loans)
Personal conduct offenses (many forms: drug use, tax evasion, etc)

Most of these never led to prosecution in an era of the revolving door and exceedingly lax law enforcement of actions by big corporations ("too big to jail")  Yet Ferguson argued for investigation of possible illegal acts by many large companies, and specifically named Citigroup, AIG, Lehman Brothers, Goldman Sachs, JP Morgan Chase as worthy of investigation.

Many of these organizations' leaders also were on the boards of health care organizations. Since 2008, we began noting that the governance of prominent health care non-profits was often dominated by finance firms, including those implicated in the 2008 collapse, although our observations were case-based, not quantitative.  The concern was not simply that health care organizations were being led into generic management and "managerialism," but that that the incompetence, unethical behavior, and corruption in the finance sector could cause equally bad problems in health care.  We have no systematic proof of that, but consider some of our more colorful cases, which include leaders of the financial firms named by Mr Ferguson...


2008

What Linked the Parallel Declines of Citigroup and the Harvard University Endowment? - In 2008, the collapse of the value of the Harvard endowment occurred on the watch of Harvard Corporation (board of trustees) members half of whom were leaders of big finance firms.

The Leadership of an Elite American University - Brought to You by the People Who Brought You the Global Financial Collapse - Six of the seven "charter trustee" members of the board of Dartmouth College who led a crusade, facilitated by packing the board with self-appointed as opposed to alumni elected members, to discredit elected board dissidents were leaders of big finance firms. Of the six new people whom they packed on as "charter trustees," half were also leaders of such firms.

2009

Hedge Fund U - Bernie Madoff, the supposed finance wizard who went to jail for a huge Ponzi scheme was on the board of Yeshiva University. The chairman of the board's finance committee was Ezra Merkin, a hedge fund operator who ran a "feeder" operation for Madoff's Ponzi scheme.

A Board of Trustees, or a Social Club for the Superclass? - Of the 29 non-physician board members of the Hospital for Special Surgery, 23 had major relationships with, and many of these had leadership roles in finance firms, including such bailed out, too big to fail firms as AIG, Bank of America, Citigroup, Goldman Sachs, JP Morgan Chase, and Wachovia.

2010

Members of the Board of Now Bankrupt Lehman Brothers as Leaders of Health Care? - Members of the board of Lehman Brothers, whose failure was related to the onset of the financial crisis, also served on the boards of Vanderbilt University, the American Red Cross (as CEO), New York - Presbyterian Hospital, New York University, and Tel Aviv University.

A "Very Well Paid Boob" on the Harvard Corporation? - the university's governing board included one of the architects of the overgrowth of Citigroup, which had to be bailed out, and also of the deregulation of finance which allowed the company to be too big to fail.

Failed Leaders of Citigroup as Leaders of Health Care - The bailed out Citigroup board of directors also served on the boards of trustees of Johns Hopkins Medicine, Health System and Hospital, Brown University, Tufts University, Columbia University, Howard University, the Rockefeller Foundation, Harvard (as mentioned above), and Cornell University. 

2012

New York - Presbyterian Hospital Trustee Advocated Novel Cardiac Procedure - "Reach In, Rip Out Their Heart, and Eat It Before They Die" - Richard Fuld, the former CEO of Lehman Brothers, whose failure was related to the onset of the crisis, and who once advocated, presumably only symbolically, eating the hearts of his financial competitors, was on the board of the prestigious hospital.

2014

The Medical School as Hereditary Plutocracy - Retiring Board Chair Sanford Weill of Cornell Weill Medical School Names His Own Daughter as New Chair - the board chairmanship of the medical school went from the former CEO and chairman of the bailed out, too big to fail Citigroup (see above) to his daughter, who runs her own finance firm.

Yet outside of a few grumpy bloggers, the continuing presence of leaders of too big to fail, too big to jail, often bailed out financial firms on the boards of some of our most notable health care organizations and universities has attracted almost no comment, and less concern.


Summary

The continuing dysfunction of US health care, with ever rising costs, stagnant quality, and still inadequate access, is well known.  There is constant loud argumentation over "Obamacare."  (Congress just passed a repeal of it, which the president has threatened to veto.)  Yet there is little in depth discussion or inquiry about what is really going wrong.  The really unpleasant issues rarely surface in polite discussion.  We have called this aversion to direct discussion of big problems the anechoic effect.

So I hope that there is more discusison of who gets to lead health care organizations, and who gets to sit on the boards that exercise stewarship over them.  We need far more light shined on who runs the health care system, using what practices, to what ends, for the benefits of whom.

True health care reform would enable transparent, honest, accountable governance and leadership that puts patients' and the public's health over ideology, self-interest, and self-enrichment.

Princess Health and The Medical School as Hereditary Plutocracy - Retiring Board Chair Sanford Weill of Cornell Weill Medical School Names His Own Daughter as New Chair. Princessiccia

Princess Health and The Medical School as Hereditary Plutocracy - Retiring Board Chair Sanford Weill of Cornell Weill Medical School Names His Own Daughter as New Chair. Princessiccia

boards of trustees Citigroup finance medical schools Weill Cornell Medical College You heard it here first

Gusty 13:08 Add Comment

As I have written before, sometimes you just could not have made this stuff up.

The Retiring Board Chairman Appoints His Own Daughter to Succeed Him

The most even handed reporting on this story was in Inside Higher Ed,

Leadership of the board that oversees Cornell University�s medical college is passing from father to daughter, an unusual transition of power for a higher education board.

Weill Cornell Medical College�s Board of Overseers has been chaired for the past two decades by its namesake and major donor, Sandy Weill, the former CEO of Citigroup.

His daughter, Jessica Bibliowicz, is now set to take over Weill's role. She is the founder and former CEO of a major insurance brokerage, and has also been on the board for a decade.

Let me just dissect this a bit.  Weill Cornell Medical College is a large, prestigious medical school located in New York City, and part of Cornell University.  The chair of its Board of Overseers for the last two decades as been one Sanford I Weill.  Mr Weill is a famous finance executive, formerly CEO of Citigroup from 1998 - 2003, remained chairman of the board of Citigroup through 2006, and is now chairman emeritus (look here). 

According to a Cornell press release, the new chairperson, ms Jessica Bibliowicz, is a

Cornell University graduate in 1981 and after working 18 years in financial services, Ms. Bibliowicz became CEO of National Financial Partners in 1999, a financial services firm that specializes in benefits and wealth management. The company went public in 2003 and was sold to Madison Dearborn in 2013.

 Currently,

Ms. Bibliowicz is a senior advisor at Bridge Growth Partners and serves on the board of directors of Sotheby's(NYSE: BID); Realogy (NYSE: RLGY); and the Asia Pacific Fund (NYSE: APB). She is a board director/trustee of Prudential Insurance Funds....

The Inside Higher Ed article noted that

In a statement, Cornell said, Weill Cornell Medical College engaged in a comprehensive process to select its chair of the Board of Overseers by canvassing multiple members of the board in full consultation with senior leadership. The search was headed by a group of senior trustee overseers with extensive knowledge of the institution and Weill Cornell firmly believes it has selected the best choice as chair.'

The New York Times reporting of the succession, oddly in the Dealbook blog, which is focused on finance and Wall Street, not medicine, made it seem, however, that Mr Weill handpicked his daughter to succeed him,

he increasingly felt that the time was nearing to appoint a successor.

'I felt like it was a good time for younger blood,' he said.

Ultimately, he decided upon his daughter,

The Cornell press release lauded Mr Weill, the retiring chair as providing "bold and visionary leadership," having "enduring dedication," exemplifying "benevolence and unwavering resolve to ensure a healthier future," etc, etc.  It called him a "self-made man who exemplifies the philosophy of leading by example."  It quoted the current dean of the medical school, Dr Laurie Glimcher, (whose apparent conflict of interest as a board member of Bristol-Myers-Squibb we discussed here and here) calling his accomplishments "breathtaking."  It quoted the university president, David Skorton, calling him again a "visionary."

In the Dealbook article, Dr Glimcher further praised the chairperson designate, Ms Bibliowicz, as "a person of enormous energy and passion," who will "bring her energy, her connections and her passion for medicine and medical research and education to the role."


The Inside Higher Ed article noted some vague questions about the position of chair of the board of trustees of an important medical school being passed from father to daughter,

'On the other side of the coin, within-family succession planning adds complexity to the issue -- it just raises certain questions,' [former vice president for programs and research at the Association of Governing Boards of Universities and Colleges Peter] Eckel said.

However, Mr Eckel did not really list these questions.

Later, the article referred to "nepotistic arrangements," presumably in part referring to this father - daughter transition, but then found someone to defend them. 

The Real Questions

Weill Cornell Medical College is part of a non-profit organization.  Nonprofit organizations have no owners. Non-profit organizations are formed to support particular missions, under the stewardship of boards of trustees (or directors or overseers).  These boards have three basic duties [italics added]

 Duty of care: Board members are expected to actively participate in organizational planning and decision-making and to make sound and informed judgments.
Duty of loyalty: When acting on behalf of the organization, board members must put the interests of the nonprofit before any personal or professional concerns and avoid potential conflicts of interest.
Duty of obedience: Board members must ensure that the organization complies with all applicable federal, state, and local laws and regulations, and that it remains committed to its established mission.

Thus, the transfer of the position of chair of the board from parent to offspring, apparently directly under the control of the parent, is questionable on its face, suggesting that family interests came before the "interests of the nonprofit."  Such transfers may commonly occur on the boards of privately family held for-profit companies, but are basically unheard of for medical schools or other large academic medical nonprofit organizations, where they certainly could appear nepotistic.

That concern is amplified when neither parent or child have any appreciable background or training in the work of the nonprofit.  Neither Mr Weill nor Ms Bibliowicz seem to have any training or background in health care, biomedical research, or specifically medicine.  Yet Weill Cornell Medical School's basic mission is to train students to be physicians.  So how well either or their personal judgments about the policy and operations of a medical school are "informed" is not exactly clear.  

Further concerns are raised by the background of the father in this father daughter transaction, the part of the background that was entirely ignored by the rather fawning public discussion of the transaction in the Cornell press release, and also the NY Times Dealbook article.

In fact, Mr Weill's leadership in the past was of Citigroup during the lead up to the global financial collapse of 2008.  Citigroup, the poster child for the too big to fail bank, nearly went bankrupt, and required a huge government bailout.  Its near collapse, again apparently only prevented by government action, is widely considered to have been a major cause of the finance disaster starting in 2008.  As we noted in a 2009 blog post about Weill Cornell,   The Sellout, by Charles Gasparino, featured vivid portraits of the bad leadership that lead to the collapse, including specifically Mr Weill,

But in reality, Will never really ran anything. He was a visionary, to be sure, but one whose vision was so myopically focused on building the empire had lusted for for so long and on its share price that he ignored just about everything else. (p. 144)

Furthermore, this was Mr Weill's listing in the "key people" section of the book,

Former CEO and chairman of Citigroup, Weill created the idea of the one-stop-shopping mega-financial conglomerate, engineering a series of mergers ... and in the process created the world's largest financial company.  Famously obsessed with his firm's stock price, Weill announced his resignation in 2003 after investigators discovered he'd pressured a stock analyst, Jack Grubman, to raise his rating on AT&T, where Weill was on the board, in return for ensuring that Grubman's children got into an exclusive preschool.

Furthermore, in the Time magazine series on the "25 People to Blame for the Financial Crisis," Mr Weill is listed as  "blameworthy" because,

Who decided banks had to be all things to all customers? Weill did. Starting with a low-end lender in Baltimore, he cobbled together the first great financial supermarket, Citigroup. Along the way, Weill's acquisitions (Smith Barney, Travelers, etc.) and persistent lobbying shattered Glass-Steagall, the law that limited the investing risks banks could take. Rivals followed Citi. The swollen banks are now one of the country's major economic problems. Every major financial firm seems too big to fail, leading the government to spend hundreds of billions of dollars to keep them afloat. The biggest problem bank is Weill's Citigroup. The government has already spent $45 billion trying to fix it. 

In a post on the Baseline Scenario blog, Simon Johnson, author of another authoritative book on the financial crisis, 13 Bankers, wrote this about Citigroup leadership,

Citigroup is a very large bank that has amassed a huge amount of political power. Its current and former executives consistently push laws and regulations in the direction of allowing Citi and other megabanks to take on more risk, particularly in the form of complex highly leveraged bets. Taking these risks allows the executives and traders to get a lot of upside compensation in the form of bonuses when things go well � while the downside losses, when they materialize, become the taxpayer�s problem.

Citigroup is also, collectively, stupid on a grand scale. The supposedly smart people at the helm of Citi in the mid-2000s ran them hard around � and to the edge of bankruptcy. A series of unprecedented massive government bailouts was required in 2000-09 � and still the collateral damage to the economy has proved enormous. Give enough clever people the wrong incentives and they will destroy anything.

Physicians are supposedly rigorously trained, and tasked with upholding important ethical principles.   So did it make sense to entrust the stewardship of a premier American medical school to the man who engineered the expansion of Citigroup that turned out to be "stupid on a grand scale," in order to "get a lot of upside compensation," while leaving the "downside losses" to become "the taxpayer's problem," so that the "collateral damage to the economy has proved enormous?"   Does it make sense to allow him to choose his own daughter, who has no more medical experience than he did (which was zero), to steward the school in the future?

I wonder what Cornell medical students, or physician alumni would say, if they felt safe enough to answer the question?

As we wrote in 2009,  boards of trustees of not-for-profit health care institutions have a primary duty to uphold the institutions' missions.  Thus, one would think such boards would be selected according to their dedication to their missions.  But perhaps, in the grubby real world, there may be more important criteria, possibly such as the size of their donations to the institution.  Furthermore, those likely to donate the most  may be more likely to be richest (and perhaps most in need to making themselves appear philanthropic and public-spirited) than the most fervent upholders of patient care, teaching and research.

Maybe giving stewardship of our once proud health care institutuions to people most likely to defend their missions, rather than most likely to donate a lot of money, would result in somewhat poorer institutions which do a better job of patient care, teaching and research.

You heard it here first.  
 

Princess Health and Why Have Governing Boards Forsaken Their Duties? - Ideas from Silverglate and Malchow. Princessiccia

Princess Health and Why Have Governing Boards Forsaken Their Duties? - Ideas from Silverglate and Malchow. Princessiccia

boards of trustees conflicts of interest Dartmouth duty of care duty of loyalty duty of obedience finance governance

Gusty 08:46 Add Comment

We have posted frequently about the governance and leadership of academic medical organizations. While one would think that health care organizations, and especially academic health care organizations ought to be held to a particularly high standard of governance, we have noted how their governance is often unrepresentative of key constituencies, opaque, unaccountable, unsupportive of the academic and health care mission, and not subject to codes of ethics. How the governance of organizations with such exemplary missions and sterling reputations got this way has been unclear.

Now there are new insights from the ongoing discussion of one of the most interesting and controversial cases of disputed organizational governance. We have often come back to the example of Dartmouth College, of which Dartmouth Medical School is a significant component. We most recently discussed here an ongoing dispute about the extent that the institution's board of trustees ought to represent the alumni at large, or instead, ought to be a self-elected body not clearly accountable to anyone else. (For our take on this complex case, start here and follow the links backward.) The latest development in the case is a lawsuit filed by Dartmouth alumni challenging an increase in the number of self-elected, or "charter" trustees, which they charged broke an 1891 agreement that established numerical parity between alumni-elected and charter trustees.

Soon after this lawsuit was filed, an important article by Harvey Silverglate (one of the founders of FIRE, the Foundation for Individual Rights in Education) and Joseph Malchow appeared. For those interested in the case, the article includes extensive detail, with multiple citations, on all the twists and turns of the case, and is very much worth reading. (See this post on FIRE's Torch blog for more background and discussion.)

However, the article also features extensive scholarship on governance of US not-for-profit institutions, focused on academic institutions (including medical academia), and with relevance to other not-for-profit or non-governmental health care organizations. In particular, the article sheds light on how the governance of such organizations has become so degraded.

First, Silverglate and Malchow summarized the duties of governing boards:

Traditionally, fiduciary duty [of the board of trustees] has been understood as having two components: the duty of loyalty and the duty of care. The duty of loyalty requires a fiduciary to act in a manner he or she reasonably believes to be in the best interests of the organization. The duty of care obliges directors to inform themselves of reasonably available information prior to making a business decision. More recently, courts have considered the duty to act in good faith [the duty of obedience] as a fiduciary requirement. This component, similar to the duty of care, is satisfied when a director makes informed decisions without conflicts of interest.

The question central to the dispute regarding Dartmouth governance is to what or to whom do fiduciaries owe their duty. Corporate directors have a relatively straightforward task of serving the corporation and its shareholders. In the case of a charitable trust, however, which generally does not have 'ascertainable beneficiaries who can enforce their rights,' the duty of fiduciaries is instead directed toward fulfilling or furthering the organization�s mission

So just to summarize, considerable discussion, scholarship, and I believe some some laws support the notion that the board of a not-for-profit organization is obliged to take reasonable care to make informed decisions free of conflicts of interest to uphold the organization's mission.

However, currently, many boards value deference to the organization's (usually hired) top managers and avoidance of internal conflict within the board more highly than these obligations:

Dartmouth, to be sure, is far from the only place where fealty to organizational leaders�and the notion of 'going along in order to get along' �has been placed before true fiduciary duty.

Silverglate and Malchow have some important ideas about how we came to this.

Not-for-profits became more like for-profit corporations:

During the 1980s, traditional nonprofit organizations supported by donations and governed by donors and volunteers became increasingly displaced by professionally staffed commercial nonprofits, supported by grants, contracts, and earned income, and governed by insider boards. The shift in governance was armored by progressively professionalized and entrepreneurial management, which was perceived to be more adept at control of the ebb and flow of funds in the American market.

Top hired not-for-profit executives assumed more power at the expense of other constituencies, including the professionals who did the work:

By the 1990s, with faculty power firmly institutionalized at colleges and universities, a notion that university presidents were bereft of power took hold. The AGB [Association of Governing Boards], in 1996, argued that university presidents needed to regain power with a pivotal document of its own: Renewing the Academic Presidency: Stronger Leadership for Tougher Times. Though this outlook was applied to varying degrees at colleges and universities, an imperative toward greater executive power in universities was thus established.

Presidential and professorial decision-making power, combined with the rise of the administrative bureaucracy in academia, have generally relegated trustees to a secondary role in campus affairs.

Attempts at reforming governance were inappropriately based on a for-profit corporate model, and particularly the need to project unity and avoid confrontation among the leadership trumped transparency:

Aligning academic boards with the cultural trends of increased critical oversight has obvious benefits, but some boards have moved to adopt the norms of for-profit corporate governance that are simply not applicable to the university context. Admittedly, this is a thin distinction when considered on a theoretical level. But in practical terms, misguided nonprofit reforms�some of which, upon close examination, actually violate an institution�s mission�are readily evident.

For example, some nonprofit boards have emphasized the adoption of formal nondisclosure pledges or confidentiality agreements that step well beyond nondisclosure of proprietary information. This is hardly uncommon in the business sector, where bottom-line strictures demand a certain degree of internal accord and non-transparency. And though there is evidence that nonprofit board directors have, from time to time, attempted to hush public dissent, only recently have dominant majorities of some nonprofit boards proposed and ratified binding pledges not to publicly air differences. According to a 2006 BoardSource publication, 'If a board member does not support a decision for whatever reason, [he or] she has a responsibility to remain silent or step down from the board.' (Recall the resignation offer made to Zywicki before his second term was denied.)

These directives, written in highly influential publications in the realm of university governance, disregard the important role that public discussion has on decision-making at universities and nonprofits in general. 'In the nonprofit context, nondisclosure agreements or the use of 'executive session' rules to curtail debates about policy and procedure depart from established norms. They shut down opportunities for public dialogue and for communication with other concerned and influential parties, including reporters,' nonprofit specialist Norman I. Silber wrote in the Oregon Law Review.

Emphasis on raising money rather than upholding the mission has lead to board deference to hired executives.

Fidelity to institutional leaders, rather than institutional mission, is now paramount in higher education, as deviation from accepted decisions is perceived as potentially shrinking the donor base. Administrators cringe at public disagreement; rather than focusing on the long-term likelihood that competing ideas will result in implementation of the fittest, they tend to focus on the short-term possibility that a particular alumni subset may be offended. This shortsighted outlook is not only an insult to the intelligence of alumni and other constituencies, but it is ultimately detrimental to the institution, as established ideas are enthroned and unchallenged. It is also based on false premises: as in the case of Dartmouth, there is no established correlation between public criticism and donor decline.

Boards are increasingly composed of executives of for-profit corporations, particularly in the finance field, who may grant the same deference to the organizations' leaders that they would like from their own board. That is, hired executives identify more with other executives than with the organizations they are supposed to be leading:

Judge Cabranes noted that trustees, especially business executives, tend to act toward university presidents as they wish their boards would act toward them�deferentially. And the phenomenon of board members believing they serve at the pleasure of the executive is what one nonprofit attorney and blogger, has termed 'upside down board.' The ascendance of the hedge-fund community, a peculiar province of graduates of elite institutions, has contributed to the prevalence of the upside down board....

The article suggests some issues that need to be addressed to make governance more accountable, transparent, ethical and honest. Boards need to be reminded of their duties, and that their loyalty should be to the mission, not the organization's executives, or the views of the board's majority. Transparency and open discussion are more important than projecting the (sometimes false) impression of unity. New board members should be chosen for their loyalty to the mission rather than their similarity to and congeniality with current board members.

I strongly suggest that anyone who cares about how health care organizations are run ought to read Silverglate and Malchow's full article. It should be required reading for current and would-be board members of academic and health care not-for-profit organizations (but I will not hold my breath waiting for them to read it.)