Dartmouth's Governance and Wall Street

While the money spent on health care in the US continues to increase, care becomes less accessible and its quality becomes more dubious.  Most public health care discourse seems at a loss to explain how we can keep spending more to get less.

Of many possible explanations, one that has become more credible is continuing erosion of health care stewardship.  The boards of trustees of health care organizations, those charged with their stewardship, seem increasingly preoccupied with self-interest rather than the health care mission.  As more information about how such boards currently operate sneaks into public view, the problems appear more serious and salient.

New information about the governance of Dartmouth College, an issue we have followed since 2007, is illustrative.

The Case So Far

The problems at Dartmouth were notable because in many ways its governance was superior to that of many US higher educational and health care institutions.  At the time we first stumbled on these problems, Dartmouth was unusual in that nearly half of its board of trustees were elected by alumni, rather than being self-appointed.  That made its governance both more representative  and more accountable. 

In 2007, however, a dispute was ongoing 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.  The unelected, or "charter" board members were pushing to increases their numbers.  In 2007, what really got our attention was the stated rationale for this push towards less representative and accountable governance. Mr Charles Haldeman, then the chairman of the board of trustees, announced a smaller proportion of elected trustees would ensure that the board "has the broad range of backgrounds, skills, expertise, and fundraising capabilities needed," and that the board members would possess "even more diverse backgrounds."  However, despite his appeal to diversity, Mr Haldeman seemed most intent on reducing "divisiveness," especially dissent that challenged his own authority.  At the time, we thought his argument for more diversity to reduce dissent and increase his own authority seemed Orwellian.

Yet when we examined the backgrounds of the self-appointed trustees, we found that they exhibited little diversity. Furthermore, rather than resembling followers of Ingsoc, they resembled more the group that the radical left traditionally reviled.  Remarkably, three-quarters (6/8) were leaders of the finance sector, of what is popularly called "Wall Street." In 2007, they seemed not very diverse, but why the majority should be in the financial sector, and what implications that had, was then obscure.

After the fall of Lehman Brothers and the onset of the global financial collapse/ great recession, the implications of this Wall Street majority on the board of an institution of higher education became more troubling.  Since 2008, growing concerns about the extent that finance is driven by a "greed is good" culture increasingly suggest that domination of university, medical school, or hospital boards by leaders in the finance sector may increasingly divorce boards from the missions which they are supposed to uphold.

Yet in 2008, the unelected "charter" members of the Dartmouth board succeeded in increasing their numbers, and hence their proportion of total board seats.  The new board was no more diverse.  Of its 13 charter members, 9 were from finance, and one more was the CEO of a corporation with a major finance subsidiary.  (Look here.)  By 2009, the charter board members had succeeded in ousting a dissident alumni-elected member, labeling him a member of a "radical cabal," and rewriting a board loyalty oath apparently to discourage further dissent.  (Look here.)

All this spoke to the increasing power of the culture of finance among members of the board.  Perhaps, though, there were reasons that the financial majority on the board wanted to suppress dissent other than to make themselves more comfortable with their own dominant culture,  In 2010, as the global financial crisis continued, "Educational Endowments and the Financial Crisis: Social Costs and Systemic Risks in the Shadow Banking System," published by the Center for Social Philanthropy, Tellus Institute, focused on how prominent educational institutions, including Dartmouth College, came to invest much of their endowments in risky, illiquid "alternative" investments, the sort provided by the "shadow banking system."  (See this post.)  The report noted extensive conflicts of interest on the Dartmouth board involving trustees who were also leaders of finance.  Their firms, it turned out, were managing a substantial fraction of the money in the college's endowment.  Half of the charter trustees were also being paid to manage the finances of the institution for whose stewardship they were responsible. 

Trustees of non-profit organizations are supposed to exhibit a duty of loyalty, that is, they "must give undivided allegiance when making decisions affecting the organization."  (For a summary of their duties, look here.)   In 2010, I noted, "letting a board member's firm manage millions of dollars worth of the institution's endowment portfolio seems an obvious violation of the duty of loyalty."  So, "these sorts of conflicts of interest may be another 'missing link' explaining why the leadership and governance of health care organizations has gone so far astray."  I then posited, "as disclosure continues, maybe enough outrage will ensue so that improved leadership and governance will become possible.

The Friends of Eleazar Wheelock Charge Corruption

Now there seems to be more outrage.  Last month, the dissident Dartblog broke the story of a letter sent in February, 2012 to the New Hampshire Attorney General by an anonymous group called the "Friends of Eleazar Wheelock."  (Wheelock was the founder of the college.)  To the the letter was appended a report that included an even more extensive list of conflicts of interest affecting Dartmouth trustees, the college's Finance Committee and Investment Committees, and their friends and relatives. 

The letter also added

The mismanagement extends beyond the investments and endowment. 1) Over a period of seven years The College engaged Lehman Brothers in six 'interest rate swaps' totaling $550 million dollars. The current value of these 'swaps' is now in excess of two hundred million dollars. That is what Dartmouth owes on these bets. These losses are not reported in the College’s financial statements. 2) The College’s 'cash' was invested in six hedge funds. Up to 40% of it was lost. Again, this was not reported. This comprises grant money for research, advances to faculty, and other working capital which should have been invested in the safest of money market instruments. 3) over 50% of the endowment is invested with Trustees, Investment Committee members, or their friends.

The report summary stated,

The pattern that the Dartmouth trustees and members of the Endowment/Investment committee have engaged in for decades is clear. That pattern is that a donor/investment manager’s pledge to support Dartmouth is reciprocated with an investment of ever increasing proportions in the donor’s firm, lending the credibility of an Ivy League institution to the firm. The investment returns are of little import; most of these alum/donor/investment manager returns are average to poor.

It rhetorically asked how the college came into

the grip of a club of investment manager alums who have invested almost six hundred million dollars in their very own funds and directed over one billion dollars to their friends? And who have taken almost one hundred million dollars in fees to manage the endowment, often with poor results culminating in the twenty three per cent loss in 2008 and the worst performance of all the Ivies in 2011?

The letter charged that there has been a

quiet takeover of this great College by a cabal of external, wealthy alumni/ae of the college. They have mortgaged the College’s future through borrowing heavily in the tax exempt marketplace under NH HEFA (Health and Education Facilities Authority). They have simultaneously directed the College’s three billion dollar endowment to themselves, their firms, and their friends. They have furthered their own self-interest at the expense of the College and the Upper Valley. They have abused the non-profit status of Dartmouth College. They have enriched themselves through managing and directing Dartmouth’s three billion dollar endowment. In all cases they have taken gargantuan fund management fees through 'Private Equity', 'Venture Capital', and 'Hedge Funds' investments which they, themselves, manage and are the owners of.

Summary

A post on the American Thinker blog noted that the letter alleged "corruption." It is impossible to tell whether these expanded allegations will result in any charges, much less convictions. The state Attorney General is currently looking into this (see Reuters). Certainly, the allegations are at least of ethical corruption as it is defined by Transparency International, "abuse of entrusted power for private gain."

The revelations since 2007 (and I could argue beginning with my finding that the majority of the supposedly "diverse" charter trustees were leaders of finance) first raised questions whether Dartmouth governance's was attentive to the mission, then, whether it was conflicted, and now, whether it is corrupt.

That these questions can be credibly raised about one of our most prestigious institutions of higher education and health care demonstrates the depth of our health care crisis. It also demonstrates how the health care crisis seems inextricably linked to the financial crisis, and to a fundamental crisis about our society and its commitment to democracy and fairness.

A fair and thorough enquiry about the mess at Dartmouth, resulting in clear actions to uphold the institution's mission and ethics, and, if applicable, the law, would start us down the path of true health care reform.

However, if this just gets swept under the rug, we will not have reached the bottom of our descent.

ADDENDUM (2 June, 2012) - Note that Dartmouth's most recent President, Jim Yong Kim, who was appointed by and served under the Trustees in question above, is now President of the World Bank (see this LA Times article.)

See also comments in the University Diaries blog.

Another Cautionary Tale about Conflicts of Interest: the CEO's Stretch Limousine, Golden Parachute, and Slush Fund

It remains fashionable in academic medicine to tolerate, if not celebrate conflicts of interest as necessary to support the "collaboration" needed for "innovation," while minimizing their risks (e.g., look here). 

Recently, another cautionary tale about how conflicts of interest signal the risk of all sorts of unpleasantness has appeared in the media.

A Sentinel Event: the First Conflicts Uncovered

In 2009, we wrote about some conflicts of interest at Wyckoff Heights Medical Center in my hometown of Brooklyn, NY.  The New York Daily News had reported that Dr. Addagada Rao, the hospital's chief of surgery was simultaneously the president and part-owner of a Caribbean medical school that funneled medical students to clerkships at Wyckoff.  The hospital's CEO, Rajiv Garg, was an investor in the same school.  At the time, I wrote,

This story illustrates another twist on conflicts of interest affecting the leaders of not-for-profit health care organizations. Many of the smaller not-for-profit hospitals, of which there are thousands in the US, may have minimal conflict of interest policies, which may be minimally enforced, without much transparency or accountability. The coziness of the leadership culture of such smaller institutions may preclude anyone within the culture from asking tough questions. The results may be total confusion as to whose interests particular leaders are serving. In particular, the interests of each hospital's patients may get lost in the shuffle. In this case, the interests of medical students may also get lost in the shuffle. Although the institutions involved may be small, and hence the conflicts may seem small in terms of their monetary value, they aggregate to contribute to the moral miasma that now is the atmosphere of health care.

You heard it here first.

The CEO's Golden Parachute

Fast forward to 2012. In January, the Daily News again reported that CEO Garg had been ousted, but that

Trustees at Wyckoff Heights Medical Center asked to consider a whopping $875,000 severance payout for its former CEO are balking at the package....

It seems that Garg's attorney claimed

They were on the verge of bankruptcy when he arrived. He reduced the debt by tens of millions of dollars.

However,

the hospital’s financial situation remains grim. According to the work group’s final report, Wyckoff’s liabilities are $91 million greater than its assets and it is saddled with $114 million in long-term debt.

So here is yet another example of a CEO personally profiting while his or her organization's finances fester.

The Chauffeured Cars, the Stretch Limousine

The the Daily News began chipping away at the other ways CEO Garg benefited from his leadership of the fiscally troubled hospital. A notable symbol of these benefits was a stretch limousine:

The ousted CEO of a debt-riddled Brooklyn hospital had his security guards ferry friends to the U.S. Open and his wife around town in a stretch limo, the Daily News has learned.

Rajiv Garg, the disgraced honcho of Wyckoff Heights Medical Center, also enjoyed his own commutes in the hospital-issued ride — a sleek, black $33,000 Lincoln Royale.

Garg rolled in style,

The beleaguered hospital bought the fancy car — equipped with a mini-bar, four champagne flutes and a fridge for chilling Dom Pérignon — last summer for Garg It also owned two other cars for his use, sources said.

Several times a week, the limo was dispatched to take Garg’s wife from her job near the hospital to the couple’s midtown apartment, said an employee.

Sometimes, it picked her up and then swung by the hospital to get Garg and whisk them to dinner before dropping them home, sources said. Two or three times a month, the limo picked her up at home and took her shopping.

'I haven’t had a raise in seven years,' said the employee. 'They always tell us they don’t have any money. They spent it on cars.'

The limo has comfy leather seats with room to spare for six passengers and a stereo system capable of drowning out highway noise when Garg and his wife were driven in it to Washington.

More Conflicts of Interest Discovered

Then the Daily News started to reveal conflicts of interest beyond the ones we discussed in 2009:

Then-trustee Frank Chiarello was in a partnership that loaned money to hospital entities, according to a list of board members’ conflicts the Daily News eyeballed. The $2.5 million loan had an 18% interest rate, sources said, costing the hospital hundreds of thousands of dollars.

Chiarello, a real estate exec, resigned from the board last week.

Another trustee who quit the board last week, attorney John Rucigay, serves as a lawyer for other trustees, owns real estate with other trustees, and rents space to the Polish and Slavic Federal Credit Union — whose head of operations is yet another Wyckoff trustee, Agnieszka Poslednik.

Additional trustees on the conflicts list first reported by Crain’s New York Business, include Andrew Boiselle, whose Cebco Check Cashing Corp. does check-cashing business with hospital employees, and attorney Fred Haller, who provides legal services to Wyckoff employees about issues not related to the hospital.

Slush Funds and Bribes

Last week, the Daily News reported about findings by a judge that the CEO kept slush funds used to pay bribes:

Wyckoff Heights Medical Center kept a secret bank account that a former CEO used to bribe a disgraced state assemblyman, an upstate judge said in a court decision.

Orange County Supreme Court Judge Elaine Slobod’s decisionk brought to light new details about the Bushwick hospital’s alleged dealings with Tony Seminerio (D-Far Rockaway), who died in a North Carolina prison last year.

The bank account used for the Stockholm St. hospital’s payoffs to the corrupt pol belonged to 397 Himrod Corporation.

Former Wyckoff board chairman Emil Rucigay originally set up the company to buy real estate for the hospital to turn into a parking lot, the judge’s order said.

The bank account was kept active — though the corporation was dissolved in 2001. The bank account still had approximately $130,000 in it in 2008.

“[Wyckoff’s] CEO was using monies in the Himrod account to bribe Seminerio,” Slobad wrote in her decision last week, referring to Dominick Gio, who was the hospital’s head honcho at the time.

Gio refused to talk a reporter last week. Wcykoff’s interim CEO Ramon Rodriguez also declined to comment.

Money from the Himrod account was used to make payments totaling $15,000 to Seminerio, other court filings charge.

A Lexus, a Bentley, Oh My

Then the story really hit the big time when the New York Times picked it up yesterday. That report added some colorful details about how magnificently the CEO traveled:

In August 2009, Mr. Garg said, he fell asleep at the wheel and crashed his Lexus into a truck. He then lost his license. Asked why in the interview, he said he was not certain, though he offered several explanations, including unpaid tickets and previous accidents.

He then used the hospital’s cars — a Lincoln Town Car and a Cadillac Escalade — for himself and his family around the clock. They were driven by two security guards on overtime, a hospital official said.

He parked his other car, the $160,000 Bentley, at Wyckoff and had the hospital put the vehicle on its own insurance policy.

The limo only came later,

Mr. Garg said in the interview that he suspected that the drivers of the Town Car and the Escalade were eavesdropping on his conversations. So he had the hospital purchase a used stretch limousine for about $33,000.

Yet More Conflicts of Interest Discovered

The Times story also found more conflicts of interest. Some involved CEO Garg:

Mr. Garg introduced hospital officials to Skyscape, a provider of mobile medical references, in which he had a financial interest. Wyckoff signed a contract with the company worth at least $38,700, hospital records show, though the deal eventually fell through.

Others involved hospital trustees. This example might have affected patient care at the hospital:

Dr. Theophine Abakporo arrived at Wyckoff in 1996 from Harlem Hospital to work in emergency medicine. Originally from Nigeria, he said he found his way to the top blocked by what he believed was a clique of doctors at Wyckoff.

In 2009, according to data provided by MapLight.org, Dr. Abakporo, an American citizen, began donating money to the campaign of Representative Edolphus Towns, the Democrat who represents a nearby area. Mr. Towns, a longtime board member of Wyckoff, had by then been replaced by his chief of staff, Albert Wiltshire, on the board.

Dr. Abakporo gave $1,000 to the Towns campaign, then $750, according to election records.

With Mr. Wiltshire’s support, Dr. Abakporo became chairman of emergency medical services.

This example might also have affected patient care:

With his solicitous manner and tailored sport jackets, Gary Goffner, a pharmacist who serves on Wyckoff’s board, has long endeared himself to customers and doctors alike.

He inherited his pharmacy, Kraupner, from his father, a prominent Bushwick landlord as well as a pharmacist, who died recently. It is an old-fashioned store, crammed with supplies, the opposite of an orderly Rite Aid.

It is also a half-mile walk from Wyckoff, a disadvantage Mr. Goffner overcame through a contract that gave him exclusive access to Wyckoff patients as they were being discharged, and allowed him to keep an employee at the hospital to promote his business.

In summary, the Times found,

According to internal hospital documents, 13 of the hospital’s 22 board members declared at least one conflict of interest.

Summary

So, from a single story about conflicts of interest affecting the CEO and a medical leader at the hospital, we have gone to stories about widespread conflicts of interest affecting the hospital's board and leadership, about lavish payments and benefits to the CEO while the hospital's finances suffered, and allegations (by a judge) of bribes and slush funds. 

Recall that the Institute of Medicine's report on conflicts of interest in medicine and health care defined conflicts of interest as “circumstances that create a risk that professional judgments or actions regarding a primary interest will be unduly influenced by a secondary interest.” While no particular conflict of interest is guaranteed to cause someone to abuse entrusted power, conflicts of interest create the risk of such abuse. The case of the leadership and governance of Wyckoff Heights Medical Center shows how such risks may manifest.

Yet we have noted again and again how leaders of supposedly mission-oriented non-profit medical organizations seem to be ignoring these risks while pursuing ever more money from health care corporations. We noted how the Chancellor of the University of California-San Francisco "has no qualms" about faculty's financial relationships with industry. Just this week at Brown University, my alma mater, while discussing a new conflicts of interest policy, we heard,

'People do have conflicts of interest, and it’s not the end of the world,' said Janet Blume, associate dean of the faculty.

Conflicts of interest may not lead to the apocalypse. However, they certainly may lead to all sorts of unpleasantness. As Joe Collier stated, “people who have conflicts of interest often find giving clear advice (or opinions) particularly difficult." Conflicts of interest clearly lead to conflicted, and confused thinking, and such thinking may lead to bad decisions, and hence bad outcomes for patients' and the public's health. Worse, as the IOM asserted, conflicts of interest are a risk factor for outright corruption.

True health care reform might start with a reasoned discussion, based as much as possible on evidence, about the risks as well as the supposed benefits of conflicts of interest affecting those who make decisions about individual patients' health care, and about public health and health care policy.

Will the Citigroup Ruling Challenge Health Care Leaders' Impunity?

A federal judge's refusal to approve yet another cozy settlement that was supposed to resolve allegations of wrong-doing by a giant corporation has left the financial world atwitter.  It may be that this ruling will also affect the coziness between giant health care corporations and government regulators. 

Summary of the Citigroup Case

We first discussed this case twp weeks ago here.  Here is a summary of the government's (in this case, the Securities and Exchange Commision's) original allegations from the New York Times.

According to the Securities and Exchange Commission, Citigroup stuffed a $1 billion mortgage fund that it sold to investors in 2007 with securities that it believed would fail so that it could bet against its customers and profit when values declined. The fraud, the agency said, was in Citigroup’s falsely telling investors that an independent party was choosing the portfolio’s investments. Citigroup made $160 million from the deal and investors lost $700 million.

The Problems with the Proposed Settlement
Judge Jed Rakoff refused to approve the settlement because of a series of problems, listed below as summarized by the Schumpeter columnist in the Economist.

Mr Rakoff faulted the SEC for prosecuting Citigroup for negligence when a fraud prosecution was warranted; for failing to provide the court with 'any proven or admitted facts upon which to exercise even a modest degree of independent judgment'; for erroneously contending that 'public interest…is not part of [the] applicable standard of judicial review'; and for wrongly arguing that 'if the public interest must be taken into account, the SEC is the sole determiner'.

Furthermore,

Mr Rakoff also attacked a second condition of the settlement. Citigroup had agreed to operate under a court injunction if it ever violated the deal, which could lead to contempt charges. Whatever threat this carried, Mr Rackoff wrote, it was mitigated because Citigroup, as other financial firms, had been cited similarly over the past decade—and never faced any consequences.

The Parallels with Legal Settlements Made by Health Care Organizations

Several of the features of the settlement that the Judge found so objectionable are commonly also features of the settlements we have seen involving health care organizations. Government regulators often seem to make much milder charges that were warranted by the apparent facts. They make the organizations party to corporate integrity or deferred prosecution agreements, even though sometimes the same corporations were already subject to such agreements when they appeared to misbehave again. The agreements often allow the organizations to neither admit to or deny any charges, leaving the facts of the case forever in doubt.

Matt Taibi in the Rolling Stone provided some pithy comments on these commonly seen features of legal settlements.

By accepting hundred-million-dollar fines without a full public venting of the facts, the SEC is leveling seemingly significant punishments without telling the public what the defendant is being punished for. This has essentially created a parallel or secret criminal justice system, in which both crime and punishment are adjudicated behind closed doors.

This system allows for ugly consequences in both directions. Imagine if normal criminal defendants were treated this way. Say a prosecutor and street criminal come into a judge’s chamber and explain they’ve cooked up a deal, that the criminal doesn’t have to admit to anything or plead to any crime, but has to spend 18 months in house arrest nonetheless.

What sane judge would sign off on a deal like that without knowing exactly what the facts are? Did the criminal shoot up a nightclub and paralyze someone, or did he just sell a dimebag on the street? Is 18 months a tough sentence or a slap on the wrist? And how is it legally possible for someone to deserve an 18-month sentence without being guilty of anything?

Such deals are logical and legal absurdities, but judges have been signing off on settlements like this with Wall Street defendants for years.

As we have said numerous times before, (starting here in 2008) the current manner of regulation, in which organizations pay fines (and sometimes submit to corporate integrity or deferred prosecution agreements), rarely admit any guilt, but in which individuals who directed, authorized or implemented the alleged misbehavior almost never suffer any negative consequences, fails to deter future bad behavior. We have noted that the costs of the settlements are paid by the organization as a whole, and thus simply regarded as costs of doing business by executives. The leaders' impunity will allow the bad behavior to be repeated again and again.

Here is how Taibbi and Rakoff put it:

these crappy settlements have evolved into a kind of cheap payoff system, in which crimes may be committed over and over again, and the SEC’s only role is to take a bribe each time the offenders slip up and get caught.

If you never have to worry about serious punishments, or court findings of criminal guilt (which would leave you exposed to crippling lawsuits), then there’s simply no incentive to stop committing fraud. These SEC settlements simply become part of the cost of doing business, as Rakoff notes:

As for common experience, a consent judgment that does not involve any admissions and that results in only very modest penalties is just as frequently viewed, particularly in the business community, as a cost of doing business imposed by having to maintain a working relationship with a regulatory agency, rather than as any indication of where the real truth lies. This, indeed, is Citigroup's position in this very case.

That line, 'a cost of doing business imposed by having to maintain a working relationship with a regulatory agency,' is one of the more brutally damning things you’ll ever see a judge write. Rakoff is essentially saying that these fines are payoffs to keep the SEC off the banks’ backs. They’re like the pad that numbers-runners or drug dealers pay to urban precinct-houses every month to keep cops from making real arrests. That's what he means when he refers to 'maintaning a working relationship.' It's heavy stuff.

What the Judge appears to be saying is that the whole system stinks of regulatory capture, and that the settlements paid by the organizations are the moral equivalent of bribes paid to government officials. That is indeed "heavy stuff."

Now that Occupy Wall Street has made it socially acceptable to discuss the economic dysfunction that lead to the great recession or global financial collapse, I can only hope that this discussion will lead to a parallel discussion about health care dysfunction. It certainly seems that the regulatory capture that seems to be part of the dismantling of regulation of finance is similar to regulatory capture affecting health care. But I await someone beyond us few lonely bloggers to take up this topic.

I might as well end with this sentiment from 2009 regarding another case over which Judge Rakoff presided:
Again, in my humble opinion, until the people responsible for the bad behavior experience negative consequences from that behavior, they will continue to perform, direct, and condone bad behavior. We will not achieve real health care reform in the US until we effectively deter unethical, self-serving behavior by leaders of health care organizations.

The UC-Davis Pepper-Spray Case as Illustrative of Problems with the Leadership of Health Care

The aggressive actions by University of California-Davis police against unarmed, peaceful student protesters turn out to be the latest illustration of the problems with leadership and governance we discuss on Health Care Renewal. 

The University of California - Davis Pepper Spray Incident

To summarize the current episode, I start with quotes about its background from Reuters,

Student protesters at Davis had set up an encampment in the university's quad area earlier this month as part of the nationwide Occupy movement against economic inequality and excesses of the financial system.

Their demonstrations, which had been endorsed by a faculty association, included protests against tuition increases and what they viewed as police brutality on University of California campuses in response to recent protests.

The students had set up roughly 25 tents in a quad area, but they had been asked not to stay overnight and were told they would not be able to stay during the weekend, due to a lack of university resources, [university Chancellor Linda] Katehi said.

Some protesters took their tents down voluntarily while others stayed.

Then,

The pepper spray incident appeared to take place on Friday afternoon, when campus police moved in to forcibly evict the protesters.

Then, as per the (London, UK) Independent,

A police officer saunters up to a group of young protestors who are sat in a line on the ground, with their arms linked. Then he removes a canister of pepper spray from his belt, with a flourish, before casually proceeding to unload its contents into their faces.

The demonstrators remain silent and motionless, with their heads bowed. So the policeman carries on, methodically covering them, from point blank range. By the time he’s finished, their heads and faces are covered in a thick layer of the toxic red liquid.

The actual video is below:


The UC-Davis Chancellor's Defense of the Police Actions

The Independent's coverage emphasized that initially the leadership of the campus police defended the use of pepper spray on apparently unarmed, peaceful students:

Annette Spicuzza, the head of the UC Davis Campus Police, who were responsible for Friday’s incident .... told reporters that her officers had been 'forced' to use the pepper spray, after demonstrators surrounded them. Lt Pike gave his victims sufficient warning of the impending attack, she added, and emptied the canister with a sweeping motion, in keeping with official procedures.

'When you are encircled by 200 individuals, I don’t know if I want to say ‘afraid,’ but I think they were quite concerned about their safety,' she said, regarding the circumstances her officers faced. 'There was no way out of that circle... It's a very volatile situation.'

That coverage also made clear that the directive to clear the demonstrators came from the top:

Linda Katehi, the Chancellor of UC Davis ... had asked the police to clear demonstrators from her campus, a couple of hours north of San Francisco. In the aftermath of the incident, she had initially joined Spicuzza in defending the force's methods, saying that they had 'no option' but to adopt a hard line.

Ms Katehi later backed off, but only after her first response

sparked immediate outrage, and within hours, the university’s Faculty Association, representing Ms Katehi’s employees, issued a statement called for her resignation, saying that her authorisation of 'excessive' force had amounted to a 'gross failure of leadership.'

Nathan Brown, an assistant English professor who witnessed the incident, wrote in an open letter: 'Several of these students were hospitalized. Others are seriously injured. One of them, forty-five minutes after being pepper-sprayed down his throat, was still coughing up blood... You are responsible.'

Other comments likened the police actions to something "coming from some riot-control unit in China, or in Syria," [James Fallows in the Atlantic] called them indicative of "a police state in its pure form," [Glenn Greenwald in Salon], or otherwise denounced them as "outrageous" or "awful." (Clark McPhail, professor emeritus of sociology at the University of Illinois, and Greg Lukianoff, President of the Foundation for Individual Rights in Education, respectively, via Inside Higher Ed.)

This aggressive, violent response to peaceful protest seems to be the latest example of the arrogance of some current leaders of our important organizations.

Our Previous Discussion of the Chancellor in Health Care Renewal

This case appears directly related to the problems in leadership and governance we discuss on Health Care Renewal Ms Katehi has the distinction of having been already written up twice on Health Care Renewal for questions about her leadership.

On her arrival at UC-Davis in 2009, she promised to "help UC Davis to become more aggressive in taking new biotechnology and agriculture products to market." This indicates at best ignorance of, at worst hostility to the fundamental university mission, which is hardly developing and particularly marketing products, but discovering and disseminating knowledge (see this post).

At that time, I called this an example of "how the leaders of academic institutions seem to be forgetting or radically deconstructing their academic missions."

In 2011, Ms Katehi defended the payment to the medical center CEO, whom she called a "great CEO,' of nearly a million dollars yearly in compensation. However, that CEO was part of a group of top university leaders demanding large increases in their pensions at a time when the university was under great financial distress. For that, some called them not great leaders, but greedy and "despicable." Thus, Ms Katehi seemed to stand up for top leaders' privilege and exceptionalism, including their entitlement to huge compensation whatever the circumstance, even in a time of financial travail (see this post).

I could not have predicted that Chancellor Katehi would preside over the pepper spraying unarmed students for peaceful, legitimate protest. However, it is not surprising that a leader who does not understand the fundamental academic mission and who supports executive privilege and exceptionalism would foster an authoritarian climate in which such an incident could happen.

This example clearly illustrates the issues we have been discussing on Health Care Renewal for a long time. In particular, leaders who are more dedicated to their own and their fellow executives' privilege and exceptionalism than their organizations' missions are likely to end up promoting actions that threaten those  missions.

The Moral of the Story

Instead, as we have been preaching endlessly,... health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior.

If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.

You heard it here first on Health Care Renewal .

Keep your eye on Health Care Renewal for continued discussion of parallels between problems in health care and in the larger political economy.

Health Care Also Needs to Challenge "Crony Capitalism," the "New Gilded Age, and "the Idolatry of the Market"

The increasing size and scope of the "Occupy Wall Street" movement, and continuing instability in the finance system, most recently due to the threatened default of Greece, and resulting problems with the Euro, and now the bankruptcy of yet another prominent financial firm, MF Global, has lead to renewed discussion of what has gone wrong with the greater political economy.

As I have perused some of it, I noted distinct parallels with the some of the discussion we have had about what has gone wrong with health care.  In fact, at the root of health care dysfunction appear to be the dysfunction of the greater political economy.

Few in the One Percent Deserved the Money

A dominant slogan of the "Occupy" movement is "we are the 99 percent," that is

'We are the 99 percent,' is the continuing chant of the protesters, who are now in their seventh week of marching through the streets of Manhattan. And, surprisingly, they have hit upon the crux of America's problems with precisely this sentence. Indeed, they have given shape to a development in the country that has been growing more acute for decades, one that numerous academics and experts have tried to analyze elsewhere in lengthy books and essays. It's a development so profound and revolutionary that it has shaken the world's most powerful nation to its core.


Inequality in America is greater than it has been in almost a century. Those fortunate enough to belong to the 1 percent, made up of the super-rich, stand on one side of the divide; the remaining 99 percent on the other. Even for a country that has always accepted opposite extremes as part of its identity, the chasm has simply grown too vast.

[Schulz T]

The One Percent are Mostly Salaried Corporate Executives

Contrary to some propaganda, many in the one percent are not entrepreneurs, but corporate employees, albeit special ones.

Also cited as factors contributing to the rapid growth of income at the top were the structure of executive compensation....

[Pear R]

In Health Care -
We have frequently discussed the outsized compensation given to a few top executives. CEOs of for-profit health care corporations may make tens of millions of dollars a year (here is a recent example, and many similar stories can be found here.) Even CEOs of non-profit hospital systems can make millions of dollars a year. (See this recent example, then go here for more.) Thus, a fair number of the one percent are likely to be from health care, and most of those at the top are likely to be current or former top hired executives.

The One Percent's Wealth May be More Due to Luck than Skill, Intelligence, or Creativity

According to a recent simulation study,

by the 'inexorable effect of chance,' and chance alone, 'a small proportion of entrepreneurs come to possess essentially all of the wealth. ... The concentration of wealth occurs merely because some individuals are lucky by randomly receiving a series of high growth rates, and once they are ahead with exponentially growing capital, they tend to stay ahead.'

According to Fargione, greater variation in rates of return hastened the concentration of wealth. Inequality grows with time. Wealth concentration continues despite periods of recession and depression.

[Breining G]

In Health Care-No similar study has been done in health care. However, we have documented many cases in which top health care executives' compensation seemed to have nothing to do with their skill, originality, or ability to uphold the health care mission. How "peer benchmarking," and the "Lake Woebegone Effect" account for immense compensation despite bad results was discussed here. A recent series of cases (with links to others) of hospital CEOs who prospered while their institutions' finances decayed was here.

The One Percent Gamed the System, and Personally Profited from Perverse Incentives

Most fundamentally, what protest groups on the left and the right share with less activist middle-class Americans -- the apolitical voters who often decide elections -- is an abiding sense that the bond between work and reward has been broken. Huge financial rewards are given to executives who fail miserably and get fired. Debt relief programs help not only those who have fallen behind through no fault of their own, but also the profligate who lived beyond their means.

The list goes on: What’s inflaming voters isn’t so much inequality per se, though that’s certainly a symptom of the problem. It’s the fact that the rewards in our economic system seem increasingly divorced from American values of hard work, risk taking and innovation. Instead, these benefits are more and more likely to be awarded on the basis of connections and political power.

[Klain R]

In Health Care-We have seen not merely cases of top health care leaders paid a lot of money for mediocre financial results. We have seen cases in which leaders got outsize pay despite evidence of organizational misconduct, or even crime. For example, see posts here, here and here that contrast one company's multiple legal settlements and guilty pleas and its CEO's eight-figure compensation.

The One Percent Deny Accountablity While Blaming Others for the Problems They Produce

Based on a as yet unpublished survey of top finance leaders in London, its leader, Rev Andrew Studdert-Kennedy,

said he had been 'astonished' by the attitudes of some City workers displayed towards the financial crisis. He said, 'I did speak to many people about morality. I was amazed by how many banking crises there had been and how sanguine people were about them. A number of people said 'this is just what happens - it's the nature of banking, it's the nature of capitalism.'

'It's one thing having historical perspective, but I was astonished that people didn't try to learn a bit more. There is a recognition that there is something wrong, but a reluctance to admit they are part of the problem.'

[Brady et al]

In addition,

Talk to most bank executives and they’ll still place the blame for the 2008 financial crisis on 'irresponsible consumers' who took out mortgages they couldn’t afford; dishonest mortgage brokers; and—at the top of the list—the government, which used Fannie Mae and Freddie Mac to finance mortgage lending to 'people who shouldn’t own homes,' as one senior New York bank executive put it to me recently. All of which is partly true but omits the enthusiasm with which Wall Street feasted on that market, and the fact, as Warren puts it, 'that Wall Street made tens of billions of dollars' from it. In short, there is no remorse, let alone a sense of obligation, because bank executives generally do not believe they were the cause of the financial collapse. As Neil Barofsky, Treasury’s former inspector general charged with oversight of TARP, the $700 billion government bailout of the banks, recalls from his interviews with bankers, the attitude instead was that 'shit happens.' The state of denial has been massive. On Wall Street today, says the vice-chairman of a private-equity firm, 'there is this enormous persecution complex in the banking industry about Dodd-Frank, that everyone is going after the banks.'

[Andrews S]

In Health Care-Health care leaders and their apologists sometimes cite their awesome responsibility as a rationale for their outrageous compensation. Yet while health care leaders often decry the state of the health care system, I have yet to hear one take any responsibility for what has gone wrong.

Meanwhile, Wendell Potter has described how the leaders of one part of health care, health insurance and managed care, set up elaborate but stealthy public relations campaigns to blame the problems of health care mainly on patients and doctors, but certainly not the health insurance or managed care (see post here). This echoes how top finance leaders blame their industry's problems on feckless consumers.

The One Percent are Not Held Accountable, and Have De Facto Impunity

So, yes, we face a threat to our capitalist system. But it’s not coming from half-naked anarchists manning the barricades at Occupy Wall Street protests. Rather, it comes from pinstriped apologists for a financial system that glides along without enough of the discipline of failure and that produces soaring inequality, socialist bank bailouts and unaccountable executives.

[Kristof ND]

In our article in the last issue,1 we showed that, contrary to the claims of some analysts, the federally regulated mortgage agencies, Fannie Mae and Freddie Mac, were not central causes of the crisis. Rather, private financial firms on Wall Street and around the country unambiguously and overwhelmingly created the conditions that led to catastrophe. The risk of losses from the loans and mortgages these firms routinely bought and sold, particularly the subprime mortgages sold to low-income borrowers with poor credit, was significantly greater than regulators realized and was often hidden from investors. Wall Street bankers made personal fortunes all the while, in substantial part based on profits from selling the same subprime mortgages in repackaged securities to investors throughout the world.

Yet thus far, federal agencies have launched few serious lawsuits against the major financial firms that participated in the collapse, and not a single criminal charge has been filed against anyone at a major bank. The federal government has been far more active in rescuing bankers than prosecuting them.

[Madrick J et al]

In Health Care-We have gone on endlessly how despite numerous examples of unethical or even criminal behavior by health care organizations, almost never has any individual who authorized, directed or implemented the bad behavior suffered any negative consequences. (Look here and here.)

The One Percent Have Captured Government

The most important reason for the unaccountability of the one percent is regulatory capture, leading to corporatism:

much as the economic giants of the Gilded Age developed such enormous influence that they could dictate basic political conditions, today's Wall Street bosses and CEOs have successfully arranged extensive deregulation for their industries. Indeed, he argues that this is the only thing that can explain how hedge fund managers suddenly started making billions of dollars a year. Former Citigroup CEO Sanford Weill, for example, kept a framed pen in his office as a symbol of his influence. It was the pen President Bill Clinton -- at Weill's instigation -- used in 1999 to sign into law legislation repealing the provisions in the Glass-Steagall Act of 1933 that separated the transactions of investment and commercial banks.

At the same time, Bartels writes, the wealthy receive enormous tax breaks worth hundreds of billions of dollars.

[Schulz T]

In Health Care-
We have discussed regulatory capture, embedded networks of influence, and corporatism in health care.

Summary

The articles I summarized above called for the need to "save capitalism from crony capitalists," [Kristof ND], and to seize "the high political ground" by "reform that lessens the influence of money in politics and government," and to strengthen "the bonds between work and reward," [Klain], and to end the impunity of the wealthy [Madrick et al].

A Vatican Council has called for the end of the "idolatry of the market," the "ethic of solidarity," and the "primacy of the spiritual and the ethical," and of "politics - which is responsible for the common good - over the economy and finance." This has also been supported by the Archbishop Of Canterbury.

In parallel, as we have said again and again, true health care reform requires competent, ethical leadership that upholds health care's core values within a governance structure of accountability, integrity, transparency, and honesty. Tackling the deep problems in health care will require tackling the deeper problems in the global political economy which helped to generate them.

References


Andrews S. The woman who knew too much. Vanity Fair, November, 2011. Link here.
Brady B, Merrick J. Exclusive: cover-up at St Paul's. The Independent, Oct 30, 2011. Link here.
Breining G. The 1 percent: how lucy they are. Minneapolis Star-Tribune, Oct 29, 2011. Link here.
Klain R. Americans want a government that ties rewards to work. Bloomberg, Oct 31, 2011. Link here.
Kristof ND. Crony capitalism comes home. NY Times, Oct 28, 2011. Link here.
Madrick J, Portnoy F. Should some bankers be prosecuted? NY Review of Books, November 10, 2011. Link here.
Pear R. Top earners doubled share of nation's income, study finds. NY Times, Oct 25, 2011. Link here.
Schulz T. The second gilded age: has America become an oligarchy? Spiegel Online, Oct 28, 2011. Link here.