Productive Employment

With desultory interest, I picked up a 1993 novel at the library, The Surgical Arena, by Peter Grant, M.D., “a former navy pilot who became a surgeon.” The following snippet, on page 18, says a lot in a nutshell:

“We’ve got one shot at getting into medical school and that means getting our grades into the top twenty.”

“Why don’t we all just quit and take some gut courses that will prepare us to be brokers,” said Beckwith, one of the veterans. “We can sit on our asses and make a lot of dough.”

“You have to be a crook to be successful in that field,” said Norman. “Besides, you’ll never get any satisfaction out of life unless you put something worthwhile back into it.  I didn’t fight in the infantry to come back and become a broker.”

1993 was the same year that a short-sighted Congress cancelled the Texas supercollider project.  It’s been correctly noted that had that not happened, the recent Higgs-Boson particle observation might have occurred here rather than in Switzerland.  A number of the now-unemployed physicists involved were hired by Wall Street firms.

Although basic banking DOES perform a socially useful function -- firms and individuals DO need capital -- it is very questionable what if anything “banking innovations” (CDOs, derivatives, very rapid short-term computerized trading, etc.) that have proliferated since 1993 have contributed to society.   As Roger Bootle wrote:

For m]uch of what goes on in financial markets . . . [t]he gains to one party reflect the losses to another, and the vast fees and charges racked up in the process end up being paid by Joe Public, since even if he is not directly involved in the deals, he is indirectly through the costs and charges that he pays for goods and services.

In 1995, the assets of the six largest bank holding companies was no more than 17% of GDP, but at the end of 2010, the assets of the six largest bank holding companies were valued at  just over 63 percent of GDP. This financialization of the economy has been at the expense of the rest of us. And finance is now the top area where graduates of Ivy League universities find jobs.

As Dale Carnegie points out, all people – even gangsters like Al Capone – think of themselves as “good guys”.  Lloyd Blankfein, Goldman Sachs’ CEO, is probably sincere when he says he is “doing God’s work”.  But many of us do not agree. Things work as well as they do only because many people are actually still working hard at useful jobs that do contribute to society.  My thanks go to those – and not to the so-called “wealth creators.”

Quantitating the Corruption of Finance Leadership (Who May Overlap with Health Care Leadership)

The bad leadership in health care that we frequently discuss now appears to exist in a context of an increasingly corrupt society.  In particular, we have discussed how the leadership of major health care organizations, such as teaching hospitals, and the universities within which medical schools operate, now frequently interlocks with the leadership of finance.  The ongoing global financial problems have been blamed on bad leadership in finance.

A Survey of Finance Leaders

Now, a survey by a law firm that supports corporate whistleblowers offers some quantitation of the corruption within finance.  The press release for the survey is here, and a summary of results is here.  The survey respondents were 250 US based, and 250 UK based "senior individuals within the financial services industry."

Key results were:

- 24% of those surveyed believed that the rules may have to be broken in order to be successful.

- 25% of UK respondents believed financial services professionals may need to engage in unethical or illegal activity to get ahead; US respondents were only slightly less inclined to engage in wrongdoing at 22%.

- 12% of total respondents believed that it was likely that staff in their company have engaged in unethical or illegal activity in order to be successful.

Perhaps exhibiting ego bias, the senior professionals thought that there competitors were even worse:

39% of total respondents believed it was likely that their competitors have engaged in illegal or unethical activity in order to be successful.

A substantial number of respondents admitted that they would be willing to engage in illegal activity were the circumstances favorable:

16% of total respondents were at least fairly likely to engage in insider trading if they could get away with it. Perhaps more troubling, only 55% of all respondents could say definitively that they would not engage in insider trading if they could make $10 million with no risk of getting arrested.

An important fraction thought that the worked within organizations that encouraged unethical and illegal behavior:

- 30% of all financial services professionals reported feeling pressure to compromise ethical standards or violate the law as a result of their compensation or bonus plan.

- In assessing other pressures that may lead to unethical or illegal conduct, 23% of all respondents also reported feeling other pressures to compromise ethical standards or violate the law.

Note that due to social desirability bias, the survey likely understates these problems.

Comment

Also note that at least so far, this survey is not much less anechoic than much of the evidence of corruption in health care that we have discussed. Although it has been briefly noted in the financial blogs and press, like Reuters, BusinessWeek, and also in the New York Daily News and Los Angeles Times, no other main-stream media has commented yet.

One post on a Forbes blog by Peter Cohan made the weary observation:

Business corruption follows a well-worn path. The boss tells you to bend the rules, and knowing that ignoring that request will cost you your job, you do what you’re told. At the end of the year you get a big bonus and promotion.

Then a disgruntled customer or employee leaks the shady activity to the press or a regulator and your company pays a fine and gets a few weeks of bad headlines. Time passes and the cycle restarts.

He concluded in part:

The conditions that make business corruption pay off have not changed despite numerous scandals — recent ones include Enron, WorldCom, Madoff, and Lehman Brothers – all of which reflect the same conditions that prompted me to write Value Leadership a decade ago: Let executives write their own report cards, base bonuses on those numbers and you will get corruption every time.

The solution is as clear to me as it is impossible to implement. First, all corporate financial reporting must be conducted by highly paid government auditors –rather than by auditing firms that are paid by the companies they audit. Second, performance-linked bonuses must be set aside in escrow accounts for a decade until it’s clear whether the true benefits of business strategies exceed their costs.

As long as there is no limit to how much money companies can put into politicians’ pockets, this fix will never be implemented. That’s because money puts big business in control of politicians who — if they were responding to the interests of the majority of Americans — would eliminate the conditions that make the benefits of business corruption exceed its costs.

But business corruption pays for those who finance Washington campaigns so the soil in which it flourishes remains fertile.

The same is likely to be true of unethical practices by and corruption of health care leadership. After all, health care leaders now mainly come from business management backgrounds, and so have been trained in the same way as financial professionals, and exposed to the same culture that they have experienced. As we have noted, the leadership of health care and finance often overlap. For example, see ours posts on the finance influence on the board of Dartmouth College; the role of the former CEO of bankrupt Lehman Brothers on the board of New York-Presbyterian hospital; the role of finance leaders who derided the Occupy Wall Street as "imbeciles," among other things on the boards of miscellaneous health care organizations; the role of finance leaders on the board of Pfizer, etc, etc, etc.

True health care reform may require larger reform in the greater society.  In any case, we need to reform the culture of health care organizations so that leaders put patients' and the public's health first, and self-interest last.  Furthermore, health care organizations should not provide positive incentives merely for exceeding financial or volume benchmarks, and should provide strong negative incentives for unethical behavior.

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.

The Corporate Psychopaths Theory of Health Care Dysfunction

A new article in the Journal of Business Ethics suggested that the global financial crisis, or great recession, was primarily due to a fundamental flaw in the leadership of financial organizations, one that has important implications for health care organizations. 

The article, Boddy CR. The corporate psychopaths theory of the global financial crisis.  J Bus Ethics 2011; 102: 255-259 is here.  Its premise was:

The Corporate Psychopaths Theory of the Global Financial Crisis is that Corporate Psychopaths, rising to key senior positions within modern financial corporations, where they are able to influence the moral climate of the whole organisation and yield considerable power, have largely caused the crisis.

Note that in 2004 we first posted about the possibility that a proportion of corporate managers, including those in health care, could be psychopaths, raised then by two experts on psychopathy, Paul Babiak and Robert Hare. In 2006, they published Snakes in Suits, about the dangers of psychopaths as executives and managers (see post here). However, the issue got scant attention in those days of letting the good times roll.

Defining Corporate Psychopaths

Boddy described psychopaths as:

the 1% of people who have no conscience or empathy and who do not care for anyone other than themselves. Some psychopaths are violent and end up in jail, others forge careers in corporations. The latter group who forge successful corporate careers is called Corporate Psychopaths.

Corporate Psychopaths as Leaders

Such people do not make good leaders:

Although they may look smooth, charming, sophisticated, and successful, Corporate Psychopaths should theoretically be almost wholly destructive to the organizations that they work for. The probable mal-effects of the presence of psychopaths in the workplace have been hypothesized about in recent times by a number of leading experts and commentators on psychopathy.

Researchers report that such malevolent leaders are callously disregarding of the needs and wishes of others, prepared to lie, bully and cheat and to disregard or cause harm to the welfare of others. Corporate Psychopaths are also poorly organized managers who adversely affect productivity and have a negative impact on many different areas of organizational effectiveness.

How Corporate Psychopaths Could Have Become Prevalent
Despite the dangers posed by such leadership, corporate psychopaths may rise quickly in management:

Psychologists have argued that Corporate Psychopaths within organizations may be singled out for rapid promotion because of their polish, charm, and cool decisiveness. Expert  ccommentators on the rise of Corporate Psychopaths within modern corporations have also hypothesized that they are more likely to be found at the top of current organisations than at the bottom.

The nature of current corporate culture may facilitate the rise of corporate psychopaths:

These Corporate Psychopaths are charming individuals who have been able to enter modern corporations and other organisations and rise quickly and relatively unnoticed within them because of the relatively chaotic nature of the modern corporation. This corporate nature is characterized by rapid change, constant renewal and quite a rapid turnover of key personnel. These changing conditions make Corporate Psychopaths hard to spot because constant movement makes their behaviour invisible and combined with their extroverted personal charisma and charm, this makes them appear normal and even to be ideal leaders.

The destabilization of modern corporations likely lead to the ascendancy of the corporate psychopath:

However, once corporate takeovers and mergers started to become commonplace and the resultant corporate changes started to accelerate, exacerbated by both globalisation and a rapidly changing technological environment, then corporate stability began to disintegrate. Jobs for life disappeared and not surprisingly employees’ commitment to their employers also lessened accordingly. Job switching first became acceptable and then even became common and employees increasingly found themselves working for unfamiliar organisations and with other people that they did not really know very well.

Rapid movements in key personnel between corporations compared to the relatively slower movements in organisational productivity and success made it increasingly difficult to identify corporate success with any particular manager. Failures were not noticed until too late and the offending managers had already moved on to better positions elsewhere. Successes could equally be claimed by those who had nothing to do with them. Success could thus be claimed by those with the loudest voice, the most influence and the best political skills. Corporate Psychopaths have these skills in abundance and use them with ruthless and calculated efficiency. In this way, the whole corporate and employment environment changed from one that would hold the Corporate Psychopath in check to one where they could flourish and advance relatively unopposed.

The Harms Caused by Corporate Psychopaths as Executives

Thus, Boddy hypothesized the rise of management by corporate psychopaths lead directly to the global financial crisis or great recession:

As evidence of this, senior level remuneration and reward started to increase more and more rapidly and beyond all proportion to shop floor incomes and a culture of greed unfettered by conscience developed. 

Corporate Psychopaths are ideally situated to prey on such an environment and corporate fraud, financial misrepresentation, greed and misbehaviour went through the roof, bringing down huge companies and culminating in the Global Financial Crisis that we are now in.

Writing in 2005, this author commentating on Corporate Psychopaths predicted that the rise of Corporate Psychopaths was a recipe for corporate and societal disaster. This disaster has now happened and is still happening.

What Could be Next

Worse, if this hypothesis is true, as long as it is not addressed, things will get worse:

The very same Corporate Psychopaths, who probably caused the crisis by their self-seeking greed and avarice, are now advising governments on how to get out of the crisis. That this involves paying themselves vast bonuses in the midst of financial hardship for many millions of others, is symptomatic of the problem. Further, if the Corporate Psychopaths Theory of the Global Financial Crisis is correct then we are now far from the end of the crisis. Indeed, it is only the end of the beginning.

Some Agreement

The plausible theory that corporate psychopaths ascending to top management positions in finance caused the global financial crisis has been noticed by a few prominent financial pundits. Writing in Bloomberg, William D Cohan agreed with Boddy's suggestion that "anyone who makes decisions that affect significant numbers of other people, concerning issues of corporate social responsibility or toxic waste, for example, or concerning mass financial markets or mass employment, should be screened to make sure that they are, at the very least, not psychopaths and at most are actually people who care about others."

Brian Besham, writing in the Independent, suggested that Richard Fuld, former CEO of Lehman Brothers, whose bankruptcy kicked off public awareness of the global financial collapse, saying he wanted to eat the hearts of those selling his company's stock short (see this post), was a "terrifying" example of corporate executive psychopathy. Worse, Besham noted that he had discovered an case of an investment bank which "psychometric testing to recruit social psychopaths because their characteristics exactly suited them to senior corporate finance roles."  It may be that corporate psychopaths are actively recruiting their fellows.

Implications for Health Care

This is chilling. It also unfortunately is highly relevant to health care. As we noted, most recently here, leaders of big finance firms, including those whose failures were most spectacular, now often sit on boards of trustees of hospitals, academic medical centers, medical schools, and their parent universities. Thus, the likelihood that a good proportion of the stewardship of our most prominent not-for-profit health care organizations may be in the hands of psychopaths is not negligible.

Furthermore, health care organizations have become as unstable and chaotic, in the way these terms were used by Boddy, as finance firms. This would suggest that their current nature would make it as easy for psychopaths to rise to positions of power in them as they may have in financial firms. In health care we certainly have seen the consequences he suggested were due to psychopathic managers, including

- intimidation (per Boddy, corporate psychopaths are "prepared to lie, bully and cheat and to disregard or cause harm to the welfare of others");
- self-interest ("pursuit of self-enrichment and self-aggrandizement") leading to outrageous executive compensation ("senior level remuneration and reward started to increase more and more rapidly and beyond all proportion to shop floor incomes")
- fraud and other crime ("corporate fraud, financial misrepresentation, greed and misbehaviour went through the roof,... ")

So as we noted in 2006, "a high prevalence of psychopathic managers could explain the prevalence of mismanagement, conflicts of interest, and corruption in the leadership of health care organizations that we have often discussed on Health Care Renewal."

Boddy's first suggestion to deal with the problem in finance was:

Measures exist to identify Corporate Psychopaths. Perhaps it is time to use them.

However, it is as hard to imagine top health care leaders willingly and honestly submitting to the use of instruments designed to identify psychopaths as it is to imagine finance leaders doing so. Furthermore, it is easy to imagine how corporate psychopaths in positions of leadership would ruthlessly deploy their legions of public relations personnel and lawyers to quash any challenge should the notion that they are so dominant gain any credibility.

However, if there is any significant prevalence of corporate psychopaths among the leaders of health care, woe will be unto us until we identify and remove them.

New York - Presbyterian Hospital Trustee Advocated Novel Cardiac Procedure - "Reach In, Rip Out Their Heart, and Eat It Before They Die"

The dominant theme of Health Care Renewal has been how problems with the leadership of health care organizations have lead to our current state of health care dysfunction.  We have discussed examples of ill-informed, mission-hostile leadership rewarded with excess compensation, exhibiting impunity in the face of alleged misbehavior, and at times descending into corruption.  The cause of these problems is doubtless multi factorial.  However, one possible cause is that rather than exercise stewardship and hold leadership accountable, those in charge of governance of health care organizations, that is, boards of directors or trustees, have instead infected the organizations with the amoral culture now dominant in much of the business world, especially finance.  We have discussed, most recently here and here, how the boards of health care corporations often include heavy representation of leaders of finance, including many of those who seemed responsible for the global financial collapse, great recession, or whatever we will end up calling it. 

I recently stumbled upon a particularly graphic example of the sort of predatory culture that now exists on the boards of health care organizations.  (More on how I did so later.)  Below is an embedded YouTube video of a speech made by a current Trustee of New York - Presbyterian Hospital (who has been on the board since 2007).  He is Richard Fuld, the former CEO of Lehman Brothers, whose continuing role on the hospital board, despite his failed leadership of one of the financial firms whose bankruptcy ushered in the global financial collapse, we discussed first here.



Just to underline it once more, Mr Fuld, referring to short sellers of his company's stock, said he "what I really want to do is I want to reach in, rip out their heart, and eat it before they die." 

Can there be a more stark reminder of what has gone wrong with the governance of health care?  Can anyone watch this video and argue that Mr Fuld ought to be on the board of a hospital system?  Why is he still on the board in January, 2012, when this video was released in October, 2011?

While I suspect not many other hospital system board members have been videographed displaying equally brutal sentiments, there are likely others with similarly barbaric tendencies.

So, on a more positive note.... The boards of hospitals, hospital systems, medical schools, and their parent universities ought to be populated with people who take their stewardship roles seriously.  They ought to be people who understand, agree with, and support the organizations' mission, and their dedication to patient care and teaching.  They ought to understand what good leadership of health care organizations entail.  Needless to say, they ought to be of good character and above any ethical reproach.  In short, they ought to be the opposite of the sort of person displayed in the video above.

It should now be obvious that grievous problems with the leadership and governance of health care organizations are principle causes of the dysfunction in our health care system.  True health care reform will require wholesale changes in health care leadership and governance.

PS - In case the video above seems too short on context, see the one below:

They Think We are "Imbeciles," and They Run Health Care Organizations

Arrogance seems to fuel many of the problems with health care leadership that we discuss, particularly hostility to the mission, often driven by self-interest; a sense of entitlement to lavish compensation out of proportion to any measure of performance; and a lack of accountability shading into impunity.  Some recent stories hint at some of the origins of such arrogance. 

The Occupy Wall Street movement drew attention to the plight of the poor and middle class, who had lost income, retirement benefits, jobs, houses, and access to health care while the richest, especially corporate executives, got richer.  The less fortunate's anger was not directed indiscriminately at the successful or the rich, but those who got wealthy by gaming the system, or flaunting the rules that lesser mortals had to obey.  Perhaps not surprisingly, some of those most vulnerable to such criticism have responded with contempt. 

Anonymous or Indirect Defenses of the One Percent

The initial defense of the plutocrats came from some of their political supporters, who denounced their "demonization" (see this opinion piece by Barbara Ehrenreich in September, 2011) or decried the rise of "mob rule" (see this by Paul Krugman in October).  Then several articles documented the anonymous complaints of finance insiders about:

a bunch of whiny people who are lazy and incompetent and have nothing to do with their time

from a Reuters article in October.

a ragtag group looking for sex, drugs and rock 'n' roll

from a NY Times article in October.

The Plutocrats Strike Back

However, increasingly those in the one percent are willing to be open. In late December a Bloomberg article documented the sentiments of a number of finance and other corporate leaders.

- Jamie Dimon, CEO of JP Morgan Chase, complained:

Acting like everyone who's been successful is bad and because you're rich you're bad, I don't understand it.

- Bernard Marcus, founder of Home Depot:

Who gives a crap about some imbecile? Are you kidding me?

- John A Allison IV, Chairman of BB&T:

'Instead of an attack on the 1 percent, let’s call it an attack on the very productive,' Allison said. 'This attack is destructive.'

- Stephen Schwarzman, CEO of the Blackstone Group:

'You have to have skin in the game,' said Schwarzman, 64. 'I’m not saying how much people should do. But we should all be part of the system.'

- John Paulson, President of hedge fund Paulson & Co:

has also said the rich benefit society.

'The top 1 percent of New Yorkers pay over 40 percent of all income taxes,...'

- Tom Galisano, founder of Paychex Inc:

If I hear a politician use the term ‘paying your fair share’ one more time, I’m going to vomit

- Ken Langone, founder of Home Depot:

I am a fat cat, I’m not ashamed

Considering how Paul Krugman explained the generation of the global financial collapse by

people who got rich by peddling complex financial schemes that, far from delivering clear benefits to the American people, helped push us into a crisis whose aftereffects continue to blight the lives of tens of millions of their fellow citizens.

Yet they have paid no price. Their institutions were bailed out by taxpayers, with few strings attached. They continue to benefit from explicit and implicit federal guarantees — basically, they’re still in a game of heads they win, tails taxpayers lose. And they benefit from tax loopholes that in many cases have people with multimillion-dollar incomes paying lower rates than middle-class families.

Thus the responses by the very rich above only represent some or more arrogance.

The Plutocrats as Health Care Leaders

One wonders how much this arrogance carried over into health care. We have noted previously how the leadership of finance has increasingly overlapped the leadership of health care, and how top executives increasingly seem to identify more with each other than with their employees, customers, or other stakeholders. Therefore, it should be no surprise that all but one of the group above also had or have leadership roles in health care organizations.

- Jamie Dimon is on the board of trustees of the New York University Langone Medical Center. 

- Bernard Marcus formerly served as the chair of the board of the CDC Foundation.

- John A Allison IV is a member of the board of visitors of Wake Forest University Baptist Medical Center, per his BB&T Corp official biography.

- Stephen Schwarzman's Blackstone Group includes the Blackstone Healthcare Group, which invests in various health care corporations (as of 2010, Nycomed, Gerresheimer, Stiefel Laboratories, and Catalant per this press release), and all of whose members serve on one or more boards of directors of health care corporations (per the press  release, Arthur Higgins serves on the boards of Zimmer, Eco Labs, and Resverlogix Corp; Lodewijk J R de Vink serves on the board of Roche; Doug Rogers serves on the boards of Codevax, Charles River Laboratories, and Computerized Medical Systems.)

- John Paulson is on the board of trustees of New York University,

- Kenneth G Langone, is vice chair again of the board of trustees of New York University, and chair of the board of trustees of the NYU Langone Medical Center.

I submit that linking their sentiments above to their leadership roles in health care should be highly disconcerting.  Do we want people running medical centers who are proud to be "fat cats?"  Do we want people running medical centers who do not understand why people who have lost income, retirement funds, jobs or their homes might be upset?  Do we want people running health care corporations who do not think the poor and middle-class have any skin in the economic game?   Do we want people running health care foundations who think that those who complain about the current economic situation are "imbeciles?"

Summary

The problems of health care increasingly seem to be a part of the larger problems with the global political economy.  The problems we have been discussing that affect health care leadership seem to have come out of the culture of what now many are calling the larger plutocracy. 

So it now seems that true health care reform will require a larger reform of the political economy.  However, we still need leaders who understand the health care context, uphold health care professionals' values, and put patients first.  We do not need leaders who are ill-informed, incompetent, self-interested, conflicted, or corrupt.  We need governance that is accountable, honest, transparent, ethical, and again puts patients first. 

The Parallels Between Health Care and Financial Dysfunction: Leadership's Impunity as Demonstrated by the Citigroup Case

For years, we have noted the parade of legal settlements made by large health care organizations.  The parade is notable on one hand because it illustrates how often some of our best known health care corporations and institutions behave badly. 

Impunity for Health Care Leaders

It is notable on the other hand because it illustrates how the leaders of these organizations have virtual impunity.  In very few cases has any person who authorized, directed, or implemented bad behavior faced any negative consequences.  The executives of these organizations often have gotten to continue making millions of dollars while the financial costs of settlements are borne by the company as a whole, and hence by all the employees, no matter how poorly paid or uninvolved, and all stockholders, no matter how powerless they were to prevent the bad behavior.

The legal settlements that now seem to be the only effort made by the government to ensure fairness, honesty, and a level playing field in the health care "industry" seem to have no deterrent effect.  Some of the most famous health care companies have been subject to successive settlements, each of which failed to deter the next bout of bad behavior.  For example, we just posted about NINE separate settlements made by global pharmaceutical giant Pfizer Inc from 2002 to 2011, the largest for $2.3 billion.  Yet a succession of Pfizer CEOs made tens of millions a year, and left with golden parachutes (see post here).  Johnson and Johnson subsidiaries have settled with corporate guilty pleas to several misdemeanors, while the company CEO made tens of millions a year and served as an adviser to the President.  (See summary of offenses here, CEO's compensation here, and his White House role here.) 

With the rise of the "Occupy Wall Street" movement and its spin-offs, and the resurgence of the global financial crisis now threatening the Euro-zone in particular, the discussion of how the world's finance system has become fiercely dysfunctional that should have occurred after the crisis began in 2008 is now starting.  That discussion has now focused on the relative impunity of the leadership of finance firms, a striking parallel to what has gone on in health care.

The Citigroup Settlement

The case that has created headlines is that of Citigroup, and a new settlement of allegations brought against it by the US Securities and Exchange Commission (SEC).  A commentary by Jonathan Weil in Bloomberg explained it thus:

Five times since 2003 the Securities and Exchange Commission has accused Citigroup Inc’s main broker-dealer subsidiary of securities fraud. On each occasion the company’s SEC settlements have followed a familiar pattern.

Citigroup neither admitted nor denied the SEC’s claims. And the company consented to the entry of either a court injunction or an SEC order barring it from committing the same types of violations again. Those 'obey-the-law' directives haven’t meant much. The SEC keeps accusing Citigroup of breaking the same laws over and over, without ever attempting to enforce the prior orders. The SEC’s most recent complaint against Citigroup, filed last month, is no different.

As in most of the health care cases, Citigroup has been subject to multiple legal settlements, each of which apparently failed to deter the next bit of bad behavior. Also, while the SEC made the company promise in particular settlements not to misbehave again, the SEC never held the company accountable for these promises.

Other features of the Citigroup settlement paralleled many of those in health care. The company was never made to admit bad behavior. No top executive ever paid any penalty.

However,unlike many health care cases, the Citigroup case produced an uproar, partially because the presiding judge refused to accept the settlement without questions.

A Judge Questions the Settlement

Instead, the judge had caustic questions for both the SEC and Citigroup. For example, as reported by the Washington Post,

A federal judge Wednesday challenged the SEC’s plan to settle a fraud case against Citigroup for $285 million, saying that the deal would recoup only a fraction of investors’ losses and would leave the firm free to proclaim its innocence in private lawsuits over the remaining damages.

The judge used the Citigroup case to mock the SEC’s traditional way of doing business — allowing defendants to settle without admitting or denying wrongdoing.

The unproven allegations, U.S. District Court Judge Jed S. Rakoff said, 'are no better than rumor or gossip.'


'Does not the SEC of all agencies have an interest in establishing what the truth is?' Rakoff asked.

Also, he mocked the SEC practice of requiring promises of good behavior, that go unenforced,

SEC settlements routinely include court orders prohibiting defendants from committing similar violations in the future and exposing them to potentially severe consequences if they do. However, the agency has refrained from enforcing those injunctions against repeat offenders.

Citigroup was subject to two injunctions that predated the current case, SEC chief litigation counsel Matthew T. Martens said.

Rakoff suggested that the injunctions are 'just for show.'

The SEC lawyer said the agency takes past offenses into account when determining an appropriate penalty. Other SEC officials said after the hearing that past injunctions can be enforced only when the SEC catches a defendant in an ongoing violation.

The proposed settlement also calls for Citigroup to take remedial steps to reduce the risk of future violations; Rakoff asked if those were merely 'window dressing.'

This unusual hearing was covered by the Wall Street Journal, the New York Times, Bloomberg, and other major media outlets.

Finance's Own Parade of Settlements

Meanwhile, the NY Times did some in-depth reporting to show that the Citigroup case was hardly a fluke. There has been a parade of legal settlements of bad behavior by finance firms paralleling the parade we have discussed by health care organizations, although the former occurred without there being a "Finance Renewal" blog to comment on them. As written by Edward Wyatt,

Citigroup is far from the only such repeat offender — in the eyes of the S.E.C. — on Wall Street. Nearly all of the biggest financial companies, Goldman Sachs, Morgan Stanley, JPMorgan Chase and Bank of America among them, have settled fraud cases by promising the S.E.C. that they would never again violate an antifraud law, only to do it again in another case a few years later.

A New York Times analysis of enforcement actions during the last 15 years found at least 51 cases in which 19 Wall Street firms had broken antifraud laws they had agreed never to breach.

In particular,

Of the 19 companies that the Times found to be repeat offenders over the last 15 years, 16 declined to comment. They read like a Wall Street who’s who: American International Group, Ameriprise, Bank of America, Bear Stearns, Columbia Management, Deutsche Asset Management, Credit Suisse, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley, Putnam Investments, Raymond James, RBC Dain Rauscher, UBS and Wells Fargo/Wachovia.

The NY Times article also found some experts willing to criticize the current effeteness of government regulation and law enforcement:

Senator Carl Levin, a Michigan Democrat who is chairman of the Senate permanent subcommittee on investigations and has led several inquiries into Wall Street, said the S.E.C.’s method of settling fraud cases, is 'a symbol of weak enforcement. It doesn’t do much in the way of deterrence, and it doesn’t do much in the way of punishment, I don’t think.'

Barbara Roper, director of investor protection for the Consumer Federation of America, said, 'You can look at the record and see that it clearly suggests this is not deterring repeat offenses. You have to at least raise the question if other alternatives might be more effective.'

Also,

some experts view many settlements as essentially meaningless, particularly since they usually do not require a company to admit to the accusations leveled by the S.E.C. Nearly every settlement allows a company to 'neither admit nor deny' the accusations — even when the company has admitted to the same charges in a related case brought by the Justice Department....

Summary

As we learn more about what has gone wrong with our political economy, the parallels with what has gone wrong with health care become more obvious. Of course, health care must operate within a larger environment, and there has been increasing overlap between the leadership of finance and of health care.

As the economy continues to sag, with rising unemployment and under-employment, increasing foreclosure, homelessness and poverty, and the decreasing likelihood of an even minimally comfortable retirement for many, it appears peoples' minds are increasingly focused on what has gone wrong, and particularly how ill-informed, incompetent, self-interested, conflicted and corrupt leadership of financial firms has lead to this severe economic dysfunction.

I also hope that as the health care crisis continues to worsen, with rising costs, decreasing access, and degrading quality, peoples' minds will also increasingly focused on what has gone wrong, and particularly, as we have been saying for nearly seven years, how ill-informed, incompetent, self-interested, conflicted and even corrupt leadership of health care organizations has lead to this severe health care dysfunction.

Maybe someone will now take seriously our calls for... true health care reform that 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.