Monday, March 14, 2016

Whining and Why the Whistleblower Should Have Been Fired Anyway (Part 1)

Whining and Why the Whistleblower Should Have Been Fired Anyway (Part 1)

Among the explanations for corporate wrongdoing is stress.  Stress can increase a group’s solidarity and decrease its willingness to listen to those who, like the whistleblower, are not in the group.  As a result, they may make decisions that they would have shunned otherwise[1].  A company whose ethical standards are weak can become unhinged when stressed[2].  HomeFirst suffered from stresses.


The founder left, we reduced staff by 40%, and we sold properties.  The interim CEO persuaded some major donors to advance nearly $3 million of transition money, and we survived.  The operating losses were reduced but still continued at a rate of about $250,000 a year.  A few months after Jenny started as the new CEO in early 2009, I told her that we might need another round of expense cuts to eliminate the loss.  The immediate pressure to act was low, however.  The transition funding was still dribbling in; the City of San Jose advanced $350,000 to fund a program (7th issue); and our inflated receivables began to drop, generating cash.  Together, these inflows helped finance operating cash losses of $1 million in the first four years of Jenny’s tenure.

As the extraordinary sources of cash began to dry up, I voiced more concern about the underlying losses.  In late 2012 the Board wanted to keep the shelter beds filled because people were in need.  The Chief Program Officer obliged; I argued that shelter expenses were running above budget.  It took a couple of months to correct the problem; meanwhile more financial damage was done. 

In December 2012, I described to the Executive Leadership Team (ELT) – Jenny, the Program Officer, the Chief Development Officer, and me – HomeFirst’s historical pattern of losses and the likelihood that they would continue with disastrous consequences.  I offered scant evidence of something that might happen a year or more away, Jenny thought, and we moved on.  I began forecasting a loss for the year that would end in June, initially around $200,000 and increasing as expected contributions failed to materialize until the loss reached $400,000, including a $130,000 adjustment for the County overbilling (1st issue).

We began developing the fiscal 2014 budget in April 2013, and by mid-May it appeared that we would lose $500,000 or more in the coming year.  At a Memorial Day ELT meeting, I argued unsuccessfully for a radical cost reduction, including the elimination of the Program Officer’s position and the sale of assets.  That was impossible, Jenny said.  She suggested a 3% salary reduction for the mostly low-paid staff, but that got no traction.  She then suggested a salary reduction for ELT.  That idea, too, failed to get traction, and no decision emerged from the day. 

A week later, the Finance Committee reviewed a draft budget that included a single-digit-probability $900,000 contribution from a Very Large Donor.  When he agreed in June to give just $175,000 early in the year, we revised the budget to include $150,000 more from him later plus another $100,000 sketchy prospect.  The budget was balanced without significant changes in operations, but operating cash was projected to drop to near zero in September 2014.

At an early July 2013 meeting with Executive Committee members, Jenny sat beside the Board Chair and moved the budget presentation forward briskly.  I fidgeted.  Jenny, irritated, asked if I wanted to say anything.  I pointed out that HomeFirst had been losing money for years and had lost more in fiscal 2013 although the books were not closed yet.  No serious adjustment had been considered in the budget, I said, and it was insane to think that a different future would result without changes.  Board members discussed the matter briefly but decided that a cut would undercut the community’s perception that we were a leader.  The budget was approved unanimously by the Board.  Later Jenny reprimanded me for my behavior, saying that she was tired of having to apologize to everyone for my comments. 

The Executive Committee members met with Jenny monthly to discuss HomeFirst matters away from the full Board and other members of management.  Their commitment to HomeFirst and its mission was beyond doubt.  Without pay, they attended committee meetings and Board meetings; they participated in fundraising events; some volunteered in programs; and they all contributed money to the company.  Drawn together, perhaps they fell naturally into a groupthink trap of quick, painless unanimity in order to escape a stressful decision[3].  Maybe they assumed an invulnerability to risk, for example, by assuming we could skate by with no cash and no alternative plan.  Maybe it was natural to ignore warnings and rationalize their course of action, for example, as protecting their image of leadership. 

After years of losses, the pressure became intense as cash dropped.  Toward the end of 2013, my reports to the ELT, the Finance Committee, and the Board increasingly stressed that operating cash in October 2014 was likely to be close to zero or even negative.  The 2013 budget had projected a low cash balance if business went as planned, but things seldom do. 

By the end of 2013, I had been vocal about compliance issues for several months.  I was becoming more vocal about the continuing losses and the prospects for a cash catastrophe during the coming year.  All of my comments were effectively criticisms of Jenny’s management, which did not help my relationship with her.  By saying to my boss and the Board above her what they did not want to hear, I violated basic rules of business life[4].  Punishment, including termination, was appropriate.  That was the HomeFirst brief.



[1] Janis, Irving LGroupthink: Psychological Studies of Policy Decisions and Fiascoes. 2nd edition, revised. Boston: Houghton Mifflin Company. 1983
[2] McCoy, Bowen H. “The Parable of the Sadhu .” In Ethics in Practice: Managing the Moral Corporation. Kenneth R. Andrews (ed.). Boston: Harvard Business School Press. 1989
[3] ‘t Hart, Paul. “Irving L. Janis’ Victims of Groupthink.” Political Psychology. 12.2 (June 1991), pp. 247-278
[4] Jackall, Robert. Moral Mazes. New York: Oxford University Press. 2010

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