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 L. Groupthink:
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
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