Flocks of Misdeeds
Whistleblowing is better seen as a long process than as a
discrete event, and the wrongdoing that the whistleblower discloses usually arises
from a multitude of wrongs, not a single act.
Large companies have shown how corporate misdeeds can multiply
in an accommodating environment. Recent examples
include Wells
Fargo’s creation of fake accounts, Bank
of America’s mortgage foreclosure practices, JPMorgan’s
marketing of proprietary investment products to unsophisticated investors, and faulty
benefits processing by the Veterans Administration
(Oakland office). But companies do
not limit themselves to one sort of wrong implemented broadly through the organization;
whistleblowers can find varieties of wrongdoing within individual organizations[1].
Where one instance of corruption is found – for example,
taking gifts from companies that are subject to regulation – others are likely
to follow – such as ignoring legal violations from those companies. Misusing organizational funds in one area is
linked to reckless waste in others. Nepotism
begets cronyism. Misreporting in one department
walks along with deception in other departments.
Of all whistleblower stories, I read those from CFOs with
the most interest. In one, Gregg
Becker, CFO at Rockwood Clinics, a nonprofit subsidiary of publicly traded Community
Health Systems, Inc., refused to change his forecast – which proved accurate – of
Rockwood’s 2012 loss from $12.8 million to the $4 million that senior financial
management at CHSI wanted to present. Becker
was badgered repeatedly over his resistance and eventually placed on a
performance improvement plan before he felt obliged to resign. Never mind that the $8.8 million difference
was immaterial to CHSI, which reported $1.2 billion in income from operations
in 2012, or that Becker’s forecast was not to public investors but to finance
management in Rockwood’s parent company.
Because he sincerely, if naively, believed that the lower forecast loss could
be used to deceive investors, a Department of Labor judge ruled in his favor.
It is easy to imagine Becker’s frustration in dealing with
the differences between Rockwood’s actual performance and the much better results
CHSI expected when it acquired Rockwood two years earlier. It is easy to imagine pressures from all who
were involved in that acquisition to cover their rear ends. Becker was probably frustrated by Rockwood’s deficient
accounting systems in the midst of those operational challenges. Then came three months and hundreds of
emails, including emails that questioned his reading skills, work ethic, and
analytical abilities, from CHSI’s finance people. It is, then, no surprise that Becker blew a
whistle internally on the repeated demands to provide an inaccurate forecast.
A second story is that of Michael Hawkey, CFO of
Mental Health Systems for 14 years. MHS
revenue had declined from $97 million in 2009 to $75 million in 2015, and
Hawkey’s warnings of serious future cash problems were ignored. In his February
10, 2016 letter to a major government funder, Hawkey revealed that CHS had
been requesting reimbursement for unpaid expenditures, it had made suspicious
payments to a consulting firm on whose board the CEO’s husband sat, and the CEO’s
husband was also a highly paid senior vice president in MHS. The County of San Diego’s special
review report confirmed fully or partially Hawkey’s allegations and determined
that the company had used government funds to help finance its for-profit
subsidiary.
Before I formally disclosed HomeFirst’s violation of site
licensing requirements in November 2013, I had internally identified violations
of four other federal contracts or regulations.
By the time I was fired in June 2014, I had described 17
areas of contract violations, in some cases involving multiple contracts, as
well as the
anti-trust violation and the failures to return funds to HUD
and the
City of San Jose.
Multitudinous violations at HomeFirst and other companies can
affect the behavior of both whistleblowers and wrongdoers. First, it leads the whistleblower to believe that
the wrong won’t be corrected and that wrongdoing will continue. She revolts against a
situation that must not continue and that triggers disgust even before a
reasoned ethical critique.
Its steady flow of wrongdoing also leads the organization to
assume a certain stance against the whistleblower. Because the wrongful acts seem essential to its
operations, timely retaliation against the whistleblower becomes important. After I admitted in March
2013 that I had made external disclosures, HomeFirst’s attorney advised
the Board to fire me immediately before I could do any more damage. Despite the risk of a successful lawsuit, that
was the best option, he suggested. Two weeks
later, the company’s CEO prepared a recommendation
to the Board that I be fired before I could disclose any more problems.
Still, the CEO and Board delayed my dismissal, planning to gather
documentation to terminate me for cause in July. As a result of that delay, I could gather more
information and I disclosed the payroll-related violations in May and the food
handler card violation in June. In contrast,
Hawkey and another CFO, Michele
Gutierrez at Fine Arts Museums of San Francisco, were removed from their
jobs days after their disclosures then fired a couple of months later.
A third factor: the greater the number of wrongs, the more
widely known are the wrongs within the organization. At Wells Fargo, fraudulent accounts were
opened at offices around the country and may have been known to tens of
thousands of bank employees, perhaps 2% of the organization. Reports suggest that about a dozen people – say,
1% of CHSI’s 1,000 employees – may have been aware of Becker’s forecast problem. At HomeFirst, a broad group, including board
members, senior management, program managers and other employees, that totaled more
than 15% of the company’s staff and Board members were aware of at least some
of the alleged violations.
The more numerous the violations, the more culpability is
shared in the organization. Even the
whistleblower can be tarred. Hawkey, as
CFO, was probably at least indirectly responsible for payments to the subsidiary and for billing the County for unpaid expenditures. Gutierrez surely shared responsibility with
the Board Chair she accused of an improper $450,000 payment. And I owned some responsibility for several of
the violations that I disclosed – such as the County overbilling, the site
licensing, the master lease billings, and the payroll violations.
Whistleblowing is a messy arrangement, spread over time, and
involving many characters and ambiguous ethical issues. But at the same time, it is a straightforward
issue: someone observes something that appears wrong and calls it out, and the
organization responds. Straightforward
and necessary.
[1] Examples
from recent news reports: Allard
& Graham, Baez,
Bailets,
Baker,
Barcia,
Berylavsky,
Bondy,
Carroll,
Crabtree,
Davis
and Dobbs. The list could
continue.
No comments:
Post a Comment