The Medical School as Hereditary Plutocracy - Retiring Board Chair Sanford Weill of Cornell Weill Medical School Names His Own Daughter as New Chair

As I have written before, sometimes you just could not have made this stuff up.

The Retiring Board Chairman Appoints His Own Daughter to Succeed Him

The most even handed reporting on this story was in Inside Higher Ed,

Leadership of the board that oversees Cornell University’s medical college is passing from father to daughter, an unusual transition of power for a higher education board.

Weill Cornell Medical College’s Board of Overseers has been chaired for the past two decades by its namesake and major donor, Sandy Weill, the former CEO of Citigroup.

His daughter, Jessica Bibliowicz, is now set to take over Weill's role. She is the founder and former CEO of a major insurance brokerage, and has also been on the board for a decade.

Let me just dissect this a bit.  Weill Cornell Medical College is a large, prestigious medical school located in New York City, and part of Cornell University.  The chair of its Board of Overseers for the last two decades as been one Sanford I Weill.  Mr Weill is a famous finance executive, formerly CEO of Citigroup from 1998 - 2003, remained chairman of the board of Citigroup through 2006, and is now chairman emeritus (look here). 

According to a Cornell press release, the new chairperson, ms Jessica Bibliowicz, is a

Cornell University graduate in 1981 and after working 18 years in financial services, Ms. Bibliowicz became CEO of National Financial Partners in 1999, a financial services firm that specializes in benefits and wealth management. The company went public in 2003 and was sold to Madison Dearborn in 2013.

 Currently,

Ms. Bibliowicz is a senior advisor at Bridge Growth Partners and serves on the board of directors of Sotheby's(NYSE: BID); Realogy (NYSE: RLGY); and the Asia Pacific Fund (NYSE: APB). She is a board director/trustee of Prudential Insurance Funds....

The Inside Higher Ed article noted that

In a statement, Cornell said, Weill Cornell Medical College engaged in a comprehensive process to select its chair of the Board of Overseers by canvassing multiple members of the board in full consultation with senior leadership. The search was headed by a group of senior trustee overseers with extensive knowledge of the institution and Weill Cornell firmly believes it has selected the best choice as chair.'

The New York Times reporting of the succession, oddly in the Dealbook blog, which is focused on finance and Wall Street, not medicine, made it seem, however, that Mr Weill handpicked his daughter to succeed him,

he increasingly felt that the time was nearing to appoint a successor.

'I felt like it was a good time for younger blood,' he said.

Ultimately, he decided upon his daughter,

The Cornell press release lauded Mr Weill, the retiring chair as providing "bold and visionary leadership," having "enduring dedication," exemplifying "benevolence and unwavering resolve to ensure a healthier future," etc, etc.  It called him a "self-made man who exemplifies the philosophy of leading by example."  It quoted the current dean of the medical school, Dr Laurie Glimcher, (whose apparent conflict of interest as a board member of Bristol-Myers-Squibb we discussed here and here) calling his accomplishments "breathtaking."  It quoted the university president, David Skorton, calling him again a "visionary."

In the Dealbook article, Dr Glimcher further praised the chairperson designate, Ms Bibliowicz, as "a person of enormous energy and passion," who will "bring her energy, her connections and her passion for medicine and medical research and education to the role."


The Inside Higher Ed article noted some vague questions about the position of chair of the board of trustees of an important medical school being passed from father to daughter,

'On the other side of the coin, within-family succession planning adds complexity to the issue -- it just raises certain questions,' [former vice president for programs and research at the Association of Governing Boards of Universities and Colleges Peter] Eckel said.

However, Mr Eckel did not really list these questions.

Later, the article referred to "nepotistic arrangements," presumably in part referring to this father - daughter transition, but then found someone to defend them. 

The Real Questions

Weill Cornell Medical College is part of a non-profit organization.  Nonprofit organizations have no owners. Non-profit organizations are formed to support particular missions, under the stewardship of boards of trustees (or directors or overseers).  These boards have three basic duties [italics added]

 Duty of care: Board members are expected to actively participate in organizational planning and decision-making and to make sound and informed judgments.
Duty of loyalty: When acting on behalf of the organization, board members must put the interests of the nonprofit before any personal or professional concerns and avoid potential conflicts of interest.
Duty of obedience: Board members must ensure that the organization complies with all applicable federal, state, and local laws and regulations, and that it remains committed to its established mission.

Thus, the transfer of the position of chair of the board from parent to offspring, apparently directly under the control of the parent, is questionable on its face, suggesting that family interests came before the "interests of the nonprofit."  Such transfers may commonly occur on the boards of privately family held for-profit companies, but are basically unheard of for medical schools or other large academic medical nonprofit organizations, where they certainly could appear nepotistic.

That concern is amplified when neither parent or child have any appreciable background or training in the work of the nonprofit.  Neither Mr Weill nor Ms Bibliowicz seem to have any training or background in health care, biomedical research, or specifically medicine.  Yet Weill Cornell Medical School's basic mission is to train students to be physicians.  So how well either or their personal judgments about the policy and operations of a medical school are "informed" is not exactly clear.  

Further concerns are raised by the background of the father in this father daughter transaction, the part of the background that was entirely ignored by the rather fawning public discussion of the transaction in the Cornell press release, and also the NY Times Dealbook article.

In fact, Mr Weill's leadership in the past was of Citigroup during the lead up to the global financial collapse of 2008.  Citigroup, the poster child for the too big to fail bank, nearly went bankrupt, and required a huge government bailout.  Its near collapse, again apparently only prevented by government action, is widely considered to have been a major cause of the finance disaster starting in 2008.  As we noted in a 2009 blog post about Weill Cornell,   The Sellout, by Charles Gasparino, featured vivid portraits of the bad leadership that lead to the collapse, including specifically Mr Weill,

But in reality, Will never really ran anything. He was a visionary, to be sure, but one whose vision was so myopically focused on building the empire had lusted for for so long and on its share price that he ignored just about everything else. (p. 144)

Furthermore, this was Mr Weill's listing in the "key people" section of the book,

Former CEO and chairman of Citigroup, Weill created the idea of the one-stop-shopping mega-financial conglomerate, engineering a series of mergers ... and in the process created the world's largest financial company.  Famously obsessed with his firm's stock price, Weill announced his resignation in 2003 after investigators discovered he'd pressured a stock analyst, Jack Grubman, to raise his rating on AT&T, where Weill was on the board, in return for ensuring that Grubman's children got into an exclusive preschool.

Furthermore, in the Time magazine series on the "25 People to Blame for the Financial Crisis," Mr Weill is listed as  "blameworthy" because,

Who decided banks had to be all things to all customers? Weill did. Starting with a low-end lender in Baltimore, he cobbled together the first great financial supermarket, Citigroup. Along the way, Weill's acquisitions (Smith Barney, Travelers, etc.) and persistent lobbying shattered Glass-Steagall, the law that limited the investing risks banks could take. Rivals followed Citi. The swollen banks are now one of the country's major economic problems. Every major financial firm seems too big to fail, leading the government to spend hundreds of billions of dollars to keep them afloat. The biggest problem bank is Weill's Citigroup. The government has already spent $45 billion trying to fix it. 

In a post on the Baseline Scenario blog, Simon Johnson, author of another authoritative book on the financial crisis, 13 Bankers, wrote this about Citigroup leadership,

Citigroup is a very large bank that has amassed a huge amount of political power. Its current and former executives consistently push laws and regulations in the direction of allowing Citi and other megabanks to take on more risk, particularly in the form of complex highly leveraged bets. Taking these risks allows the executives and traders to get a lot of upside compensation in the form of bonuses when things go well – while the downside losses, when they materialize, become the taxpayer’s problem.

Citigroup is also, collectively, stupid on a grand scale. The supposedly smart people at the helm of Citi in the mid-2000s ran them hard around – and to the edge of bankruptcy. A series of unprecedented massive government bailouts was required in 2000-09 – and still the collateral damage to the economy has proved enormous. Give enough clever people the wrong incentives and they will destroy anything.

Physicians are supposedly rigorously trained, and tasked with upholding important ethical principles.   So did it make sense to entrust the stewardship of a premier American medical school to the man who engineered the expansion of Citigroup that turned out to be "stupid on a grand scale," in order to "get a lot of upside compensation," while leaving the "downside losses" to become "the taxpayer's problem," so that the "collateral damage to the economy has proved enormous?"   Does it make sense to allow him to choose his own daughter, who has no more medical experience than he did (which was zero), to steward the school in the future?

I wonder what Cornell medical students, or physician alumni would say, if they felt safe enough to answer the question?

As we wrote in 2009,  boards of trustees of not-for-profit health care institutions have a primary duty to uphold the institutions' missions.  Thus, one would think such boards would be selected according to their dedication to their missions.  But perhaps, in the grubby real world, there may be more important criteria, possibly such as the size of their donations to the institution.  Furthermore, those likely to donate the most  may be more likely to be richest (and perhaps most in need to making themselves appear philanthropic and public-spirited) than the most fervent upholders of patient care, teaching and research.

Maybe giving stewardship of our once proud health care institutuions to people most likely to defend their missions, rather than most likely to donate a lot of money, would result in somewhat poorer institutions which do a better job of patient care, teaching and research.

You heard it here first.  
 

If a Medical School is Just Part of the "Biomedical Industry," Who Will Do Medical Education?

A little while ago, we discussed questions raised by the pre-existing financial relationships of Dr Laurie Glimcher, the new incoming Dean of Weill Cornell Medical School. Dr Glimcher is also the longest serving director of Bristol-Myers-Squibb, and has a number of other financial relationships with drug and device companies.

A new interview with Dr Glimcher suggested that what is most interesting about the coverage of her ascension to the Cornell Deanship is what it did not mention, especially whether she has any goals other than promote relationships with and do product development for corporate health care.

So let me review what has been made public about the interests and goals of Weill Cornell Medical College's new Dean.

The New York Times: To Develop "Research Capacity" and a "New High-Tech Campus"

The New York Times article focused on the new Dean's conflicts of interests, but found no doubts about these conflicts among the university leadership to whom the new Dean would report. Instead,

Cornell University’s president, Dr. David J. Skorton, said he believed Dr. Glimcher had the skills to carry out the medical school’s plan to double its research capacity and to help the university compete to develop a new high-tech campus proposed by the Bloomberg administration.

However, while it emphasized how university leaders defended Dr Glimcher's conflicts of interest, the New York Times article said nothing about the university leadership's educational or clinical expectations for Dr Glimcher.

The Cornell Sun: To "Strengthen its Relationship with Biotechnology and Pharmaceutical Companies"

Similarly, according to the Cornell Daily Sun, the university leadership regarded the new Dean's relationships with industry as strengths, not weaknesses,

As the longest-standing member of the corporate board of biopharmaceutical company Bristol-Myers Squibb, [Dr Laurie] Glimcher has 'extensive experience' in corporate finance, governance and management, according to a University press release.

So,

Under Glimcher’s leadership, Weill hopes to strengthen its relationship with biotechnology and pharmaceutical companies, develop innovative cures and bolster research, the University stated.

The Sun did briefly note,

In a press release, [Cornell University President David J] Skorton said he was 'honored and delighted' that Glimcher accepted the position.

'Her passion for accomplishment and her many research and clinical strengths make her ideally suited to build on Tony Gotto’s strong foundation and lead Weill Cornell’s bright future in clinical care, education and translational research,' Skorton said.

However, there were no further details about what Dr Glimcher would do for clinical care or education.

The Cornell Press Release: To Achieve "Preeminence in the Biomedical Sciences"

This press release emphasized Dr Glimcher's corporate skills even more than did the Times or Sun articles,

Her service with the biopharmaceutical company Bristol-Myers Squibb, where she is the longest-standing member of the corporate board of directors and of its audit committee, has afforded her extensive experience in management oversight, corporate governance, corporate finance, accountability, leadership and the practical aspects of running a business and bringing therapeutics to the marketplace.

'This is great news for the medical school and for the city,' said Sanford I. Weill, chairman of the medical college's board of overseers and a member of the board of trustees of Cornell University. 'With her thorough appreciation of the management and financial challenges of complex organizations, I am confident she will lead the college with the same creativity and acumen she demonstrated when she pioneered the establishment of Bristol-Myers' science and technology committee, which is widely credited for transforming its stake in research. With a state-of-the-art biomedical research facility under construction and Dr. Glimcher at the helm, Weill Cornell and New York are on course to achieve a preeminence in the biomedical sciences that has already been achieved in clinical medicine and first-rate medical education.'

However, it said nothing substantive about Dr Glimcher's educational or clinical goals or interests. (Perhaps, because Mr Weill thought that the school had already achieved preeminence in these areas, he also thought no further goals in these areas are needed.)

Crain's New York Business: "Critical that the Pharmaceutical Industry has Input from the Biomedical Industry"

Now Crain's New York Business just published an interview with Dr Laurie Glimcher, the Dean to be of the Weill Cornell Medical College with a singular emphasis.  It introduced Dr Glimcher thus,

She is the longest-serving member of the board at Bristol-Myers Squibb and has been a big earner from her work with drug companies. Snaring Dr. Glimcher is a coup for Cornell University, which is using her status to bolster its proposal to build a science and engineering campus on Roosevelt Island.

The interviewer asked, can New York become "a more competitive research hub?"  Dr Glimcher opined,

I think New York City is going to be the next greatest center for biomedical research.

Then, with an instructive tilt, why are you so comfortable taking research funding from drug makers?  Her answer included the usual rationale, but with a twist:

I think it's critical that the pharmaceutical industry has input from the biomedical industry. I believe it is essential to have partnerships to accomplish our goals.

The implication, and the twist is that she apparently sees herself as leading not a medical college, but an entity within the "biomedical industry."

The next question was, does this mean that more collaboration with drug companies are ahead for Weill Cornell?  Her answer was no surprise,

Harvard probably has more ties to pharmaceutical companies than Weill Cornell, but Weill Cornell definitely has connections that I hope we can leverage.

At this point, it should be no surprise that this interview of this erstwhile leader of "biomedical industry" mentioned nothing substantive about clinical care or medical education.

Summary: Education and Patient Care Disappear into the Maw of the "Biomedical Industry"

In summary, so far, all the hoopla about the new Dean of Weill Cornell Medical College has been about her anticipated ability to align the school with the pharmaceutical and biotechnology industry. Amidst the hoopla, neither the new Dean nor anyone within the Cornell leadership has said anything about her interests, goals, or positions relevant to education or clinical care. Yet education is the most fundamental mission of a medical school and of academic medicine. Instead, on one occasion, the new Dean suggested that she would be leading not a medical school, but part of the "biomedical industry."

So it appears that the brave new version of the Weill Cornell Medical College is not merely more focused on doing product development for industry than on its traditional mission of education, research more broadly defined, (e.g., which also may include basic biomedical research, clinical research, and epidemiological and public health research), and patient care. It appears that applied research for product development has become its only important goal. How else should one interpret what the new Dean and her supervisors have said? Not one of them has said anything about education or patient care other than to acknowledge that these endeavors exist.  (Also, not one of them discussed the other kinds of research that medical schools and academic medical centers have traditionally done.)

If Cornell's Board Chairman, President, and Medical College Dean are only interested in being part of the "biomedical industry," why should anyone want to attend what is still called their "Medical College?" Why should anyone want to serve as a house officer in one of the "Medical College's" hospitals? Why should anyone want to attend one of the "Medical College's" continuing medical education courses? If Cornell's Board Chairman, President, and Medical College Dean are only interested in being part of the "biomedical industry," that is, doing applied research for product development, why would any patient want to go to their hospital,s clinics, and other facilities?

We now see not merely academic medical leadership chosen because of, not despite their conflicts of interest with health care corporations. We now also see academic medical leadership who appear only interested in corporate product development, and not even interested in talking about education or patient care (or traditional biomedical, clinical, and epidemiological research.)

Of course, all this discussion is based only what has been published so far about the new leadership of Weill Cornell. Maybe the publications have been woefully incomplete and full of errors. I eagerly hope that to be the case (nooffense intended to the journalists involved.) But I fear that we are seeing the final common pathway for the corporate academic medical center, its transformation into the "Biomedical Industry."

If academic medical leaders no longer care about education or patient care, the downward spiral of our health care system has only just begun.

Director of Bristol-Myers-Squibb to Run Weill Cornell Medical School

How the New York Times reported on a change in leadership at one New York medical school has made one issue of interest to Health Care Renewal a bit less anechoic. Here is the beginning of the story:

A Harvard University researcher and professor with strong ties to the pharmaceutical industry has been selected as the new dean of Weill Cornell Medical College in Manhattan, as Cornell University seeks to greatly expand its research programs and obtain more federal and private financing, college officials said Wednesday.

The new dean, Dr. Laurie H. Glimcher, 60, who has ties to the pharmaceutical giants Merck and Bristol-Myers Squibb as well as to scientific and biotechnology companies, said she wanted to use her experience to forge partnerships with both the public and private sectors.

Dr Glimcher's "ties" to Bristol-Myers-Squibb are particularly striking:

Bristol-Myers Squibb, where she has been on the board since 1997, paid her $244,500 in compensation in 2010, including fees and stock awards, according to its 2011 proxy statement. She received $1.4 million in deferred share units, by far the most of any director.

A "New Species" of Conflicts of Interest

A long time ago, in 2006, we first blogged about a "new species of conflict of interest" which we thought
might prove to be even more important than other conflicts of interest afflicting health care that were then starting to be discussed.  This new species  involved health care organizational leaders who were simultaneously members of the boards of directors of for-profit health care corporations.  We posited these conflicts would be particularly important because being on the board of directors entails not just a financial incentive.  It ostensibly requires board members to "demonstrate unyielding loyalty to the company's shareholders" [Per Monks RAG, Minow N. Corporate Governance, 3rd edition. Malden, MA: Blackwell Publishing, 2004. P.200.]   Thus, for example, the conflict posed by the president of a university, to whom a medical school and academic medical center report, who also is the director of a pharmaceutical company, would be extreme.

In 2006, these apparently major conflicts of interest were highly anechoic, and generally otherwise not considered to be newsworthy or fit for discussion in the medical and health care literature.  This, however, is starting to change.  By 2010, the New York Times published a report, albeit in one of their blogs, on a controversy at the Unviersity of Michigan about whether its president's position on the Johnson and Johnson board had influenced her backing of anti-smoking measures, given that Johnson and Johnson makes smoking cessation products (see post here).

Now, mention of this sort of particularly intense conflict of interest went into the lead paragraph of a story in one of the world's most respected newspapers.

A Conflict Cutting Both Ways: The Bristol-Myers-Squibb Settlement

In addition, the Times story connected another dot:

While she has been on the board, the company has paid hundreds of millions of dollars to settle federal and shareholder complaints that it had inflated sales figures, although Dr. Glimcher herself was not found liable.

That underlines the point that people who simultaneously are leaders of both non-profit health care institutions (like medical schools and hospitals) and for-profit health care corporations ought to simultaneously be held accountable for the actions of both, which may put them in uncomfortable positions.

Actually, the Times article seemed to soft-pedal what the 2007 Bristol-Myers-Squibb settlement was actually about. As we discussed in this post, the settlement was actually in the amount of $515 million, and the government allegations that lead to the settlement were actually about more than inflated sales figures. From the 2007 Department of Justice news release:

First, the Government alleged that, from approximately 2000 through mid-2003, BMS knowingly and willfully paid illegal remuneration to physicians and other health care providers to induce them to purchase BMS drugs.

Second, the Government alleged that, from 2002 through the end of 2005, BMS knowingly promoted the sale and use of Abilify, an atypical antipsychotic drug, for pediatric use and to treat dementia-related psychosis, both 'off-label' uses. The Food and Drug Administration has approved Abilify to treat adult schizophrenia and bi-polar disorder, but has not approved the use of Abilify for children and adolescents or for geriatric patients suffering from dementia-related psychosis. Indeed, the FDA has mandated that the package for Abilify carry a 'black box' warning concerning its use in the treatment of dementia-related psychosis.

Third, the Government alleged that both BMS and Apothecon set and maintained fraudulent and inflated prices for a wide assortment of oncology and generic drug products with the knowledge that federal health care programs established reimbursement rates based on those prices. By reporting false and fraudulent prices that were substantially higher than commonly and widely available prices in the marketplace, BMS and Apothecon created a 'spread' between the reimbursement rates for federal health care providers and the actual prices for the drugs charged to its customers. The larger the spread on a drug, the larger the profit or return on investment for the provider. Because reimbursement from federal programs was based on the fraudulent, inflated prices, the United States alleged that BMS and Apothecon caused false and fraudulent claims to be submitted to federal health care programs.

Finally, the Government alleged that BMS knowingly misreported its best price for the anti-depression drug, Serzone. 

Dr Glimcher has been on the BMS board since 1997, so the actions that lead to these allegations and then the settlement clearly occurred on her watch. Nonetheless, the Times noted:

Dr. Glimcher, an immunologist with a strong interest in osteoporosis, defended her outside interests, saying they presented no conflict as long as they were transparent. She said she wanted to 'leverage the strengths of everyone,' whether scientists, pharmaceutical companies or biotechnology companies. 'There should be no silos between all of these different strengths,' she said.

How simple transparency would remove a conflict created by a fiduciary duty to the Bristol-Myers-Squibb stockholders, and reinforced by a yearly pay-check of $244,500, she did not say.  Neither did she say how transparency about her service on the board would eliminate her responsibility for actions taken by the BMS management that occurred on her watch.

Dubious Enthusiasm from the Former Chairman of Bailed-Out Citigroup

The conflict did not seemingly dim the enthusiasm of the Weill Cornell board for her candidacy. As the Times reported:

Sanford I. Weill, the former chairman of Citigroup who with his wife was the benefactor for whom the college was named in 1998, said Wednesday that Dr. Glimcher had come to his attention through a good friend, Jim Robinson, a co-founder of the technology venture-capital firm RRE Ventures and a former chairman of Bristol-Myers Squibb and chairman and chief executive of American Express.

'He recommended that I meet Laurie Glimcher when he heard we were going to look for a new dean,' Mr. Weill said.

That would be the Sanford Weill who built up Citigroup into a bank that was too large to fail, and which was prevented from failing by a huge government bailout (see this post). In his epic, The Sellout, about the global financial collapse, this is how Charles Gasparino described Weill (p. 144):

But in reality, Will never really ran anything. He was a visionary, to be sure, but one whose vision was so myopically focused on building the empire had lusted for for so long and on its share price that he ignored just about everything else.

Weill's record would suggest that his judgment about Dr Glimcher may be open to question.

Even More Conflicts of Interest

To add a bit more icing to the conflict of interest cake, Dr Glimcher has other financial relationships to which the Times vaguely alluded. The latest (2011) Bristol-Myers-Squibb proxy statement listed the following:
- scientific advisory board memberships: Health Care Ventures, Inc, (which invests in new pharmaceutical and biotechnology companies) Nodality Inc, (which develops diagnostics and pharmaceuticals), Abpro Inc (which makes antibodies and proteins), and Theraclone Sciences Inc, (which also is developing antibodies for therapeutic purposes)
- board of directors membership: Waters Corporation (maker of laboratory equipment used in life sciences and pharmaceutical discovery, research and development, and commercialization.)

One hardly knows how she would find the time to do anything besides fulfill these responsibilities. No wonder that the Times article said:

Cornell University’s president, Dr. David J. Skorton, said he believed Dr. Glimcher had the skills to carry out the medical school’s plan to double its research capacity and to help the university compete to develop a new high-tech campus proposed by the Bloomberg administration.

Dr Glimcher certainly seems as tied into the world of commercial pharmaceuticals and biotechnology as much as any ostensible academic might be. Indeed, as posted here, Dr Glimcher was quoted in a defense of the then current policy and conflicts of interest at Harvard:

Dr. Glimcher says industry money is not only appropriate but necessary. 'Without the support of the private sector, we would not have been able to develop what I call our ‘bone team’ in our lab,' she said at a recent student and faculty forum to discuss industry relationships. Merck is counting on her team to help come up with a successor to Fosamax, the formerly $3 billion-a-year bone drug that went generic last year.

So at that time Dr Glimcher thought it was perfectly proper and appropriate for her to be paid by Merck to develop new drugs for that company while she was ostensibly a full-time faculty member at the Harvard Medical School (not to mention a full-time board member of one of Merck's competitors.)

Summary and Some Questions

So to summarize, Cornell Weill Medical School just named a new dean who has been a leader (as member of the board of directors) of Bristol-Myers-Squib for 14 years, on whose watch there the company paid a huge settlement and entered a corporate integrity agreement for allegations of kickbacks and fraud, and who has also been a leader of a biotechnology company, and advisor to a biotechnology and pharmaceutical venture capital fund and to three other biotechnology companies.  She declared she has no conflicts because she has revealed these relationships, and seemingly has been hired mainly to raise money from the pharmaceutical and biotechnology industry.

So maybe some intrepid journalist and/or student will ask her:
- Given that they now will be reporting to a member of the board of Bristol-Myers-Squibb, should Cornell students and faculty favor its products or policies that it supports?  Should they worry if they do not?  Should they worry about saying or writing anything that might not be seen as supportive of it?  Should they consider themselves to be now in the Bristol-Myers-Squibb medical school?
On the other hand,
- Does Dr Glimcher feel responsible for the actions of BMS management that lead to its settlement and corporate integrity agreement?  If not, how can she have a fiduciary responsibility to its stockholders?

But I will not hold my breath waiting for answers.

At least one hopes that putting these issues in the New York Times will provoke some discussion about whether academic institutions should knowingly seek leaders who must serve so many masters.  Maybe they would do better if they sought leaders who would be notable for their whole-hearted devotion to patient's interests and to the integrity of teaching and research rather than for their cozy ties to other top health care leaders.

WaMu Worry? - More Overlaps Between "Stewards" of Failed Financial Firms and the Leadership of Health Care Organizations

Investigations of the failures of major US financial corporations during the global financial meltdown continue to paint a picture of bad leadership.  The latest failed corporation to get public attention was Washington Mutual (WaMu).  As described by the Los Angeles Times,

Before Washington Mutual collapsed in the largest bank failure in U.S. history, its executives knowingly created a 'mortgage time bomb' by making subprime loans they knew were likely to go bad and then packaging them into risky securities, a congressional investigation has found.

In some cases, the bank took loans in which it had discovered fraudulent activity -- such as misstated income by borrowers -- and rolled them into mortgage securities sold to investors without disclosing the fraud, according to the report released Monday by the Senate's Permanent Subcommittee on Investigations.

The investigation strongly suggested that WaMu leaders ignored questions about their practices:

According to the Senate report, WaMu executives were aware in 2006 of problems at its Southern California subprime unit, Long Beach Mortgage Co. Excerpts of internal e-mails and reports offer a stark and unvarnished view of the warning signs that were dismissed as the bank tumbled toward failure.

The company's chief risk officers called Long Beach Mortgage, the subprime subsidiary the firm used to stage its rapid growth in home lending, 'a real problem for WaMu.' Stephen Rotella, WaMu's former chief operating officer, described the unit as 'terrible.'

The company and its Long Beach unit 'used shoddy lending practices . . . to make tens of thousands of high-risk home loans that too often contained excessive risk, fraudulent information or errors,' according to a subcommittee memo.

Making money in the short-term was more important than long-term consequences:

Internal company documents highlighted the profit pressures. 'In 2007, we must find new ways to grow our revenue. Home Loans Risk Management has an important role to play in that effort,' read a late 2006 message from the unit's chief risk officer to the risk management team.

A June 2008 review by the bank's main regulator, the Office of Thrift Supervision, found a 'culture focused more heavily on production volume rather than quality.'

Top employees could become members of the company's President's Club, which offered lavish, all-expense-paid trips to Hawaii or the Caribbean, the subcommittee found.

A vivid anecdote about this culture of greed was described by Politco,

In the years before it became the largest bank failure in American history, mortgage lenders at Washington Mutual liked to party hearty at the company’s annual retreats.

But a 2006 WaMu retreat produced one of the more cringe-worthy moments of the mortgage meltdown: Lenders, on the eve of their industry’s collapse, singing 'I Like Big Bucks' to the tune of Sir Mix-a-Lot’s 1992 hip-hop hit 'Baby Got Back.'

'I like big bucks and I cannot lie/You mortgage brothers can't deny,' sang the WaMu rappers.

The presentation, which included cheerleaders moving in time to the music, and choreographed moves by the singers, continued:

'That when the dough roles in like you're printin’ your own cash/
And you gotta make a splash/
You just spends/
Like it never ends/
Cuz you gotta have that big new Benz/
All of that bling you're wearin'/
Shining so bright peoples starin'/
It's crazy, I gotta ski Aspen/
That's all I'm askin''

The former CEO of WaMu, Kerry Killinger, was called to testify, but asserted that he was unaware of what was going on, according to a column in the Seattle Times:

Tuesday at the congressional grilling of the Washington Mutual brass on how they ran a respected, 119-year-old bank into the ground, another defense was tried: No one knows anything.

Former CEO Kerry Killinger said his bank's failure wasn't his fault (it was the economy and also the government.) But for a guy who ran the joint for 18 years, he seemed not all that clued in about what his company actually did.

Much of the questioning from a panel of U.S. senators was about WaMu's now well-known history of bundling up crappy, subprime loans, sprinkling them with fairy dust and selling them as investments on Wall Street.

The U.S. Senate Permanent Subcommittee on Investigations said it had evidence that WaMu rushed to unload some of these loans precisely because the bank knew they were rotten.

When asked about this, Killinger said he couldn't recall (they always say that). But he also said something that floored me: He never knew much about WaMu's business of securitizing subprime loans for sale on Wall Street.

Even though WaMu did it to the tune of $77 billion worth from 2000 to 2007.

'I was just simply not involved in any of those,' Killinger shrugged.

They were only the fuel for the fire that burned down the U.S. economy!

OK, well, moving on then. Killinger was asked about how even people inside WaMu considered the subprime securities coming out of WaMu's Long Beach Mortgage to be 'the worst paper in the market.'

Blank look. News to him.

How about how WaMu loan officers in various offices were involved in fraud, cutting and pasting false names on borrowers' bank statements or fabricating assets, just to move more subprime loan product?

Can't remember the specifics, said the guy who was in charge.

On it went, nearly two hours of I-have-no-knowledge or I-can't-recall.

Earlier a lower-ranking risk officer at the bank testified he'd come to Killinger in 2004 and made an 'impassioned argument' to take a stand against rampant fraud in the loan industry.

'Blow the whistle,' the guy said he urged Killinger. 'Say we at Washington Mutual will not participate any further.'

A senator asked Killinger about this. You're the CEO, the senator said. This is your bank. Didn't someone telling you there were serious fraud problems send chills up your spine?

Eh. He answered blandly that he of course tried to fix any problems. But chills? His demeanor was more Alfred E. Neuman: What, me worry?

It turns out that for his allagedly clueless leadership, Mr Killinger was paid enough to make him very rich, as per a quote from the investigation's report, via the Atlanta Journal-Constitution.

WaMu’s CEO (Kerry Killinger) received millions of dollars in pay, even when his high risk loan strategy began losing money, even when the bank began to falter, and even when he was asked to leave his post. From 2003 to 2007, Mr. Killinger was paid between $11 million and $20 million each year in cash, stock, and stock options. That’s on top of four retirement plans, a deferred bonus plan, and a separate deferred compensation plan. In 2008, when he was asked to leave to leave the bank, Mr. Killinger was paid $25 million, including $15 million in severance pay. $25 million for overseeing shoddy lending practices that pumped billions of dollars of bad mortgages into the financial system. Another painful example of how executive pay at U.S. financial firms rewards failure.

It was all gut wrenching, but perhaps the connection with health care iss not obvious. Let me explain.

A question not addressed by the congressional hearings so far was how the people ultimately responsible for the direction and financial health of Washington Mutual, the company's board of directors, allowed a CEO self-described as clueless become rich while a culture of greed produced an enormous number of questionable loans which ultimately drove the company into bankruptcy. Based on the report and testimony so far, on its face the case is strong that the WaMu board must have been one of the most irresponsible groups of supposed corporate stewards yet uncovered.

A list of the 13 board members who presided over the company's final collapse can be found in the company's 2008 proxy report.

Several of them turn out also to have been or be leaders of health care organizations:

- Thomas C Leppert, director since 2005, "the Mayor of Dallas, Texas," is also a member of the board of directors of the Baylor University Health System. (see this link)

- Charles M Lillis, director since 2005, was also on the board of Medco Health Solutions Inc

- Regina T Montoya, director since 2006, then the Chief Executive Officer of the New America Alliance, is now senior vice president and general counsel for the Children's Medical Center in Dallas, Texas. (see this link)

- Margaret Osmer-McQuade, director since 2002, then President of Qualitas International, is a member of the Board of Overseers of Weill Cornell Medical College. (see this link)

- Orrin C Smith, director since 2005, then President and Chief Operating Officer of Starbucks Corporation, is a member of the University of Washington UW Medicine Strategic Initiatives Committee. (see this link)

So, in summary, members of the board of directors of the failed Washington Mutual, which seemingly collapsed in a fog of greed and irresponsibility, currently sit on the boards of a medical school, a teaching hospital, and a pharmacy benefits management corporation, and on a strategic initiatives committee of another medical school, while another is an executive of another teaching hospital. People whose "stewardship" allowed an apparently clueless CEO to become rich while a corporate culture with the theme, "I Like Big Bucks" drove their company into bankcrupty now also lead some of the most prestigious US health care organizations.

Here is yet another example of how the leadership culture that so badly failed the financial sector was tied to the leadership of health care. (We posted here about how the board of the bankrupt Lehman Brothers also leads multiple health care organizations, and here how the leaders of how some of our major universities that house medical schools overlap with the leadership of other questionable financial corporations.)

We have another vivid illustration in the aftermath of the global economic collapse, and in an ongoing health care crisis, how some of the problems of health care, and academic medicine in particular, may have been at least enabled by leadership more used to working in an increasingly amoral marketplace than to upholding the academic mission. All health care organizations, for-profit and not-for-profit, those in the US and those in other countries, need leaders who value their health care and academic missions more than simply the money they may bring in.

With Leaders Like These...

My current favorite book about the global financial meltdown, aka great recession, The Sellout, by Charles Gasparino, featured vivid portraits of the bad leadership that lead to the collapse.  For example:

Richard S Fuld, Jr, former CEO of Lehman Brothers (now bankrupt) -

Fuld had become more isolated and arrogant. (p.208)

As the firm's leverage increased, Fuld's grip on his management and board grew. He was revered by so many people in his circle of senior advisers that almost no one dared to speak out about the firm's risk and leverate, and almost never to Fuld himself. Everyone else was so scared to be cursed at in public or even fired that they simply kept their mouths shut.

Fuld's leadership was more like that of a cult leader than even that of an imperial CEO. (p. 209)

Maurice R ("Hank") Greenberg, former CEO of AIG (now bailed out by the US government) -

Greenberg had begun the financial products group that sold all those [now discredited] credit default swaps in the late 1980s....

Greenberg had a love-hate relationship with the group and its various leaders. He hated the risks they took and the independence the top people in the group sought. But he loved the profits the financial products group ... produced.

Yet Eliot Spitzer, the New York State attorney general and by now Wall Street's most famous enforcer, believed Greenberg ran a company that regularly committed accounting fraud and created fictional profits through a series of sham transactions that had nothing to do with credit default swaps. Greenberg considered these possible transgressions so trivial that he called them 'foot faults,' as in a minor foul in tennis.

Greenberg eventually did resign.... (p. 204)

[and the financial products unit nearly drove AIG bankrupt]

John A Thain, former CEO of Merrill Lynch (bailed out by being forcibly merged into Bank of America under pressure from the US government)

Over time, it became difficult to keep track of every statement coming out of Thain's mouth that turned out to be wrong since nearly the moment he had taken over as CEO. (p. 417)

Thain was becoming unhinged; during a briefing in one of his finely decordated conference rooms that had been part of the $1.2 million office spending spree, people close to the firm said, he completely lost his compusure when an aide informed him about the size of the [company's] losses. What Thain did isn't clear, but Merrill Lynch had to replace a shattered glass panel that appeared to have been the target of the CEO's rage. (p. 419)

- Sanford I Weill, former CEO of Citigroup (bailed out by the US government)

But in reality, Will never really ran anything. He was a visionary, to be sure, but one whose vision was so myopically focused on building the empire had lusted for for so long and on its share price that he ignored just about everything else. (p. 144)

So here we again have reminders of how bad leadership of major US financial firms lead to the collapse. We had discussed a series of such factors and how they obtain in health care, suggesting that health care is undergoing a bubble likely to burst just as badly as did the financial/ housing bubble.

However, I supplied these quotes not just to underline this point.  It turns out that Mr Fuld, Mr Greenberg, Mr Thain, and Mr Weill have something in common other than having helped to lead their financial firms toward the brink, something in common with relevance to health care.

We recently discussed the outsize compensation given to the current CEO and other top leaders of one of the country's revered medical centers, New York - Presbyterian Hospital.   I suggested that such "compensation madness" will continue to inflate the health care bubble.  What that post did not discuss was how these leaders got to be so well paid.  Presumably, their compensation was set, or at least acquiesced to by the Board of Trustees of the hospital.  So I thought it might be entertaining to see who is currently on this Board.

According to the medical center web-site, the Board of Trustees as of October, 2009, was quite large (including 88 people by my count).  The web-site lists only names, not biographies, so that who most of the members are was not obvious.  This lack of transparency, which is not uncommon in health care organizations, would make figuring out who all the people ostensibly responsible for the $9.8 million dollary man are quite laborious.  However, I did recognize a few names immediately.  These were Richard S Fuld, Jr, Maurice R Greenberg, John A Thain, and Sanford I Weill. 

Thus, the Board of Trustees of New York - Presbyterian Hospital includes four of the most well-known architects of the global financial meltdown.  Thus, is it any wonder why the Board of Trustees was happy paying the CEO of a not-for-profit health care institution at a level comparable to a for-profit corporate CEO?  (And is it any wonder that the Dean of the Faculties of Health Sciences and Medicine, and Executive Vice-President for Health and Biomedical Sciences at Columbia University, one of the two medical schools that provide students, trainees and faculty at New York - Presbyterian Hospital, once admitted that the school's main criterion for faculty success was ability to generate external funds, which he called being a "taxpayer," rather than ability to teach, research, or take care of patients?)

As we have discussed before, boards of trustees of not-for-profit health care institutions have a primary duty to uphold the institutions' missions.  Thus, one would think such boards would be selected according to their dedication to their missions.  But perhaps, in the grubby real world, there may be more important criteria, possibly such as the size of their donations to the institution.  Furthermore, those likely to donate the most  may be more likely to be richest (and perhaps most in need to making themselves appear philanthropic and public-spirited) than the most fervent upholders of patient care, teaching and research.

Maybe giving stewardship of our once proud health care institutuions to people most likely to defend their missions, rather than most likely to donate a lot of money, would result in somewhat poorer institutions which do a better job of patient care, teaching and research. 

The $9.8 Million Dollar Man

We seem to have a new candidate for the award for best-paid CEO of a not-for-profit academic medical center, as reported in the New York Post,

Wall Streeters aren't the only ones raking in big bonuses during tough economic times.

Hospital presidents and CEOs also collect fat bonuses and 'incentive payments,' even as health-care systems cry poverty, claiming they struggle to break even against government cutbacks, tightwad insurers and skyrocketing costs.

While warning of layoffs and slashed patient services, many hospitals shower their top execs and department heads with bonuses and perks. They include housing allowances, chauffeurs, first-class air travel, tuition for their kids and country-club memberships.

Under new IRS rules, the extras are disclosed for the first time in recently filed 2008 tax records obtained by The Post.

The filings for the city's biggest and most prestigious private, tax-exempt hospitals show at least a dozen CEOs get compensation of $1 million and up. Some also cash in early on million-dollar pre-retirement payouts while on the job.

Dr. Herbert Pardes, who runs the New York-Presbyterian Hospital and its health-care system -- the city's largest private hospital network -- received a $1 million bonus in 2008 on top of his $1.67 million salary.

The hospital has a 'pay for performance' philosophy but says even though Pardes met his goals, his bonus was smaller than 2007's to 'reflect the current external environment.'

But Pardes' compensation totaled $9.8 million in 2008 because he vested in a retirement plan that will pay $6.8 million when he leaves in 2011. He also received a $93,500 housing allowance and the use of a car and driver.

The Post article also listed two other hospital CEOs who got over $4.5 million in compensation, and several other top executives at other hospitals who got substantial compensation despite the hospitals' financial distress or accusations of unethical behavior.  On the other hand, the CEO of the city's Health and Hospital Corporation, with a budget of $6.3 million, got only $291,000.

Note that Dr Pardes' total compensation was more than double the compensation for a Boston medical center CEO that I thought was so outlandish back in September, 2009.

So here is much more evidence about the continually inflating health care bubble.  Not only do executives of big, for-profit drug, device, biotechnology and health insurance companies make seven and eight figure salaries, now it appears executives of ostensibly not-for-profit, charitable organizations can also make this much. 

Is it possible that at least Dr Pardes' compensation was a fluke, related to a one-time retirement payment?

The answer appears to be negative.  The New York - Presbyterian Hospital's 2007 US Internal Revenue Service (IRS) form 990, which was organized somewhat differently and may have used somewhat different definitions than the 2008 form from which the Post reporters apprently got their information, showed Dr Pardes total compensation to be $4,736,824 plus a $1,433,761 contribution to employee benefit plans and deferred retirement plans in that year. In addition, in 2007, (apparently former) executive Vice President Michael A Berman, MD received $5,949,092 in compensation plus $31,830, current Executive Vice President and Chief Operating Officer Steven J Corwin MD received $2,671,747 plus $455,304, Senior Vice President and Chief Financial Officer and Treasurer Phillis RF Lantos received $2,481,044 plus $336,284, Senior Vice President and Chief Operating Officer Robert Kelly received $1,538,412 plus $271,641, Senior Vice President and Chief Operating Officer Cynthia N Sparer received $1,370,541 plus $307,259, Senior Vice President and Senior Legal Officer Maxine Fass Esq received $1,337,354 plus $257.06, Senior Vice President, Finance Dov Schwartzben received $1,314,960 plus $173,848, Senior Vice President and Chief Nursing Officer Wilhelmina Manzano received $1,218,966 plus $159,555.  In summary, in 2007, the medical center paid at least 10 current and former executives each substantially more than $1 million a year.

By my calculations, the medical center paid these ten executives over $26 million a year, approximately equal to 25% of the center's fund excess (e.g., profit equivalent), of slightly over$106 million.  These ten executives received nearly 1% of the entire 16,850 employee institution's budget.  Furthermore, note that in the medical center's 2007 expense statement, general and administrative expenses, over $675 million, made up about 24% of the center's total expenses. 

So it appears that gigantic compensation for New York - Presbyterian Hospital executives, which is outsize both in comparison to the Hospital's fund excess and total budget, is part of a long-term trend
The Post quoted Brian Conway of the Greater New York Hospital Association with this excuse:

There are thousands of 20-somethings on Wall Street making millions who don't have anywhere near the responsibilities or skills of New York hospital CEOs.

This fits in our catalog of logical fallacies.  It is an appeal to common practice.  Of course, the particular practice to which Mr Conway appealed is the exaggerated executive compensation in finance that many believe was a cause of the global financial melt-down, aka great recession.  One could also argue that not one Wall Street executive has the life and death responsibilities of the typical practicing primary care physician.  I doubt Mr Conway would try to argue that Dr Pardes' job requires 40 times the skill of full-time practicing primary care or cognitive physician.

Instead, executive compensation for hospital CEOs seems best described as Prof Mintzberg described compensation for finance CEOs, "All this compensation madness is not about markets or talents or incentives, but rather about insiders hijacking established institutions for their personal benefit."  As it did in finance, compensation madness is likely to keep the health care bubble inflating until it bursts, with the expected adverse consequences.  Meanwhile, I say again, if health care reformers really care about improving access and controlling costs, they will have to have the courage to confront the powerful and self-interested leaders who benefit so well from their previously mission-driven organizations. 

A Trustee of What "Caliber" for the Hospital for Special Surgery

The Hospital for Special Surgery in New York, a prestigious institution focused on orthopedics and rheumatology, closely affiliated with Weill Cornell Medical College, just announced its newest trustee, whose qualifications for the position turn out to be just a wee bit curious. Here they are as described by the press release:

He is a former CEO of Wachovia

Hospital for Special Surgery announced today that Robert K. Steel, former President and Chief Executive Officer of Wachovia Corporation, has been named a member of the hospital's Board of Trustees.

Steel facilitated Wachovia's merger with Wells Fargo to create the second-largest retail brokerage in the country.

Before then, he served in the Treasury Department

Prior to running Wachovia, Steel served in the U.S. Treasury Department as Under Secretary for Domestic Finance, a Senate-confirmed position. In that role, he was the principal adviser to Secretary Henry Paulson on matters of domestic finance and led the department's activities regarding the domestic financial system, fiscal policy and operations, and governmental assets and liabilities.

Steel brings a wealth of experience to the Hospital for Special Surgery Board. He regularly testified before House and Senate Committees on matters such as reform at Fannie Mae and Freddie Mac, foreclosure prevention, and the rescue of Bear Stearns.

Before then, he was a leader at Goldman Sachs

Steel spent almost 30 years at Goldman Sachs, rising to vice chair of the firm.

He was also chairman of the board of Duke University

In 2009, Steel completed his term as chair of the board of Duke University.

The other members of the Hospital for Special Surgery board were delighted by Steel's qualifications:

'All on the Board of Trustees are delighted to have someone of the caliber of Robert Steel join us to help guide the future of our institution as a leader in orthopedics, rheumatology and their related disciplines,' said Aldo Papone, Co-Chair of the Board of Trustees at the Hospital for Special Surgery.

Hospital Board Co-Chair Dean R. O'Hare added, 'As patients continue to seek the Hospital for Special Surgery's world class services in record numbers, we are very pleased Robert Steel is here to support this institution and the superb team of people who work here.'

Setting aside the obvious issues that Mr Steel seems to have no particular knowledge of or training in medicine or health, and nothing in the press release suggests he has particular devotion to the values of health care, what do his cited qualifications really mean? Let's go through them in the order they were mentioned above.

Former CEO of Wachovia

In fact, Steel became CEO of Wachovia in July, 2008, only to soon preside over the company's failure and its hurried merger with Wells Fargo. As reported by the New York Times, by September, 2008, Steel had to give up any hopes of keeping Wachovia independent,

As concern spread Friday that more banks might run into trouble even with a $700 billion rescue for the financial system, Wachovia, one of those hardest hit by the housing crisis, became the latest to reach for a lifeline.

Weighed down by a huge portfolio of troubled mortgage loans, the nation’s fourth-largest bank by assets entered into preliminary deal talks with Citigroup, and extended feelers to Wells Fargo and Banco Santander of Spain....

In July, the bank hired Robert K. Steel, 56, a former vice chairman at Goldman Sachs, from the Treasury Department, where he worked with Treasury Secretary Henry M. Paulson Jr., trying to resolve the mortgage market crisis. Mr. Steel vowed to keep Wachovia independent and sought to raise $5 billion in capital over the next year by selling noncore assets.

The deal with Citigroup fell through, and Wachovia was taken over by Wells Fargo on January 1, 2009. So although Wachovia's portfolio of doubtful mortgages was not the fault of Robert K Steel, he did not succeed in his vow of independence proved to be hollow.

Furthermore, questions were raised about Mr Steel's overly optimistic predictions about Wachovia's financial conditions just before the company had to enter into merger talks. As reported by the New York Times on September 30, 2008:

'Jim, we have a great future as an independent company,' Robert K. Steel, Wachovia's chief executive, told James Cramer on CNBC's 'Mad Money.' 'We're also focused on very exciting prospects when we get things right going forward. I didn't have time today to talk about the good things going on at Wachovia.'

That interview wasn't last month or last year -- it took place, amazingly, two weeks ago. Wachovia's shares closed at $10.71 that day. On Monday, Citigroup bought the company for $1 a share.

What was Mr. Steel thinking? Did he think he could 'spin' his way to survival?

On Mr. Cramer's show Monday night, he spent an entire segment apologizing to his viewers about having Mr. Steel on the program and for his own bullish call on Wachovia's stock. 'I screwed up,' he said, referring at one point to Mr. Steel as a friend for 25 years. 'I believed in the guy. Did he take advantage of me? Perhaps yes.'

Early this year, the Wall Street Journal reported that these remarks lead to an investigation by the US Securities and Exchange Commission (SEC):

The Securities and Exchange Commission is investigating remarks that former Wachovia Corp. Chief Executive Robert K. Steel made about the future of the bank the day before it started talks about a potential merger....

Among the issues under scrutiny is whether Mr. Steel, 57 years old, misled investors when he appeared on CNBC's 'Mad Money' program on Monday, Sept. 15.

The next day, Sept. 16, Wachovia's board met by telephone to discuss strategic options for the company, including raising money, selling core businesses and merging with another company, according to an SEC filing.

On Sept. 17, Mr. Steel called Morgan Stanley CEO John Mack to discuss a potential merger, according to people familiar with the matter.

By the week of Sept. 22, under pressure from regulators and with customers starting to withdraw deposits, Mr. Steel was immersed in merger negotiations with Citigroup Inc. and Wells Fargo & Co. executives, according to regulatory filings and people familiar with the matter.

After initially agreeing to sell its banking operations to Citigroup, Wachovia on Oct. 3 agreed to sell the full company to Wells Fargo.

So although Mr Steel could not be blamed for the unfortunate financial position of Wachovia on the day he took over as CEO, he failed in his goal of keeping the company independent, and questions have been raised as to whether his overly optimistic comments just before merger negotiations began misled investors. Thus, his brief performance as leader of Wachovia does not seem something to boast about as a qualification to be a trustee of the Hospital for Special Surgery.

Under Secretary of the Treasury For Finance

Mr Steel was appointed to his post at the Treasury Department by Henry Paulson. Mr Steel seemed to have a major role in the Paulson Treasury Department's response to the global financial meltdown of 2008. Criticism of Paulson and his department's response to the crisis is so well-known that we need not repeat it here. In response to the discussion in the news release above about Steel's testimony before congress, it is worth quoting a New York Times article about a hearing that took place after the bail out of Bear Stearns, but before the crisis became full-blown.

'How do we guard against a future Bear Stearns,' asked Senator Charles E. Schumer. 'Was someone asleep at the switch?'

Later,

Did Henry M. Paulson Jr., the Treasury secretary, mandate a rock-bottom price for Bear?

'What did you know and when did you know it,' [Senator Christopher] ... Dodd asked, his voice loud as he pressed Mr. Bernanke, Mr. Steel and Mr. Geithner for an answer.

Mr. Steel and Mr. Geithner were artful and vague in their responses....

And just a few days ago, a story emerged that Paulson's plans to force a merger of Wachovia and Goldman Sachs failed because of the multiple conflicts of interest involved, including those affecting Mr Steel (as per Bloomberg News):

Paulson, the CEO at Goldman Sachs until mid-2006, contacted current CEO Lloyd Blankfein and an unidentified Wachovia director, urging them to consider a combination, Sorkin reported. Goldman Sachs co-President Gary Cohn and Wachovia CEO Robert Steel -- a former vice chairman at the New York investment bank and an undersecretary to Paulson at Treasury -- thought they were near completion of a transaction after Fed Governor Kevin Warsh said the central bank would consider a merger, according to the excerpt.

Billionaire investor Warren Buffett, chairman of Omaha, Nebraska-based Berkshire Hathaway Inc., was contacted about investing in the combined companies, Sorkin reported. Buffett told a Goldman Sachs banker the merger would never happen because of the investment bank’s ties to officials at the Treasury and Wachovia, Sorkin reported.

So it is not obvious that Mr Steel's work at the Treasury Department covered him in glory, or constituted a particular qualification to lead the Hospital for Special Surgery.

Chairman of the Board of Duke University

Mr Steel's time in the leadership of Duke coincided with one of the major scandals to afflict higher education in the 21st century, usually called the Duke Lacrosse Scandal. Very briefly, several Duke University students who were also on the university's lacrosse team were charged with raping an exotic dancer. After they were charged, the university leadership seemed to judge that the players were guilty before the trial, and that the whole lacrosse team had to bear some sort of collective guilt. Eventually, the charges were dismissed for lack of evidence, and the prosecutor who pursued them so avidly was disgraced.

It turns out that Mr Steel had a role in this scandal too.

According to a New Yorker article, Mr Steel took a leadership role in the hiring of Due President Richard H Brodhead:

The man charged with bringing Brodhead to Duke was Robert K. Steel, a trustee and chairman of the search committee....

After the lacrosse players were accused of rape, a bizarre email led Brodhead to abandon a measured approach:

Brodhead, who had been trying to maintain a balance between avoiding prejudgment and satisfying the mounting pressure for action, was outraged. He said he found the message 'sickening and repulsive,' and he acted immediately. He suspended McFadyen [the student who wrote the email]. Coach Pressler was informed that he had until the end of the day to leave the campus, where he had coached for sixteen years. Brodhead also announced a series of committees that would investigate the team, the administration’s handling of the matter, and the Duke culture itself. In a letter to the Duke community, he wrote that the lacrosse episode 'has brought to glaring visibility underlying issues that have been of concern on this campus and in this town for some time.' The letter went on:

They include concerns of women about sexual coercion and assault. They include concerns about the culture of certain student groups that regularly abuse alcohol and the attitudes these groups promote. They include concerns about the survival of the legacy of racism, the most hateful feature American history has produced.
Compounding and intensifying these issues of race and gender, they include concerns about the deep structures of inequality in our society—inequalities of wealth, privilege, and opportunity (including educational opportunity), and the attitudes of superiority those inequalities breed. And they include concerns that, whether they intend to or not, universities like Duke participate in this inequality and supply a home for a culture of privilege.

This quote in retropsect is beyond ironic given that there was never good evidence to support the charges against the lacrosse players.

Brodhead cancelled the lacrosse team's season, but it turned out his reasoning, and that of Mr Steel who seemed to have a major role in the decision, was based mainly on the perceived need to preserve the "Duke brand":

When Brodhead cancelled the season, he had said that the moment was too serious to be playing games. What he meant, in part, was that Duke could not be seen to be playing games. From the start, Brodhead had been forced to navigate among several potentially hazardous interests—lacrosse parents who felt angry and abandoned by the school, dismayed alumni and donors, the agitated citizens of Durham, the clamoring press—while protecting what is known in the Allen Building as 'the Duke brand.' On that fitful weekend in late March when the TV satellite trucks hit campus, the lacrosse team could be seen practicing for the Georgetown game, a scene that became an endless video loop suggesting institutional indifference. 'We had to stop those pictures,' Bob Steel says. 'It doesn’t mean that it’s fair, but we had to stop it. It doesn’t necessarily mean I think it was right—it just had to be done.'

Clearly, according to Mr Steel and his protege, President Brodhead, preserving the Duke brand was more important than the fair treatment of its students.

In 2007, as per this Fox News report, the North Carolina Attorney General dispelled the accusations against the lacrosse players.

[Attorney General Roy] Cooper said Wednesday that not only was there insufficient evidence proving the three assaulted an exotic dancer at an off-campus lacrosse player in March 2006, but there was 'no credible evidence that an attack occurred at that house on that night.' He even proclaimed the players 'innocent.'

'The result of our review and investigation shows clearly that there is insufficient evidence to proceed on any of the charges,' Cooper said. 'Today we are filing notices of dismissal for all charges.'

He added: 'We believe these cases were a result of a tragic rush to accuse and failure to verify serious allegations. Based on these significant inconsistencies of evidence and the various accounts given by the accusing witness, we believe these three individuals are innocent of these charges.'

After their exoneration, Mr Steel sent out a message affirming his support of President Brodhead's decisions (presumably including suspending the lacrosse season to preserve the Duke brand, firing the lacrosse coach for no obvious reason, and launching an unwarranted witch-hunt against erroneous attitudes toward sexual assault, and race and gender.) Per the Durham-in-Wonderland blog (written by Prof KC Johnson, who also wrote the book about the Duke lacrosse scandal), here is what Steel wrote:

Throughout the past year President Richard Brodhead consulted regularly with the trustees and has had our continuing support. He made considered and thoughtful decisions in a volatile and uncertain situation. Each step of the way, the board agreed with the principles that he established and the actions he took.

Finally, Steel is now a defendent in a law-suit in the aftermath of of this case, per the AP:

Three unindicted Duke University lacrosse players have amended their civil lawsuit against the school and the city of Durham stemming from false rape accusations two years ago.

The Herald-Sun of Durham reported Wednesday the players allege that Duke trustees chairman Robert Steel controlled the school's response and that the school was most interested in protecting its image.

So Mr Steel's handling of the Duke lacrosse scandal during his time as chairman of the board of that university also did not exactly cover him in glory, or provide an obvious qualification for him to be a trustee of the Hospital for Special Surgery.

Summary

So Mr Steel
-as CEO of Wachovia failed to keep the company independent, and is under investigation of charges that he misled stock-holders;
- as Under Secretary of the Treasury was involved in what many believe was a bungled strategy to combat the global financial meltdown mainly by handing billions of dollars to the misguided Masters of the Universe who brought the meltdown upon us; and
- as Chairman of the Board of Duke University seemed to put an ultimately unsuccesful attempt to defend the Duke brand ahead of the rights of its students, and is now the defendent of at least one related lawsuit.

It is too soon to tell whether the SEC investigation of the lawsuit will be decided for or against Mr Steel. However, it seems utterly bizarre that the board of the Hospital for Special Surgery would regard Mr Steel's track record as indicative of the "caliber" needed to lead one of the country's premier hospitals.

How Mr Steel inspires such praise brings to mind some findings of pollster Frank Luntz that appeared in the Los Angeles Times:

Today, Americans are boiling mad, and the elites from Washington to Wall Street to West Hollywood don't get it. It can best be summarized by 12 short words bellowed by Howard Beale, the deranged TV anchor in the movie 'Network': 'I'm as mad as hell, and I'm not going to take this anymore.'

Americans in the unhappy majority are struggling to keep their jobs as million-dollar bonuses are being awarded at companies their tax dollars bailed out.

The core American complaint about politics is that wrongdoing isn't punished, other than at the next election. From scandalous personal behavior to bailouts of everyone and everything except the hardworking middle class, Washington is seen as the source for America's mistakes. Enforcing rules and letting failures fail would stop the excesses today and prevent the mistakes of tomorrow.

Such accountability in business would likewise prevent executives at imploding companies from walking away with millions while their employees get skunked.

For business and political elites, the message should be clear: Restore trust.

Mr Steel's unlikely career trajectory shows how once someone becomes a member of the superclass, the new power elite that spans business, government, and academics, that person is likely to continue to wield power no matter how poor his or her track-record, to the detriment of nearly everyone else.

"The Dirty Little Secret of University Medical Research"

The Wall Street Journal reported several cases in which US federal prosecutors charged major universities with misusing National Institutes of Health (NIH) grant funds. (See temporarily free link here.)
The story focused on the case of Cornell University's Weill Medical College. The school's former "research subject advocate," Dr. Kyriakie Sarafoglou, had noticed irregularities in a $23 million grant for pediatric research. Dr. Sarafoglou alleged that nurses supported by the grant were caring for patients who were not involved in research projects; no children had been hospitalized or seen in outpatient clinics in programs that were funded for 180 hospital days and 600 outpatient visits; and "patients were being billed to the NIH tab even though they weren't taking part in clinical studies."
Dr. Sarafoglou complained to the program director, Dr. Maria New, and then to her "replacement as head of pediatrics at New York-Presbyterian." An internal investigation by Dr. Adam Asch found "no evidence that the budget was exorbitantly inflated," but criticized Dr. Saraglofou for her "confrontational and accusatory posture." Meanwhile, Dr. Saraglofou alleged she was being subject to retaliatory treatment, socially ostracized, and her office moved away from her colleagues.
So she then complained to the NIH. No NIH official was willing to act, but one informed her about "qui tam," lawsuits, in which individuals may sue for fraud on behalf of the federal government. Dr. Saraglofou's qui tam suit was taken over by federal prosecutors. They agreed with most her her allegations, and added more, e.g., that the Cornell pediatric research program enrolled adult subjects and charged the NIH for treatments that were reimbursed by Medicaid. In June, Cornell settled the suit for $4.4 million, admitting no wrong-doing. Cornell's lawyer declined to discuss details with the Journal.
The Mayo Clinic, University of Alabama at Birmingham, Harvard University, Johns Hopkins University, and Northwestern University have settled similar suits for multi-million dollar amounts since 2004. The Journal noted that "all the cases except Harvard's began with whistle-blowers."
Thus, as the article said, this case may illustrate the "dirty little secret of university medical research."
However, the responsibility for this secret should be attributed more to university administrators than scientists and doctors. To add a bit of context, when NIH makes a grant, responsibility for the conduct of the project is shared. The Principle Investigator (PI), the project's head scientist, takes responsibility for the scientific integrity of the project. However, an administrator of the organization for which the PI works takes responsibility for the project's financial integrity.
What also is distressing is the passive attitude of NIH officials to charges that the Institutes' money was being diverted. When the Journal approached Norka Ruiz Bravo, the NIH deputy director for extramural research, she responded "if people are going to cheat, they are going to cheat." That practically invites university officials to take research money for whatever they want.
Dr. Bravo added that the NIH prefers to work quietly with schools to solve problems so research can keep moving forward. Of course, research would move forward faster if the money meant to support it was not being siphoned off.
(An additional report on the Cornell case is available in Nature Medicine here.)

More Exaggerated Hospital List Prices

The Opinion Journal (the on-line opinion site of the Wall Street Journal) has a long article about one family's experience in the UK and US health care systems. Of note, the author noted that the charges for 10 physical therapy sessions at Cornell University Hospital in New York City were $27,000. As the author said, "there is something seriously out of whack about 10 therapy sessions that cost more than month's worth of hospital bills in England."
These prices are comparable to the list prices that a Tenet hospital was charging for physical therapy in Florida, but are more than an order of magnitude (i.e., ten times) higher than prices quoted as reasonable by a leader of the American Physical Therapy Association (see previous post here).
So everybody still thinks the reason for rising US health care costs is a mystery?