blog.fixkp.org

Daniel Garcia is the chief compliance officer of Kaiser Permanente, a sort of “chief investigator” for the organization. He was hired into that position, a position he helped create, in 2002. His history with Kaiser Permanente, however, dates back to 1992, when he first became a member of the organization’s Board of Directors. He continued to serve as an outside and independent director until he became chief compliance officer on February 1, 2002.

What is interesting about Mr. Garcia’s role at the organization is that he reports to the chief executive officer, George Halvorson and is also responsible for investigating Mr. Halvorson’s conduct. This reciprocal reporting relationship is not unique, however, and similar situations exist at many other organizations and companies. What is troubling, however, is the disturbing role Mr. Garcia played in hiring Mr. Halvorson, the significant resulting conflict of interest, and Mr. Garcia’s alarming history in Los Angeles politics, which is littered with serious allegations of corruption. In fact, it appears Mr. Garcia has never met a potential conflict of interest he didn’t like, but more on that in a moment…

When Mr. Halvorson was recently forced to address the mutual conflict of interest, he, again, mislead Kaiser Permanente employees by leaving out key details. Mr. Halvorson admitted that Mr. Garcia was “was on the committee that recommended that I be hired.” In fact, Mr. Garcia was the chair of the committee that hired Mr. Halvorson.

Mr. Halvorson went on to insist that “It’s…naïve, however, to say that Dan can’t subsequently do his job [as the chief of] compliance because of that prior committee role.” Mr. Halvorson insisted that he believes that demanding otherwise would mean that “any Board member on a search committee would be unable to make future decisions and judgments about people they had voted for in a search process.”

His straw man argument couldn’t be weaker. Here’s why…

It is extremely rare for an inside director to chair a search committee, let alone an inside director who also happens to be the chief compliance officer. A chief compliance officer should be be above reproach, and avoid even the appearance of a conflict of interest.

Dan Garcia was an outside director when he was appointed to chair the selection committee. However, when he later became the primary candidate for the position chief compliance officer (which would have changed his status to a non-independent director), he should have stepped aside as head of the search committee. He didn’t. Instead, he created an even more troubling situation: Mr. Garcia hired Mr. Halvorson, the man who would become his boss. Mr. Garcia did so under the pretense of still being an “independent director.” Mr. Halvorson, by then the (not yet announced, but designated) chief executive officer, turned around and approved Mr. Garcia’s appointment as chief compliance officer. Tit for tat?

Perhaps if Mr. Garcia had been qualified to become chief compliance officer, the conflict would be less obvious. Instead, Mr. Garcia had no executive-level compliance experience or healthcare experience. In fact, Mr. Garcia’s most recent executive position at that point had been as a real estate advisor for a movie studio. That apparently qualified Mr. Garcia to make well over $1,800,000 each year as Kaiser Permanente’s chief compliance officer.

Take a closer look at the timeline:

In July 2001, then-Kaiser Foundation Health Plan chief executive David Lawrence announced he would be retiring, and Mr. Garcia was selected by the board to be the independent director who would chair the search committee.

Over the following months, Mr. Garcia eventually became a candidate to become the organization’s new chief compliance officer.

By October 2001, Minnesota Attorney General Mike Hatch had announced he intended to launch an investigation into Mr. Halvorson and his then-employer, HealthPartners.

By January 2002, Mr. Halvorson had become the lead candidate for the position, meaning he likely began receiving briefings on the organization’s operations, and almost certainly began having input into any major decisions the organization was making, such as… The appointment of Mr. Garcia on February 1, 2002.

Mr. Halvorson’s appointment was then announced by Mr. Garcia on March 7, 2002, barely a month later.

Assuming Mr. Garcia wasn’t qualified for the position of chief compliance officer, perhaps his record as an attorney and politician alone would have been clean enough to assume he could be a sort of “chief ethics officer”? Sadly, no. From quietly recommending his future wife to a city position (without pointing out they had a relationship and while glossing over her previous conviction and short jail time for forgery), to serious allegations that he engaged in a “pay for play” relationship with Los Angeles real estate developer Ted Stein, to his troubling relationship with Leland Wong (who he subsequently was required to investigate at Kaiser Permanente), Mr. Garcia’s past is filled with allegations of conflicts of interest and abuse of power.

In a 2004 exposé, the Los Angeles Times highlighted Mr. Garcia’s lack of concern for avoiding conflicts of interest (let alone the appearance):

Under the City Charter, commissioners are required to disqualify themselves from voting on projects in which they have a conflict of interest or the appearance of a conflict. In a series of opinions dating back many years, the city attorney’s office has consistently held that a commissioner should withdraw ‘whenever the facts are such that the public might well question his objectivity.’ [...] But in voting on Stein’s zoning change, Garcia [voted to approve] the request.”

Mr. Garcia, who chaired the planning commission, voted to approve a string of other requests that Mr. Stein brought before the commission, without ever disclosing their past business relationship (until the Los Angeles Times came knocking).

It’s clear that Dan Garcia is neither qualified nor capable of serving as any sort of “chief compliance” or “chief ethics” officer. As a city politician, he time and time again resigned under the stench of corruption, moving from the planning commission to the police commission and finally the airport commission. By the time the Los Angeles Times did its exposé in 2004, Mr. Garcia was already firmly in place at Kaiser Permanente, protected by his boss (and the man he just happened to have hired), George Halvorson.

Making $1.8 million each year.

Tit for tat.

In my message last fall to my colleagues at Kaiser Permanente, I voiced my concerns that the Kaiser Foundation Health Plan Board of Directors was abdicating its most important responsibility: the oversight of our chief executive officer. I had spoken with several directors last fall, and was disappointed and shocked by their lack of knowledge of the organization, its operations, and its finances. In my message, though, my goal was to encourage the board to take its responsibilities seriously, and I acknowledged that the board was made up of “knowledgeable, respected, and experienced men and women.”

In a “the lady doth protest too much” moment, though, Mr. Halvorson responded angrily, writing that he couldn’t believe anyone would label his board a “rubber-stamp board.” I’m not sure where he got the term, as it wasn’t a term I had ever used to describe our board, but, since then, I have come to recognize it as a sadly accurate label.

Not surprisingly, it wasn’t the first time Mr. Halvorson had to defend a board overseeing him for incompetence. In 2003, Mr. Halvorson tried to defend his previous board, at HealthPartners, after a report by Minnesota Attorney General showed that directors there spent only a few hours each year overseeing the organization (a situation eerily similar to Kaiser Permanente today). Mr. Halvorson insisted the HealthPartners board, which he also had assembled, was not a “parade” board that only rubber stamped a “padded agenda.”

If the accountability and competency of Mr. Halvorson’s HealthPartners board was questionable, it paled in comparison to the rubber-stamp board he would set up at Kaiser Permanente. Less than two years after he became chairman of Kaiser Permanente, Mr. Halvorson had cleared nearly the entire board. By the spring of 2004, the organization had five vacancies on its board, an unimaginable situation for the largest not-for-profit healthcare organization in the country.

In addition to the five empty seats, three other directors had already quit and been replaced. That meant eight of the twelve independent directors had resigned less than two years into Mr. Halvorson’s tenure as chief executive officer, and five of those twelve seats were empty by March 2004. As I’ve said before, it was unprecedented turnover in the history of Kaiser Permanente, for the organization to lose two-thirds of its independent directors in less than two years.

Only two men remain from the board that hired Mr. Halvorson. One is Daniel Garcia, the man who hired George Halvorson, the same man who was later hired and (surprise!) kept by Mr. Halvorson to manage the organization’s ethics department (amid much controversy). Although Mr. Garcia was an independent director when he hired George Halvorson, he is now considered an inside director as his paycheck is signed by Mr. Halvorson. The other man remaining from the original board is Thomas Chapman, an independent director who was recently caught up in an illegal non-profit healthcare kickback scheme investigation by the Connecticut Attorney General. (Yes, you read that correctly. The only two remaining directors that hired George Halvorson have both been caught up in ethical scandals, and, yes, one of them now “runs” the Kaiser Permanente ethics and compliance department.)

Fast forward to today. The majority of the independent directors on the Kaiser Foundation Health Plan board have barely three years of experience with the organization (some even fewer, as high turnover has continued). Each independent director, with one exception, was hand-picked by Mr. Halvorson. Just like in Minnesota, Mr. Halvorson’s hand-picked board has become the epitome of an unaccountable, irresponsible, and incompetent board.

Mr. Halvorson, last year, defended his conduct at HealthPartners, saying that the Kaiser Permanente Board of Directors read the Minnesota Attorney General’s report on his behavior there, and found no problems. If that’s so, why did eight of the directors resign following that discussion?

(If KP were a publicly traded company, it would likely have been required to file a report with the SEC, indicating the reasons for eight directors resigning or being replaced in such a short period of time. Instead, under Mr. Halvorson, the organization has kept director resignations quiet, and only mentioned any vacancy once the seat is subsequently filled. Which explains the large five seat vacancy in 2004: Mr. Halvorson had to fill those seats slowly, to prevent outside knowledge of a rash of resignations. The fact that five or more board seats were empty is buried on page 54 of an obscure bond sale notice from 2004.)

In Minnesota, the Attorney General considered installing his own independent directors on the HealthPartners board. By that point, though, Mr. Halvorson was gone, and the problems had largely (but not surprisingly) left with him. If the Kaiser Foundation Health Plan Board of Directors continues to refuse to adequately meet and consider the critical flaws of the direction in which George Halvorson is taking Kaiser Permanente, perhaps it is time California Attorney General Jerry Brown implement the Minnesota Attorney General’s plan to create a truly independent and competent board to oversee Kaiser Permanente?

This story was originally posted at justendeal.com.

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Chuck Prince, chief executive of Citigroup since 2003, has resigned. Prince is being temporarily replaced as Citi chairman by Bob Rubin, who was Treasury Secretary for most of the Clinton years. Win Bischoff also will serve as interim chief executive.

The country club of bad former chief executive officers is growing. Now that Chuck Prince and Stan O’Neal are out, I’m thinking there are still a few men left to join the ex-CEO party…

That’s: Jim Cayne (Bear Stearns), Angelo Mozilo (Countrywide), Todd Farha (WellCare), and George Halvorson (Kaiser Permanente).

Good luck, gentlemen.

This story was originally posted at justendeal.com.

In his latest weekly update, George Halvorson insists Kaiser Permanente has no “glass ceiling.” Mr. Halvorson’s spin couldn’t be further from the truth, sadly. WellPoint and Blue Shield of California both have many more women among their senior executive ranks than Kaiser Permanente. How disappointing that, instead of using his energy to close this gap, George Halvorson is “celebrating” it.

Mr. Halvorson focussed on the fact that two of his top “operations” executives reflect the diversity of Kaiser Permanente. One is a woman. One is an African American man. Sadly, when you zoom out and look at the top twenty-two executives at Kaiser Permanente, the picture isn’t nearly as diverse: that one African American man is the only black officer of Kaiser Permanente. That one woman is joined by only four others, with women making up barely 22% of the top executives at KP, compared to 40% at WellPoint (Blue Cross of California) and 36% at Blue Shield of California.

One more time, that’s an absolutely embarrassing 22% for Kaiser Permanente, versus 40% at WellPoint and 36% at Blue Shield. This is something George Halvorson thinks is worthy of celebration?

Looking elsewhere in the broader insurance industry, Aflac has three talented, successful African American women among its top executive ranks. Kaiser Permanente? Not one.

Kaiser Permanente has a single Latino executive among its senior ranks (and there are even serious ethical concerns surrounding his alleged involvement in political corruption). For an organization with tens of thousands of talented Latino and Latina caregivers, physicians, and managers, how can that be? (See this comment from 2006 for more disappointing information on Latino and Latina diversity at Kaiser Permanente.)

Only one member of senior management at Kaiser Foundation Health Plan is Asian Pacific American.

Sadly, to understand just how seriously George Halvorson considers diversity at Kaiser Permanente, you need only count the number of typographical errors in his latest update. If diversity was truly an issue he took seriously, perhaps he could bother sending out professional, truthful messages.

This isn’t a record to be “celebrating” and spinning. This is a record to be ashamed of. It’s inexcusable, and it’s just one more example of how out of touch George Halvorson is with the employees of Kaiser Permanente.

This story was originally posted at justendeal.com.