DATELINE: May 4, 2009, Chicago
Our mother-in-law once reminded us: “Never pick a fight with someone who buys ink by the barrel.” The recent goings on at the Hackensack University Medical Center (HUMC) certainly prove her to be an insightful observer of the human affairs.
On April 26, 2009, the North New Jersey Reporter published a lengthy article entitled Tangled Web of Power: Hospital’s Influence Reaches Far. In the story, Mary Jo Layton describes in great detail a series of...
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conflicts of interest involving HUMC and members of its board. Some board members do business with the hospital. And rather big business. Two board members, for example own companies that are building a 975-car garage as part of a $135 million cancer center under construction. According to Layton, one of these individuals was paid more than $475,000 by the hospital for construction services. The hospital also paid more than $2 million to Progenitor Cell Therapy, a research company, which is owned in part by the HUMC’s president, a director of the hospital’s cancer center, several board members, and the hospital’s chief operating officer.
Layton’s article begins by pointing out that former New Jersey State Senator Joseph Coniglio was convicted in a bribery scandal involving HUMC. Throughout the article, Layton details other conflicts and relationships that some find troubling. We will return to the conflicts shortly, but our interest in the story was triggered by an article in yesterday’s New York Times. Stephanie Clifford, A Battle with a New Jersey Newspaper Backfires (May 3, 2009). Clifford reports that the powerful hospital tried to silence the story. On April 25, 2009, the day before the story was set to be published, a HUMC administrator called the North Jersey Media Group, the owner of the Record, to inform the newspaper that HUMC was canceling its advertising on the Record’s Web site. Specifically, the hospital canceled a one-year advertising contract. Despite the not-so-subtle message to spike the story, the Record ran it the next day. After the story appeared, HUMC told the North New Jersey Media that the newspaper could not be sold on HUMC’s campus, including its gift shop.
HUMC eventually reversed it decision, apologizing to both the Record and HUMC's patients and staff. There is an irony in the Record's story, which the Times reported and the Record disclosed. North New Jersey Media' general counsel (who is the daughter of the owner) also serves on HUMC's board. She recuses herself when appropriate.
So what are the lessons to be learned?
Some In The Press Still Have Integrity. The North New Jersey Media and the Reporter were unwilling to sell the brand out to appease one angry client—HUMC. This time a principled stand had no cost because HUMC reversed its efforts designed as economic retaliation. Publishers and reporters across the country should take note.
Trying to Silence the Media Can Backfire. Those who are the subject of unfavorable media coverage have every right to defend themselves and should exercise that right. However, actions that can and should be construed as petty economic retaliation often backfire. The New York Times saw the act of retaliation as the story. Their coverage makes HUMC look like the cat with the canary feathers coming out of its mouth. As we all know from Looney Tunes cartoons, Sylvester the Cat never prevailed over Tweety Bird. In this day of tweets, it is unlikely that Sylvester is going to prevail anytime soon. In short, nonprofits that receive unfavorable coverage should not seek revenge against the media. Other members of the media may report acts of revenge, making the nonprofit look worse.
Wait Till Layton Gets Her Hands on the Redesigned Form 990. Layton did a great job of digging for conflicts and tainted relationships. Large nonprofits should take note. There are other Laytons out there who harbor similar suspicions. When your institution’s 2008 Form 990 becomes available on GuideStar, don’t be surprised to see stories based on what is disclosed in the Form 990. Lawyers should be preparing boards for phone calls from the press and explaining how to respond—refer the call to a designated person without commenting further. Lawyers and accountants should be adding disclosure language to the Form 990 that try to diffuse muckraking stories, but they should remember that any disclosures must be truthful.
Think Twice About the Cost of Conflicts. Layton did a nice job covering the conflicts and how they are perceived. Her article includes the usual party line from the participants: The negotiations are at arms’ length. HUMC offers another example of what is wrong with conflicts. One of the conflicts covered by Layton involves construction contracts. The HUMC board can go through recusal dance if it likes, but if you were an independent construction contractor located in Hackensack, would you bother taking the time to respond to HUMC’s next RFP for construction work. When conflicts are common, the institution often cannot determine whether a contract with an insider is priced fairly because others don’t bother bidding.
Good Journalism Does Payoff. A New Jersey legislator has introduced legislation that would require disclosure of conflicts and require competitive bidding when transactions exhibiting conflicts exceed $25,000.
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