Tuesday, September 7, 2010

Beth Israel - A Case Study in Board Governance and AG Oversight

The Boston Globe reports that Massachusetts Attorney General Martha Coakley released results of a four-month investigation by her office of the actions of the board of Beth Israel Deaconess Medical Center in response to an anonymous complaint alleging Chief Executive Paul Levy's inappropriate relationship with a former female employee.   In an eleven-page letter, the attorney general's office ultimately concluded that the hospital did not misappropriate charitable funds in compensating the former employee and further found that the board "responded and acted consistent with its fiduciary obligations" in conducting its investigation.  The employee in question, concluded the office, was not excessively compensated for the positions that she held with the hospital.  Notwithstanding, the letter does criticize board members and senior management who knew of the relationship for years for not having disclosed it to the entire board when they discovered it. 

The whole incident began when certain board members received a complaint alleging improper conduct by Levy with the former employee.  The board immediately began an internal review of the allegations in the complaint, creating an ad-hoc committee and retaining outside counsel (with questionable independence).  The ad-hoc committee ultimately recommended Levy's retention as CEO, coupled with a public statement disapproving of his conduct.  The full board accepted this recommendation and further decided to impose a $50,000 sanction on Levy.  The Board Chair further concluded that an "independent review of the Board's actions might better provide assurance to the public that the Board had carried out its responsibilites," ultimately contacting the attorney general's office to conduct such a review.

Coakley stated in the article that she did not think the hospital board's work was yet complete with respect to the incident.  The Board should continue to monitor Levy's leadership:  "There should be heightened scrutiny on his judgment going forward."  She concluded by stating that the incident was an "eminently teachable moment" on the importance of board independence and rigorous management oversight.



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