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Publius - Point of Order

LXII Welcome To The Jungle

On the eve of her taking the helm of State Compensation Insurance Fund, our best wishes go to Janet Frank, former CNA executive tapped by the State Fund board earlier this year to be president. This is a unique time at State Fund, where controversy and opportunity are equally great. There is a hue and cry for a more professional board and more transparency in State Fund's operations – a call for reform similar to what ultimately led to Sarbanes-Oxley and the empowerment of shareholders, especially large institutional shareholders, in publicly traded corporations.

We don't envy you this job, Ms. Frank. Your work is cut out for you. Already there are plots, subplots, conspiracies, and at least one discussion on the 16th floor about what to tell you and what not to tell you. The betting line is that you'll not make it two years and that the state agency types will still be there when you leave. Still, an experienced C-level executive (and you are experienced) should have a pretty good idea how to handle this.

Many of the talking points in the recent report provided by State Fund's chairperson to the Legislature do in fact seem to be more apt for a corporation staring down the barrel of an investigation by either a brash attorney general (no real threat of that here) or the Securities and Exchange Commission. And many of them were not new and had precious little substance. Therein lies a potential problem.

While recognizing limitations placed on candor by criminal investigations and civil lawsuits, nonetheless there is an expectation (make that simply a sensible requirement) that you will have a more forthcoming relationship with the governor, Legislature, and insurance commissioner than your predecessors did.

Ms. Frank, no one expects you to disclose sensitive, competitive information, but officials need to know what is going on at State Fund, or at least find out without too much fuss. State Fund is also part of state government, which periodically requires it to play nice with other state agencies. Former Senator Jackie Speier pressed hard, and succeeded, in reinforcing that point last year when she established that State Fund had to cooperate with the state auditor.

Caution: Existing Management May Appear Less Disingenuous Than It Is

The relationship with the governor, Legislature, and insurance commissioner is based on a truism. When any of these institutions asks for something, you should respond promptly with complete information, even if there are differing opinions internally. This in and of itself would be a welcome and major change. You will find out how hard that can be because some of your managers are loyal to and directly or indirectly in communication with past management, and perhaps taking cues from past management concerning issues of serious internal concern.

Conversely, you must establish your relationship with these institutions before you need to ask for something. That's one reason why you won't be getting a new board of directors or more exempt professional positions on January 1.

Candor and honesty in your relationship and reporting to the Legislature or Department of Insurance would be welcome and returned in kind. The report filed recently by State Fund's board was neither and the Legislature responded by cutting State Fund's basic request off at the knees.

Unless you bring in your own team of people you can trust, and this includes inside and outside lawyers, actuaries and others, you will have only those with a history to protect or cover up.

As you strive to bring a higher degree of accountability and professionalism to upper State Fund management, bear in mind that policymakers also need to understand what your vision for State Fund looks like. If you want to make State Fund run more like a private insurance company, then you will need to answer the question of why we need State Fund.

Over the years and particularly in 1976, State Fund went to the Legislature with requests that removed many of the requirements that other state agencies have. These outside-the-government private-company privileges have been hugely abused. State Fund's income tax-free status does not compute with its exemption from state agency purchasing and contracting and other rules and procedures. What's fair has become unfair and the pendulum may very well be reaching its apogee.

State Fund is, for instance, free to contract with any entity it chooses without the necessity of a competitive bid. State Fund has none of the requirements placed upon its property or the disposal thereof that other state agencies do, or even what it might pay for business equipment or real property. CMAS contracts? They haven't looked in the past.

State Fund's prior senior management has bullied vendors and personnel alike. Many managers are still living in "mortal fear" of former management. The conspiracies run not only far and wide but deep. And the ingrown systemic institution will do what institutions always do: It will act to protect itself.

You must be an agent of change. For that, you will not be appreciated internally. And those with an institutional sensibility will not act for you. When they teach you the "State Fund way," you need to pay careful attention and decide if that is what you want the way to be.

Regardless of the soundbites, the bottom line with your new company is that it is a division of the Department of Industrial Relations; it is required to be no more and no less than self-supporting, and it is supposed to be, according to the State Constitution, "fairly competitive."

Defining these mandates better than your predecessors should be a priority in your communications with policymakers and the broader workers' compensation community. Similarly, as a quasi-public entity, "transparency" needs to actually mean something.

While it rolls off the tongue as part of the feel-good corporate accountability lexicon, nothing advanced to date in terms of changes at State Fund makes it any less insular or any more accessible.

Changing a very large corporate culture is a difficult job under the best of circumstances. But you've been given that all-important element of change – a reason. Seize the opportunity; don't hesitate to remove and replace those who aren't acting for you and for the new State Fund, and don't hesitate to communicate to the governor over or around others if you need to. The sharks are in the water. Be aware and remember that not only the hungry ones need feeding.

Under your leadership, you need to reverse the decades-long trend of repealing or amending laws that inconvenience State Fund's ability to operate behind closed doors and without regard to its purpose. Clearly, this has not been a priority of this "reform" board, which appears to have taken the position that "fixing" State Fund means issuing broad pronouncements that it is following the law and doing what would be expected of any state agency in terms of fiscal management. Although recent changes are certainly very positive developments, they cannot be considered the sine qua non of "reform." Not even close.

In the meantime, you have an insurance company to run. We wish you the very best on behalf of the people.
Copyright © 2007 Providence Publications, LLC - All Rights Reserved.

PUBLISHERS’ NOTE:  Publius is written by a consortium of writers, sometimes internal, most frequently external. Workers’ Comp Executive believes that it has the responsibility to air most viewpoints and welcomes the comments of its community on any subject. Publius does not necessarily represent the views of this publication.