Ex-CEO should beware; government isn’t Procter & Gamble

The Boston GlobeJuly 4, 2014 

For 33 years, Robert McDonald rose through the ranks of brand managers and junior executives at Procter & Gamble, overseeing international operations in Canada and Asia for the consumer goods giant before taking charge as CEO in 2009. Last week, President Obama named the West Point graduate to head the scandal-plagued Department of Veterans Affairs, which is reeling from revelations that officials had falsified records and concealed extraordinary waiting times for patients seeking treatment. If the problems at the VA stemmed from failures of branding and salesmanship, McDonald would be a fine choice. Unfortunately, they do not.

This crisis is the result of poor policy-making, a lack of accountability, and the inherent inefficiency of a government monopoly completely insulated from competitive forces. Most significantly, it involves the systemic failure of a health care delivery system. McDonald possesses sound business skills and a reputation for integrity, but he'll be out of his element and in hostile territory inside the sprawling bureaucracy of the VA. Success will require every ounce of the grit, guile, and leadership that McDonald honed during his five years in the Army’s 82nd Airborne Division.

With 120,000 employees worldwide, Procter & Gamble does, at least, approach the VA in size. But there the similarities end. For all of its complexity, P&G manufactures and distributes diapers, detergent, and beauty products. The VA, by contrast, comprises an expansive network of nearly 1,000 medical centers and clinics nationwide. It employs tens of thousands of doctors, nurses, and technicians delivering health care services and treatment to 9 million enrollees. The White House heralded McDonald as the“perfect person” to run the VA, but surely a CEO of a hospital network or insurance firm would be far better suited to the challenges at hand.

The recent history of CEOs in the presidential Cabinet suggests that it’s not enough to have been the boss; experience in a relevant field makes a difference. At Treasury, for example, former banking executives like Nicholas Brady (George H.W. Bush) and Robert Rubin (Bill Clinton) were highly regarded both inside and outside Washington – and across party lines. By contrast, Paul O'Neil, a successful CEO at an aluminum company, never seemed comfortable with the position, or with the politics and policy-making process at Treasury. He lasted less than two years.

Regardless of industry background, former business leaders are further frustrated by a very different power structure within the labyrinth of government. In the private sector, no matter the company size, all CEOs have final say over the allocation of both capital and labor across their entire companies. Working with senior management teams, they set priorities, commit resources, reward top performers, and cut loose programs and personnel that fail to create value for the organization. Cabinet secretaries can only dream of holding that kind of power.

In Washington, the legislative branch controls the money (notwithstanding Obama’s recent vow to change the immigration system“on my own, without Congress”).

Cabinet secretaries might prepare draft budgets, but the final say on funding resides with appropriation bills written by the House and Senate. Strict limits apply to any attempt to reprogram money without congressional approval.

Cabinet secretaries hold even less sway over hiring and firing in the organizations they oversee. Astonishingly,

the scandals that have broken out across the VA network have not led to the firing of a single VA employee. General Eric Shinseki, who led the organization for over five years, was allowed to resign on his own terms. Three Phoenix officials were placed on“leave” – but are still collecting pay. So much for sending a message of accountability.

None of this means that McDonald can’t succeed, just that the odds are stacked against him. Naturally, members of Congress hope he can fix things fast. Both House and Senate have passed bills that would introduce some much needed competition by allowing veterans to obtain care outside the VA network. But given the pressures of election-year politics, their instincts will be to criticize rather than encourage reform. Congress has also mostly ignored its own role in overloading the VA network by opening it up to a growing volume of ailments unrelated to military service.

So other than a fundamental lack of control over money, resources, and policy, McDonald is in great position to fix the VA. Still, he does have one important thing going for him – as a member of the 82nd Airborne, he knows exactly what it’s like to jump out of a plane, alone, in the dark, and at high altitude. Here’s to a safe landing.

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