The Tahoe Forest Hospital’s Board of Directors recently announced, without elaboration, there was “insufficient evidence” of a conflict between the duties of Bob Schapper as the hospital’s CEO and his personal interest in his wife’s contract with the hospital. The Board’s conclusion is belied by the nature of the conflict. As CEO, Mr. Shapper has a duty to minimize the hospital’s costs and to maximize the value the hospital receives for the costs it does incur. The conflict lies in his personal interest in seeing that his wife is well-paid and that her contract is repeatedly renewed. The more money she makes, the more money he makes as her spouse, but the less money the hospital retains to retire its tax bonds.
To overcome the conflict, the Board must have adopted safeguards preventing the CEO from directly or indirectly influencing the hospital’s awarding and supervision of his wife’s contract. Establishment of the essential safeguards is a remarkable feat, given Mr. Shapper’s duties and his premier position as the CEO of a small hospital. It is also remarkable that the CEO can perform his duties fully while being walled off from any involvement in a contract that is so integral to the hospital’s business plan. The Board should be willing and even eager to reveal to the community’s tax-payers what safeguards it adopted to overcome the conflict.
Some have said the Board overcame the conflict by having the CEO’s spouse report to someone other than him, but there has to be more to it than that. Otherwise, how could the Board have concluded there was “insufficient evidence” of a conflict? I look forward to the Board revealing how it could eliminate the conflict and still allow the CEO to fully perform his duties.