Thursday, July 15, 2010

Key Challenges Ahead For JDRF's New CEO

On May 13, 2010, the Juvenile Diabetes Research Foundation (JDRF) issued a press release that it's CEO, the guy who formerly ran Novocell (a company that hopes to cash in on widespread islet transplantation for type 1 diabetes -- note that the company recently changed it's name to ViaCyte) had resigned, after just a little over 1 year on the job -- in fact, he didn't even stick around long enough to give the organization's annual "State of the Foundation" address! He claimed he was leaving for personal reasons, and would be returning to be with his family in Southern California (the JDRF is based in New York, although the CEO before him lived in St. Louis and split his time between his home and JDRF headquarters New York).

I could understand it better if this wasn't becoming a recurrent pattern for JDRF's CEOs in recent years. But for some reason, the JDRF has not been able to hold onto a CEO lately. What makes this even more puzzling is the fact that the job market has been tight for many top executives in many fields, including the nonprofit sector. According to The Wall Street Journal "No one knows how many out-of-work CEOs are looking for corner office suites, but recruiters say their numbers are growing. Fewer big businesses are switching bosses these days and mergers and bankruptcies have further reduced their job prospects. Only 48 companies in the S&P 500 index changed leaders last year, the lowest level since recruiters Spencer Stuart began tracking it in 2004."

Over the last few years, there has been a parade of new CEO's in the top slot at JDRF, each leaving sooner than the predecessor. In each case, the CEO stepped down rather unexpectedly after a short time on the job. JDRF Board Members should probably be asking WHY is this happening, and then what is the organization's leadership doing to prevent it from happening again so quickly?

I believe the JDRF needs solid leadership, but frankly, I think it's been a huge mistake to try recruiting leaders from the "diabetes industry" because of the very reasons we saw with Alan Lewis. Private industry can offer executives more money, and it's very tempting for them to take their leadership skills elsewhere and/or to cash out altogether. By looking to diabusiness for candidates, the organization likely hopes to have someone who has some understanding of the disease so their learning curve won't be so steep. That's fair enough, but isn't the lure of big bucks from a for-profit company a bit too tough for a nonprofit to compete with?

In fact, during 2009, we know that CEO Alan Lewis took no salary from the organization, although it's worth mentioning that he volunteered to do so. But going back to previous CEOs, the salary in 2008 for Arnold Donald was $531,040 plus another $82,138 for contributions to employee benefits plans and/or deferred compensation plans. Grand total: $613,178. When it comes to CEO and other top executives' pay, that's quite low on the scale. Most CEOs have unexercised options in the stock of the companies they lead that's worth more than 10 times that amount (or more). So we know that the pay as CEO of JDRF isn't extraordinary. As a matter of fact, the organization's Senior Vice President of Scientific Affairs, Robert Goldstein, and Richard Insel, JDRF's Chief Scientific Officer -- according to the organization's annual IRS filings -- are the highest paid employees, not the CEO. But the demands and hours required for the CEO of the JDRF are typically far less than they are for CEO of almost any for-profit company, so it's a pretty cushy job with a big-shot title. The top job is usually awarded to someone who has already lead a company or organization, but has no other responsibilities and is now quite financially comfortable and doesn't really need a salary. But that also means that they could easily be distracted or lured away, as was the case with Mr. Lewis.

JDRF's Latest CEO Search Ended More Quickly Than The Last

In June, the JDRF announced that it had hired yet another new CEO (this one to replace Alan Lewis). The organization filled this position much, much more quickly than it did when Peter van Etten stepped down (it took the organization well over a year to fill the vacancy at that time), but given the recent history of CEOs stepping down, I think the JDRF absolutely must have succession plans outlined and in place so the organization isn't left without clear leadership in the event that the top exec leaves again. I should remind my readers that the newest CEO is the third CEO the organization has had since Peter van Etten retired from the position at the end of 2005 after serving 6 years in the position. In other words, the last CEO was the organization's third new leader in less than four years. Mr. Lewis also had the decidedly unflattering description of having had the shortest tenure as JDRF's CEO since the CEO position was first created in the oranization.

JDRF's Board of Directors named fellow-JDRF Board Member Jeffrey Brewer as CEO, who is perhaps best known for a string of internet startups which he then sold and made a personal fortune from. Mr. Brewer also has a personal connection with type 1 diabetes, as his young son Sean was diagnosed the disease since 2002, but he's also a relative newcomer (although not as new as several of the recent lineup of JDRF CEO's have been), having quickly risen through the ranks of various leadership posts in the largely-volunteer run organization.

The naming of Mr. Brewer as CEO, as might be predicted, did set off an immediate question given his role in pushing so the organization so hard to fund the so-called "artificial pancreas" project, which many long-time fundraisers (including a few of the organization's founders) and supporters view as a significant deviation from the organization's core mission to find a CURE for type 1 diabetes and put itself out of business. Some have called it a costly boondoggle that will mainly enrich the drug and medical device companies, who will charge healthcare providers handsomely for the technology that the JDRF has largely shepherded through the costly development cycle. This is no small issue, some 47 million Americans lack any sort of healthcare coverage at all (including an estimated 3 million Americans with diabetes) and they will most likely not have any sort of coverage until major portions of the U.S. Healthcare legislation become effective in 2014. Even if it gains FDA approval, the costly devices will very likely to remain inaccessible to many patients (even in spite of JDRF's support) largely because of the cost, thanks to durable medical equipment caps that exist on many plans. I recently communicated with a parent who had 2 children with type 1 diabetes, and she had to stagger the timing when each child could get a new insulin pump over a period of 2 years thanks to this very issue. She also felt that JDRF should not really have to fund studies to justify insurance coverage for the devices when for-profit companies stood to make millions on the devices. Her feeling was that the organization's resources would be better spent on autoimmunity treatments that would help with a so-called "biological" cure given the issues we collectively face with uncontrollably rising healthcare costs.

Donor-Centric Organizations Require Complete Financial Transparency; The JDRF Isn't There -- Yet!

The JDRF has provided few concrete details on the actual budget for it's Industry Discovery & Development Partnership (IDDP) program, which unless I'm mistaken, is how the "Artificial Pancreas" project is being funded. While JDRF funds certain elements of these programs, private industry should ideally be picking up part of the cost, but without financial disclosure, many fundraisers/donors feel as if they're deliberately being left in the dark about an important program being sponsored by the organization.

Section 6104 of the U.S. Internal Revenue Service code requires that a nonprofit organization to make its Form 1023 (or 1024 if applicable), 990, and 990T [501(c)(3)s only] available for public inspection, and JDRF claims this information is posted on it's website, but I have always found it far easier to locate these tax documents via The Foundation Center. The Foundation Center is a national nonprofit service organization recognized as the nation's leading authority on organized philanthropy, which maintains one of the most comprehensive databases of U.S. tax returns for U.S. nonprofit organizations anywhere. Using this, one need not search countless pages looking for a needle in a haystack; just enter the name or tax ID code (which can be found on the tax filing itself) and voila, a listing comes up without any other stuff. You can access this extensive database here or by using this widget (Note: the widget requires JavaScript to be installed on your computer in order to function):

(Incidentally, you can look up any other nonprofit here, too, including the ADA, the DRI, the Diabetes Hands Foundation and many others on this site.) But donors are left with few details on just how much the organization has allocated to the IDDP project, and some long-time fundraisers feel entitled to know. Former JDRF CEO Arnold Donald pushed to make the organization much more "donor-centric" (see here for details) but that requires an ongoing organizational commitment to succeed.

Not too long ago, a nonprofit survey asked "What does 'nonprofit transparency' mean to you?" and the responses generally fell into two categories: (1) financial accountability and (2) openness about missions and programs. Given how broadly-defined the JDRF's IDDP program really is, many donors/fundraisers want to know more about exactly how much is actually being spent on the various programs here to determine if it's a real deviation from the organization's stated mission or not. Unfortunately, the public filings have answered few (if any) of their questions.

Mr. Brewer has had the great fortune to be able to dedicate personal time that many parents of children with diabetes simply do not have the luxury of doing, which means he's out-of-touch with many donors'/fundraisers' needs. In fact, he's had no relevant personal experience in the kinds of day-to-day challenges many parents of kids with diabetes face. Today, many parents of kids with diabetes struggle with complicated insurance issues that grow ever more costly by the year, routine changing of drug formularies that virtually force the switching of preferred insulin brands, and routine denial-of-coverage for such things as insulin pumps not to mention long, drawn-out appeals processes. Many cannot even get such basics as test strips covered, and will likely never be able to get coverage for a costly, closed-loop "artificial pancreas" that Mr. Brewer has been such a big proponent of. We can only hope these not-so-small details are not lost on him. That's why I believe former CEO Arnold Donald's goal of making the JDRF more donor-centric was such a critical strategy, and why it will likely be even more critical moving forward.

Safety In The Organization's Highly Decentralized Structure

First and foremost, the JDRF is now, and always has been a highly decentralized organization. That's always been one of the organization's key strengths. While highly autocratic CEOs have found that challenging to adapt to, it also ensures the organization's creativity and resilience to setbacks like the loss of a leader. Have a look at this video presentation from the 2010 State of the Foundation address to JDRF board members:

Now the key speaker, Leo Mullin, sounds remarkably confident in JDRF's ability to recover from a fundraising perspective, as if the broader economy was a minor inconvenience. So far, JDRF's volunteers and fundraisers have done remarkable work to ensure the foundation has been able to keep funding its research commitments. In that regard, the organization has done better than many peers, but no one should delude themselves into thinking the organization is somehow immune to challenges in the nonprofit fundraising environment. Given that the prevailing economic consensus is generally that this will be a largely jobless economic recovery and even then, we shouldn't expect much of a turnaround until 2012. Clearly, the new CEO has his work cut out for him.

Can Changes At The Top Impact Continuity In JDRF's Strategy?

It's safe to say that during former CEO Alan Lewis' highly abridged tenure (you may catch an interview with Mr. Lewis here), he most likely was NOT able to make any meaningful changes in direction or influence the organization in any material way, shape or form. To his predecessor's credit, Arnold Donald, who stayed in the job only slightly longer, about 2-3 years if memory serves me correctly, did slightly better in his efforts to help reshape the culture of the organization to be more of a donor-centric organization. But that type of effort requires consistency and routine, not the annual CEO parade that has become such a regular occurence at the organization following Mr. van Etten's departure. Change in the corner office may actually have had the opposite effect -- alienating faithful fundraisers such as myself. Last year, although I attended the Manhattan walk with a group, I raised just $50 (a record low for me), which was at least $4,500 less than I had raised in each of the 6 previous walks. Although I have a very personal relationship with type 1 diabetes, having lived with this disease for 34 years (effective July 24, 2010), in recent years, the JDRF and in particular the New York City chapter, has done much to alienate me as an adult with type 1 diabetes.

That's a separate conversation about the clique-y and snobbish nature of the New York City chapter (which includes the money raised by outer-borough parents, even though those individuals are scarcely even represented in any boards or review panels) of wealthy parents of kids with type 1 (most send their kids to private schools, unlike the experience of many suburban parents), and the presumption that any adult affiliated with the chapter simply MUST be a parent of a child with type 1 diabetes was downright insulting. In the New York City chapter, my experience has been mostly negative, more closely resembling Bravo TV's "The Real Housewives of New York City" than it does an organization with a truly charitable mission. But I am optimistic that startup organizations like Act1Diabetes can wrestle some more meaningful representation within the JDRF New York City chapter than the current leadership does because I believe it's badly needed, at least in NYC. But my point is that donors must be central to the organization's ongoing success, and frankly, that varies considerably from one chapter to to the next. More uniformity in how donors are recognized and addressed would benefit the organization as a whole. Let's hope he keeps the "donor-centric" theme alive and well, because failure to do so could adversely impact fundraising for the organization!

The issue of who diabetes organizations represent is a hot topic nationwide these days, and it even came up in the recent Roche Social Media Summit I attended in Orlando a few weeks ago. The fact is that kids with diabetes eventually do grow up, and how well those connections established as children with diabetes survive is playing an increasingly important role in the ongoing sustainability of many charitable organizations. Other JDRF chapters are leading JDRF into this territory far better than the NYC chapter has, fortunately, and I think that's been a benefit to the organization. Let's hope he keeps the "donor-centric" theme started by former CEO Arnold Donald alive! Just how prepared Mr. Brewer is to address all of these issues is unclear, but I think it's apparent that he has his work cut out for him.


Jenny said...

I nominate you Scott. You'd do a great job and probably know more about the real issues involved than any of these executives from companies that profit from the market represented by uncured diabetics.

Steve said...

Excellent post, Scott. As the father of someone who will benefit from the work JDRF funds, as well as my own involvement as a recently elected chapter board member (NC, not NYC, sorry), I share your frustrations on a personal level as well as your hope for change. In the seven months since L was diagnosed, I have seen many opportunities for improvement. I will keep this post close by as I endeavor to made good things happen.


Bennet said...

Nice work as usual my friend.

I seem to recall calling JDRF and asking if the artificial pancreas and probably the BD deal were IDDPs. I think, and I maybe wrong, that they are not strictly IDDP agreements. Very similar but not the same accounting bucket.

I do know that IDDP requires at least equal funds from the for profit in the project. JDRF gets rights to bring funded intellectual property to market if the for profit does not do so and there are benchmarks for repayment.

It is all about as transparent as mud. I did once find an IDDP agreement in its full glory in a firm's 10k. It wasn't light reading.

All the more reason you and I need to go visit JDRF.

Karmel Allison said...

Thanks for a very thorough and informative piece, Scott!

Personally, as a fan of the Artificial Pancreas Project and a big proponent of making industry and non-profit worlds collide, I have high hopes for Jeffrey Brewer. But, I would be interested to hear-- who is your recommendation for CEO? If you could have your pick of anyone?

Scott Strange said...

Great post, as usual, Scott.

On the artificial pancreas, would the JDRF receive and of the revenue from such a device if/when it starts being sold?

If so, that seems like a good tactical goal, give T1's better tools to help avoid complications until their strategic goal of a cure can be realized.

If not, then you still end up with a better tool to help avoid complications and give a better quality of life

Scott S said...

Thanks everyone for your comments! Karmel, you pose an interesting question. I should note that I was not opposed to Jeffrey Brewer's naming as CEO because I believe the organization is lead by the CEO, but not controlled by it. I view the project as useful and I believe the way it has been done is excellent, by partnering with private industry. But I have only lukewarm feelings about the artificial pancreas project (first, the name is wrong because my pancreas works just fine as far as producing digestive enzymes which are the organ's primary function anyway, only my pancreatic beta cells, which constitute less than 1% of the organ mass are destroyed, so it will really be an artificial beta cells, and maybe someday an artificial Islets of Langerhans). But my biggest concern is that these devices will be costly and largely inaccessible to large segments of the population. As it is today, GCMS devices are still not covered by many insurance companies and often with great expense to the individual, and all of the studies used to justify coverage were funded by the JDRF rather than the private companies that profit from the sale of these devices -- can that be called a partnership? I'm not so convinced.

But I believe the project has been a relatively small line item in the budget (and Jeffrey Brewer donated $1 million of his personal funds to the project for this purpose), but without full disclosure, it's hard to answer with any certainty, and the organization can do more to eliminate these questions with full disclosure.

As for who I would select, I haven't really given that much thought until you asked. But a few names come to mind: one is the JDRF's existing chief scientific officer, Robert Goldstein. He's an insider and certainly has the knowledge and leadership skills to lead the entire organization, although due to his age, he may not be the ideal long-term candidate. Other than that, I am for choosing an outsider rather than anyone from the board. But I am in favor of someone who has a history of successful leadership, and possibly with turnaround skills to ensure that he can advance the organization in ways that have yet to be addressed so far. I believe the JDRF has done many things correct, my main concern is the main fundraising activity (the Walks) are being pressured with other, copy-cat events. Even the ADA has a walk event. Could the organization partner with private industry to get a few basis points of sales of products like testing supplies? It's an interesting possibility that has, to my knowledge, not been explored, but could be a new fundraising method that other nonprofits are pursuing. There are challenges, none of which are insurmountable with the right leadership. Let us hope Mr. Brewer's experience is relevant enough to lead the organization into the future!

Andrea W said...

Thanks for the information Scott. I haven't had any experience with JDRF since I was diagnosed at 22yr with T1. JDRF has always been a mystery a big obscure mass on the horizon that I don't have a connection with since diagnosis.

Anonymous said...

I worked at JDRF many years ago and it was a terribly chaotic place. I wasn't shocked at all when I found out that some of their employees had embezzled over a million dollars from the organization. I have a feeling that's only the tip of the iceberg. Do you think perhaps the reason that so many CEO's hightail it out of the organization is because they realize they cannot fix all the problems that are wrong there?

Anonymous said...

I disagree that Arnold Donald did that great a job. He left right after the fiasco when money was taken from JDRF by national managers. Never lived in NYC but stayed in St. Louis. When ever I heard him speak he talked about HIS past successes. Frankly was glad to see him go. I agree, JDRF has done a poor job of recruiting CEO's. Could you go into further detail of your point of sale like testing supplies concept? Enjoy your blog.