The Cost of Tin Ears and Missed Opportunities

Today the $3 billion California stem cell agency is wrestling with the fallout from its second conflict-of-interest controversy in one month.

The state's top fiscal officer has ordered a major audit of the agency and called for a state investigation into the conduct of one of its directors, John Reed. Foes of stem cell research cackle on the Internet about violations of CIRM's ethical standards. Ten of California's most talented stem cell researchers have lost out on millions of dollars in grants. Watchdog groups are calling for Reed's resignation, a call echoed by some of CIRM's own directors. And CIRM Chairman Robert Klein is under fire for his flawed leadership.

It is a deplorable state for CIRM, which seemed last summer on verge of kicking its effort to a new and higher level. Work was progressing on the $227 million lab constructions grant program. The $85 million plan to fund the best young scientists in the state was on the table. And then came the much-heralded appointment of renown researcher Alan Trounson of Australia to fill the long vacant post of CIRM president.

But behind the scenes last August simmered the Reed-Burnham lobbying affair that violated the agency's conflict-of-interest standards. And the decisions made then at the highest level at CIRM reverberate today and illustrate the high price of secrecy and the cost of a tin ethical ear.

Public documents requested from CIRM by the California Stem Cell Report show that the agency's executives missed a chance to demonstrate that it was vigilantly adhering to its financial responsibilities. The documents also show that CIRM failed to take advantage of a splendid opportunity to refresh its directors on their ethical responsibilities. And the documents further point to a sadly missed opportunity for John Reed to become something of a poster boy for ethics instead of an example of public venality.

As we reported last month, the CIRM staff was ready to announce in early August that it was overturning the award of a $638,000 grant to the Burnham Institute, whose president, John Reed, sits on CIRM's board of directors.

But the staff pulled back on its expected action. The announcement was called off because of an improper, 6.5-page letter signed by Reed, strongly urging the staff to reverse its stand. Reed wrote the letter on the advice of Chairman Klein, who is also an attorney. The letter violated CIRM conflict of interest policy, all parties now concede.

Here is how the events played out.

On Aug. 1, CIRM's general counsel, Tamar Pachter, emailed Burnham staff that the agency was planning to report at the Oversight Committee meeting on Aug. 8 that it would not fund the grant to Burnham. The grant had been approved in February by the Oversight Committee, which is the agency's board of directors. The planned announcement followed months of discussions with Burnham about the matter, which involved the eligibility of the researcher.. And also on Aug. 1, Pachter offered Burnham the opportunity to withdraw the grant.

On Aug. 2, Burnham replied that it would not withdraw. At some point in this process, Reed called Klein, who advised him to write an "appeal" letter, which he did, also on Aug. 2. The CIRM documents did not disclose the date of Klein's advice. Nor did they disclose any reasons for the delay in the announcement. In response to questions last month from the California Stem Cell Report, interim CIRM President Richard Murphy, who was not working at the agency in early August, replied, "CIRM did not announce in August because Burnham had appealed the determination, and that issue was not resolved before the ICOC meeting in August."

It is not clear from the documents who directed CIRM staff not to report the denial of the grant at the Aug. 8 meeting, but Klein controls the agenda tightly and directs the meeting. In October, he delayed the ultimate announcement of the Burnham rejection until the very end of a full-day meeting. Murphy, who once headed the Salk Institute which is a neighbor to and sometime collaborator with Burnham, then mandated that Burnham's name not be mentioned in the CIRM news release that came out of the meeting.

Reed's intervention in the grant and Klein's role were all bad news for the agency. And nobody likes bad news. But in this case, the news ultimately became worse because of the failure by the agency's top executives to deal with it in a forthright and open manner.

Exactly how could that be done, one might ask? The answer is: Lay out the matter in public, disclose the rejection of the grant on Aug. 8 and explain the reasons why. Offer John Reed -- in advance -- an opportunity to discuss the matter publicly at the meeting and counsel him on what to say. In this scenario, Reed tells his fellow directors in public that he made a mistake, one that embarrasses him and the Burnham Institute. Now, he says, he knows better but he wants to speak out to demonstrate the importance of maintaining the integrity of CIRM and the public trust. Reed says this is a cautionary tale for all sitting around the directors table and offers to resign.

Such an event would have sensitized the Oversight Committee members/medical school deans who later violated CIRM's conflict of interest policy by writing letters on behalf of grant applicants(see below). Those applications were yet to be submitted to CIRM.

Reed's explanation and contriteness would have engendered support and generated news coverage with a something of a positive spin on him and CIRM. His offer to resign would certainly have been declined. His fellow directors more likely would have commended him on his courage in speaking out publicly.

The big news out of the meeting that day actually was the appointment of Murphy as interim president. Reed's comments would have been well-subordinated to that information, and CIRM could have gone on very nicely about its business.

This is not an unreasonable scenario. It could have easily been worked out. But CIRM was in a bit of a turmoil at the time, having gone through many months without a president because of a difficult search for a replacement for Zach Hall, who left at the end of April. The president's responsibilities were split between two persons who did not have the clout of a permanent president. Klein was filling that power void.

Klein knows the importance of good press and seems fond of the public spotlight, although he has demonstrated little skill at the managing the process. Last June, for example, he ordered up a news conference in Los Angeles for a non-event, which predictably no media covered. In March, his private stem cell lobbying group called a major news conference in Los Angeles for the stem cell agency. The announcement came as a complete surprise to employees at CIRM. Klein also seems to fail to understand why some think it is unseemly for the head of a $3 billion state agency to run his own private lobbying effort in the same arena as the public agency. He bypassed the CIRM staff entirely on the announcement of the new CIRM president and blew an opportunity to generate far more favorable coverage for CIRM than was contained in the stories that did appear.

For CIRM to be able to react well to events such as the Reed lobbying effort, some changes are needed in its executive structure. The first priority should be to hire a savy, clear-headed and experienced public relations person. The agency had a good one once, but he has left to return to the private sector. His replacement must be part of the top echelon at CIRM, regularly part of the discussion of major matters. That is the only way he or she can provide advice in a timely fashion.

CIRM is dominated by an emphasis on science. Its top executives and the Oversight Committee members are all persons of great accomplishment and responsibility. But for nearly all of them, this is the first time they have operated in such a public arena with control over billions of dollars in public money. And some of its executives and many of its directors view their public responsibilities through a prism that does not allow them to conceive of all the negative possibilities of their actions.

Unfortunately, CIRM seems about to miss a first step that would help guide it through the dangerous shoals of public affairs. Its new organization chart calls for the chief communications officer to be placed well down the change of command, three steps below Chairman Klein in an enterprise that has only five layers.

But beyond the nuances of handling bad news, CIRM directors must act with the highest standards of propriety and ethics. Without that, no amount of crafty PR can help.