Why One CEO Decided to Return $250 Million in Government Relief Funds

Why One CEO Decided to Return $250 Million in Government Relief Funds

by Daniel McGinn - June 01, 2020

What would you do if you found $250 million in your bank account - money you were perfectly entitled to, but felt uncomfortable keeping? That’s roughly the situation that faced Javier Rodriquez, CEO of DaVita, a 65,000-employee chain of kidney treatment centers. His company received nearly $250 million from the Health Care Enhancement Act, a part of the U.S. government relief package enacted in response to the pandemic. Unlike the Payroll Protection Program, to which companies must apply (and which some large companies have been criticized for accessing), the health care program delivers the money to qualifying companies - without an application.

After receiving the funds, Rodriguez and DaVita’s directors were torn. The company’s costs have increased dramatically due to Covid-19 (primarily for purchases of personal protective equipment and employee overtime), and the relief money would help fund them. But like the Payroll Protection Program, the HCEA has a finite pool of funds (it’s $175 billion), and many health care organizations are losing much more money than DaVita due to prohibitions on elective procedures. Rodriguez spoke with HBR about how he and his board grappled with the decision. Edited excerpts:

HBR: Why did you debate whether to keep the funding?

RODRIGUEZ: Our company is qualified for the funding, and we are spending money to treat Covid-positive patients, so it’s within the spirit of the program. But philosophically, we don’t need the money to stay open. That creates conversations around shareholders and society, and whether keeping the money is doing what’s right. In the last year, the Business Roundtable put out its statement on the importance of stakeholders, and in Davos this year there was a big emphasis on ESG, or environmental, social, and governance issues. When it comes to the relief money, is it about qualifying for it, or deserving it, or needing it? That’s a tough discussion.  Our board is a group of experienced, thoughtful executives who were interested in assessing all the different perspectives and outcomes.   A lot of times, ethical discussions focus on hypotheticals, but this was not a dress rehearsal. This is real life, where we had to decide what was right.  In the end, the board was unanimous in its decision to return the dollars.

Was this mostly about avoiding a Shake-Shack-style PR problem?

That had very little to do with it. There’s a major distinction, because we’re on the front lines, providing essential medical care. We are spending millions of dollars due to Covid-19. We’re not closed. The other distinction is that the Payroll Protection Program requires companies to proactively apply for the funds. As a health care company under the Provider Relief program, we didn’t apply—the money just came to us because we qualified.

Did you check in with big investors before deciding?

I bounced it off one large shareholder, yes. They were helpful in thinking about how we framed it. Part of it comes down to “Is this stimulus or is it relief?” If the purpose is to reimburse you and to stimulate the economy, that’s fine, but if it’s to take care of people who are in a dire situation and need a safety net, that’s something else. It’s a complex question, and I respect the different perspectives around it.

Did you start out in favor of returning the money?

To be honest, I changed my view over the course of the discussion. At the very beginning, when we’re in crisis mode, and people are scared, and we’re having to buy masks and protective equipment at crazy prices, I was thinking: “We’re facing very large costs, and we need relief.” There were other directors who wanted to wait and get more information about what the rules of the program would be, because the program came together so quickly that some of it wasn’t well-defined. I could understand that view.

What changed your view?

I started reading about how hospitals were facing economic devastation due to the lack of elective procedures, and I began to realize that we shouldn’t keep the money. I began to realize we were blessed to be open and earning income when so many health care organizations aren’t.

How did the debate unfold?

Before the final board meeting, we sent some time pre-reading, and I spoke one-on-one with several directors to see what they were thinking. At the meeting, we spent about two hours discussing it. People were asking good questions, including how we should think about stakeholders and our fiduciary responsibilities. We had an attorney talk us through the relevant laws, including whether we had a fiduciary duty to accept the funding, or could exercise our business judgement to return it. When we started the conversation, there were divergent viewpoints. But by the time it came to a vote, we were unanimous: We decided to return the funding.

How did investors react to the news?

We announced the decision during our earnings call when we also announced a strong performance for the first quarter, so it is unclear the impact of the decision on our stock price versus other news. But our stock did go up after that announcement.  The analyst reports also supported the decision with quotes like “[w]e believe this is not only a signal of a socially responsible corporate culture, but also a signal of strength to the market.”

What do you hope to accomplish by talking publicly about the decision?

We are grateful that the government created the program and moved so quickly. The government wanted to protect companies like ours, and because we’re going to survive, we want to return the funding to help other companies.  We did not issue a press release or make a big public announcement because we know companies could make different decisions.  However, one reason we did this was in hopes of influencing the discussions going on in other boardrooms. We’re a publicly traded company, and if our decision to return the money helps give other companies a bit of air cover to make the same decision, that’s a good thing. If more companies that aren’t risking their survival decide to return the money, millions will turn into billions of extra funding that can go to those truly in need. Then, hopefully, we emerge stronger as a country. There’s been a decade-long debate about ESG and the role of a company. In my opinion, we’re at a unique time in which CEOs need to act.

Daniel McGinn is a senior editor at HBR, and the author of Psyched Up: How the Science of Mental Preparation Can Help You Succeed (Portfolio, 2017). Follow him on Twitter @danmcginn.