Investigation Of The National Kidney Foundation Financial Scandal

One of the issues regarding the NKF scandal was the lack of competency from the various governing boards in the organisation. The ability of the executive committee to transfer authority to the CEO “as they see fit” and the remuneration sub-committee (RSC) allowing the CEO to have the final say in what is essentially their job, to regulate and decide the pay and terms of employment for the employees in the organisation, made it so that Durai had the final say in most, if not all decisions regarding the use of financial resources in the organisation. This resulted in the scandal of Durai and a few other board members misusing the funds of NKF which only happened because it could. The reason the CEO had such a high salary and could take first-class seats on flights, have a gold tap and glass doors in his private toilet and have a fleet of cars equipped with drivers was because he had the power to influence and change his pay and bonuses and had the power to use the financial resources of the organisation as he deemed fit.

So, this scandal on malpractice might not have happened if these committees did not give Durai the power to do so in the first place. Other committees such as the financial committee (FC) and the audit committee (AC) also did not do their job well, what with the FC lack of transparency in how they manage the finances in the organisation by carelessly losing the meeting minutes. With the minutes lost, it easily allows foul play as the it was hard to track what was discussed during the FC meetings. Not to mention, the AC not even fulfilling the requirement of meeting every 3 months. To prevent these types of mismanagement to occur, NKF should have researched more into the backgrounds of the appointed directors and executives and prevent those that had business or personal relations outside of the organisation’s boundaries to serve the organisation together to prevent decisions made in self-interest and mutual-cooperation. For example, it was revealed that Durai had a hidden business relation with fellow NKF director, Matilda Chua in which they were both investors and directors in Proton Web Solutions which had business deals with NKF during Durai’s time in the office (Foo, 2013). Thus, they were motivated by personal gains to help one another push for their objectives in the organisation, such as the business contract, and were not working to help the beneficiaries. Ethical issues occur in businesses and organisation due to many reasons.

One that applies to this NKF scandal is when there is a conflict of interest, where the actions of a person motivated by self-interest goes against the best interests of another party. In the case of NKF, Durai and a few other directors decided to use the funds of the organisation to support their personal lifestyle and expenses when it could be used to benefit the organisation in other ways such as buying more dialysis machines and funding fundraisers to attract more donors that will, in the long run, help more of their patients who suffer from kidney failure. Also, they did not have their donor’s best interests at heart when they allowed Aviva, a British company, to use the data that NKF collected from their donors by selling it for $5 million. Thus, revealing their donor’s personal information so that Aviva could send marketing materials and advertisements to the donors, infringing on their privacy (Foo, 2013). This lead to the breakdown of trust between the donors and NKF as the donors could not even rely on NKF to keep their personal data private.

Furthermore, under Durai’s leadership, even some of the methods that NFK employed to gather funds were unethical. NKF did not correctly disclose the amount of funds they had available and overstated the number of patients they were serving in efforts to push the public to donate more (Terence Foo, 2013). Albeit, it was done to raise more funds that can be used to support the organisation, however it was not done in the right way as it implies that Durai was a person that valued results rather than similarly placing emphasis on how the results came about. To him, the end justified the means and he ignores how his actions were morally wrong, by lying to the public and donors who were earnestly supporting the organisation. In which, with this utilitarian mindset, the ethical foundation of the whole organisation is gone. Some of the things that could be changed in NKF to prevent this sort of thing from happening again is to place more emphasis on organisational ethics and promote ethical behaviour in the organisation’s culture.

This is because ethics pays. A company that is acknowledged as ethical would usually have a good reputation amongst his stakeholders, including the most important one, the customers or donors. Especially a charity organisation such as NKF that relies heavily on public confidence and trust to gain donations and support from volunteers and volunteer welfare organisations. As, if this scandal did not happen, I would expect that NKF would have continued to do well as it already had legitimacy in the public’s eye and its reputation was rising, both locally and internationally. This changing of NKF’s ethical climate can be done from first starting with the directors and executive members of the organisation because they are the ones that set the boundaries for the other employees on what is and is not acceptable to do in the organisation and will become a role model for the employees to follow.

Another possible change that can be made to prevent these things from happening again would be to make the directors and executives liable for their own work that they have been assigned and not be able to push the power to another as what the previous committee had done regarding Durai. Change the governing structure of the organisation such that no one person has all the power, especially over the finances, as absolute power corrupts absolutely, and people’s sense of morals and ethics tend to fly out of the window when they have the power and ability to do whatever they want. To add on, one of the reasons why NKF’s Durai and the other directors could get away with their actions were due to the lack of transparency on how the organisation’s funds were being used and how much they really had. Therefore, to prevent others from being able to take advantage of this and get away with misusing the funds again, NKF should directly tackle the root cause, allowing these numbers and how they use the funds to be shown clearly to the public to prevent any confusion or possibility of malpractice. Generally, it seems that there was an issue with the directors that were chosen to fill the role. So, the best thing to do would be to follow some of these guidelines to form an effective board of directors (McGraw-Hill Education, 2017).

· Mainly select outside directors to fill the board of directorsThis is to bring an outside perspective that can advise the organisation without having any biases or preconceived notions of the internal workings of the organisation. They can also bring much needed experience from their work before entering the board of directors while keeping the inside directors in check from any unethical practices. This could have prevented Durai from stepping out of bounds knowing that there were directors on the board that would not have allowed him to misuse the funds.

· Evaluate the performance of the directors frequentlyThis is to prevent any incompetent directors from remaining in the board of directors despite not providing any contributions. This could have resolved the problem that NKF’s financial committee and audit committee had. With the threat of their jobs on the lines if they were deemed to be incompetent and unfit to do their jobs well, they would have put more effort into it. With the FC not losing their meeting minutes and the AC at least fulfilling their minimum job requirement. · Hold open elections for members of the boardWith this, the efficiency and reliability of the board of directors can be better regulated by the shareholders who have a vested interest in choosing the board of directors well. However, as NKF is a non-profit organisation, it does not have any stocks or shareholders so there could be another system of people chosen to regulate this process. For example, from the donors, volunteers or employees. Finally, NKF can also build ethical safeguards into the organisation. NKF should put in place ethics programs, such as ethics training, having a code of conduct and have discipline and incentives put in place to prevent unethical behaviour and encourage employees follow the code of conduct.

To which, the focus on this would be the integrity-based approach instead of the compliance-based approach. This is because the compliance-based approach mainly emphasises the fear of the organisation and individual being caught doing something unethical instead of going deeper and cultivating actual concern for being an organisation and employee that respects honesty and people of values and morals that the integrity-based approach focuses on. The only issue is that with the integrity-based approach, while it focuses on emphasising and cultivating good ethical behaviour within the organisation, it emphasises less on the regulating and discipling of bad ethical behaviour and may also be harder to implement due to the lack of clear cut ‘rules’ of the compliance-based approach has. So, there might need to be a balance between the two approaches. One controversial part of this scandal was Durai’s pay, which was revealed to be about $600,000 a year including bonuses. The public did not feel that such high pay was sufficiently justified. With NKF being a non-profit charity organisation, the money collected from fundraisers were donated with the intent of helping patients relieve some of their burdens in keeping up with the payments needed for the expensive dialysis treatments. It was a given that with the time and effort Durai put into running the organisation, he had a right to receive pay for his work.

However, the higher the pay Durai received, the lesser the money in the funds meant to help the patients. Thus, many people of the public were indignant with the high pay that Durai received, especially donors that were from lower-income households (Wee, 2018) who trusted NKF with their donations, thinking that they were used to help the patients. However, if he did not misuse the funds of the NKF for personal things such as the money needed for the upkeep of his Mercedes-Benz 200 car and other personal comforts, then I would say that Durai was entitled to a decent sum as pay. This is because under his leadership, he did contribute much to NKF. Many things that he did in NKF during his term was worthy of praise. Such as the creative and new way he came up with to raise funds, where NKF held a charity show and invited local and foreign celebrities to perform, to appeal and persuade to the public to donate. He also paved the way for a new method of donation, by calling designated phone lines to donate certain amounts to the organisation. He successfully innovated and implemented a few other ways to raise funds too. Not only that, Durai also gained support from businesses to fund the organisation and shape the brand image of NKF, with businesses such as Comfort Transportation, MasterCard and MediaCorp joining in, successfully raising the awareness of the public to the existence of NKF and the dangers of kidney failure.

Therefore, it was not to say that NKF did not achieve anything in Durai’s term as CEO so if Durai was more ethical and did not prioritise his self-interest over his meaningful work in the organisation, I would think that more people would feel that Durai deserved a decent pay for his efforts. This financial scandal did not peacefully end after Durai and his team of directors resigned but instead raised doubts on the issue of lack of transparency in organisations and how they handled the funds that were donated to them. This was due to the loss of trust by the public, with some governmental organisations such the Government Investment Cooperation (GIC), the Housing Development Board (HDB) and the Central Provident Fund (CPF) facing protests for them to clear up to the public on how they use their funds (CNA, 2006). This shows that the actions of NKF did not just affect them alone but attacked the integrity of many organisations in Singapore.