Baltimore Mayor Catherine Pugh Pressured to Leave Office Over “Healthy Holly” Conflict-of-Interest Scandal

Since mid-March, a spate of news coverage in the Baltimore – Washington, D.C. region has brought to light a severe conflict of interest by Baltimore Mayor Catherine Pugh that may oust her from office.  The first part of the story emerged on March 12, when the Baltimore Sun reported that

[n]ine [volunteer] members of the University of Maryland Medical System’s [UMMS’s] Board of Directors — including Baltimore Mayor Catherine Pugh — have business deals with the hospital network that are worth hundreds of thousands of dollars each. . . . [A]bout a third of appointed members receive compensation from the medical system through contracts with their businesses. They provide goods and services to the system, ranging from consulting to pest control and civil engineering, according to financial disclosure forms reviewed by The Sun.

In Mayor Pugh’s case, the Sun initially stated that Pugh reported on her 2017 financial disclosure statement making a profit of $100,000 after the hospitals bought 20,000 copies of one of her self-published children’s books under the title “Healthy Holly.”  In short order, additional reporting disclosed that UMMS had made four previous payments of $100,000 each to Pugh, beginning in 2011 – when she was a state senator serving on a committee that partially funded UMMS —  and then in 2013, 2015, and 2017, totaling $400,000.

Additional disclosures within the past two weeks have now made the controversy a matter of intense city- and statewide attention:

• March 18: Mayor Pugh resigned from the UMMS board.
• March 20: Mayor Pugh told a Baltimore radio station that she had returned the most recent payment of $100,000 for her latest “Healthy Holly” book, which she said was “still in the works.”  The Mayor also said that she planned to self-publish the latest book, but a mayoral spokesman told the media that the Mayor had returned the money because “[t]he publisher and illustrator had a medical emergency and the order had to be canceled.”
• April 1: The Washington Post reported that the healthcare company Kaiser Permanente paid Mayor Pugh more than $100,000 for copies of a “Healthy Holly” book “at the same time it was seeking a $48 million contract from a city board controlled by the mayor.” That same day, the Post reported, Mayor Pugh decided to take “an indefinite leave of absence” – according to her spokesman, because the Mayor was battling pneumonia and her doctors had told the Mayor that she “needs to take time to recover and focus on her health.”  Nonetheless, the Associated Press reported that Maryland Governor Larry Hogan, calling the allegations “deeply disturbing,” called on the Maryland state prosecutor to investigate allegations of self-dealing by the Mayor, and Maryland Comptroller Peter Franchot called on her to resign.
• April 3: The Sun’s editorial board called on Pugh to resign, describing her as ”deeply unethical.”
• April 7: A top aide to Mayor Pugh, James T. Smith, submitted his resignation to acting Mayor Bernard Young.
• April 8: The Baltimore City Council called on Pugh to resign as Mayor, but Pugh said she intends to return to her job.

Note:  Ethics and compliance officers in public- and private-sector entities should incorporate this situation, as a classic case of serious conflict of interest, into briefings and training sessions for their entities’ management and employees.  There is no room for debate – other than, apparently, with Mayor Pugh and the UMMS —  that this kind of profitable self-dealing by a public official with fiduciary responsibilities to the public and UMMS is a blatant and long-running actual conflict of interest.

Moreover, ethics and compliance officers should take the opportunity to review their organization’s conflict-of-interest policies and determine whether they clearly state that certain conflicts are prohibited and, in appropriate circumstances, may require corrective action.  In this case, a spokesman for UMMS management maintained that UMMS “has a consistently enforced Conflict of Interest Policy.” Those words, however, must be read closely.  Perusal of that Policy reveals that the only significant obligation of a UMMS board member is to disclose the financial interest in question, after which that board member must leave the room “while the determination of a conflict of interest is discussed and voted upon” and the remaining board members “decide how to manage the conflict.”

By that standard, UMMS may well have “consistently enforced” the Policy, in the sense that the board allowed Mayor Pugh and eight other board members to obtain and retain direct financial benefits from their relationship with UMMS.  If that is the case, UMMS needs to rethink its Policy completely.  Nowhere in the Policy does the phrase “actual conflict of interest” appear, but it is actual conflicts of interest that, as the UMMS Board is now seeing, pose the greatest reputational and financial risk to any enterprise.

UMMS had been resisting pending legislation in the Maryland legislature that reportedly “would make it illegal for [state hospital] board members to profit from contracts with the hospitals they govern.”  But it need not wait for legislative action to demonstrate, by revising its Policy, that  its professed commitment to “the public trust” is genuine.  As for Mayor Pugh, if she were to value the health of city government more highly than she values the profitability of her health-themed books, her own choice should be clear.