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New leader at WSI will have 'emotional scars' to handle from Blunt era

BISMARCK -- If a new director at Workforce Safety and Insurance wants to understand residual morale issues at WSI, it's all spelled out in black and white in a six-page section of the "Conolly report."

Consultant Henry Neal Conolly describes a "legendary" series of personnel shake-ups during the Sandy Blunt era that continue to have a negative effect on the staff today.

WSI's board hired Blunt as executive director and CEO in mid-2004 and forced him out this past December under pressure from Gov. John Hoeven.

In sympathetic and incredulous language, Conolly writes of questionable reorganizations plotted in secret meetings, promotions of unqualified people to leadership roles, humiliating demotions conducted without any communication and huge losses of good workers and supervisors.

In a section entitled "WSI Management Turmoil," Conolly's report uses words "suffered," "anguish," "wounded," "desperate," and "scarred" to describe the devastating effects on WSI employees.

"These events produced a profound sense of fear and distrust of senior management throughout the organization," wrote Conolly, whose team gathered the information through numerous employee interviews that he deems unquestionably truthful.

"We regard the approach to reorganization taken as unprecedented," Conolly concludes, "Either in the insurance or business world. We also see it as the primary source of long-term scarring."

Because the organization is still affected by emotional wounds from that period, he writes, "We believe there is an immediate need to replace those current leaders who are regarded as ineffective and un-trusted with restorative new leadership."

Conolly presented the 104-page report to the WSI board and a legislative panel on March 6.

Conolly, the former head of the New York workers' compensation fund, and who helms Conolly and Associates, was one of two consultants hired in January to assess ongoing questions about WSI's claims handling and personnel-management issues. The WSI board hired the firms at Hoeven's insistence after Blunt left. A 10-year board member and chairman, Bob Indvik of Bottineau, also quit in January after questions arose about his use of a Bottineau County cell phone for hundreds of dollars WSI calls.

Conolly and the other consultant, Marsh USA Inc., found the agency mostly operating well, its core functions and employees productivity in excellent shape, though Conolly said WSI desperately needs a fresh interim CEO.

The WSI board will interview six applicants for interim executive director next week.

Much of Conolly's tale of regrettable personnel decisions centers on the Employer Services division, also known as policy-holder services, which underwrites new and existing employers' coverage and handles premium payment auditing, collections and safety programs.

Though the report contains no names, Conolly confirmed after his presentation that a lot of the described problems were during former ES chief Dave Spencer's reign. Blunt dismissed Spencer in the fall of 2006 at the insistence of other senior managers.

Spencer declined Forum Communications' request for an interview. He said he has not read the Conolly report and had no plans to.

The current interim CEO, John Halvorson, a 14-year employee at WSI, was promoted to head the ES division in March 2007. He promptly reversed the Spencer reorganization, Conolly reported. Unfortunately, he adds, "Many competent and qualified staff members (had) left WSI and many remaining staff members have lingering resentment to senior WSI senior managers and to (human resources officials) for what they suffered."

Halvorson declined an interview on Friday. WSI attorney Jodi Bjornson answered a few questions on his behalf via with e-mail.

She wrote: "In fact, Halvorson was not in support of the changes made by Dave Spencer nor was he an ultimate decision maker in that realignment process." Upon Halvorson's promotion, "his first initiative was to remedy the staffing issues that had caused morale problems within the Employer Services divisions. This was accomplished within the first three weeks of being named of chief of Employer Services," Bjornson wrote.

She also noted that Halvorson's attendance at Blunt's or Spencer's controversial secret retreats or summits had been mandatory.

Conolly interviewed five of the 11 board members, all whom said they knew nothing of the disruptive way Employer Services had been reorganized, even though a mass exodus from the division caused profound erosion in productivity. One of those board members, Ed Grossbauer of Grand Forks, just joined the board last fall.

Conolly didn't talk to Evan Mandigo of Bismarck, who retired from the board last fall after 10 years. Mandigo said in an interview Friday with Forum Communications that he also did not know the extent of turmoil or the tactics used. He has read the Conolly report several times and listened to Conolly's presentation.

"The observations he (Conolly) made came as a surprise to me, personally," he said.

Former board members Indvik and Sindy Keller and Nancy Slotten of Fargo, all of whom served during much of the happenings Conolly reported, did not respond to The Forum's requests for interviews.

Mandigo said it's the nature of the board's governance policy, a hands-off method known as the Carver Model, which "doesn't call for the board to opine on how (Blunt) reorganized."

"Anytime you have management changes in an organization, there are folks who can adapt to change and those who can't. And those who can't, leave," he said.

Sure, the ES reorganization was unusual, Mandigo said. "But it would not be up to me to express an opinion. Who's to say it wouldn't have worked had it been different personalities?"

Now that it's over, Mandigo said, he wants WSI's focus on the future. Anyone can look back and say it could have been done differently, he said.

"It's not appropriate to comment after the fact," he said.

Someone more than willing to comment after the fact is Gordy Smith, audit manager for the state Auditor's Office.

He notes that the board readily got involved in employee issues in 2003 in the waning days of former CEO Brent Edison's tenure. It issued a moratorium ordering no hirings, firings or other personnel changes, then fired Edison with no stated reason.

Mandigo confirms that moratorium, saying the board worried Edison "would retaliate against people. At that point, the board had knowledge he had done that to people."

Smith's staff did a performance audit at WSI in 2006 that found the same profound morale problems Conolly had, right down to identical anecdotes, Smith said Friday.

"This is exactly some of the stuff they were talking about (to auditors)," he said.

But when the auditor's report was issued, its conclusion that there were fundamental morale problems and other serious issues at the agency brought a barrage of defensiveness from the board, Blunt and sympathetic lawmakers.

"I think we're making a mountain out of a molehill here," Rep. Frank Wald, R-Dickinson, told Smith. He disbelieved WSI's top management was really "so mean" to the staff. In any business, he told Smith, "Some employees like to complain."

Blunt said he had inherited morale problems from the Edison administration.

Smith notes that other reports since 2006 confirmed significant employee dissatisfaction in key areas related to top management. Specifically, after the auditor's 2006 performance audit, WSI contracted with a Virginia consulting firm, ICF International, to study employee morale.

ICF, reporting in June 2007, compared its findings with the auditor's. "In both surveys, respondents indicated the occurrence of favoritism, that policies and procedures are not applied consistently, and that they feared consequences for disclosing violations or issues. ... Bottom line: The results from the current assessment are consistent with the recommendations from the (state auditor's) regarding employee morale."

ICF wrote: "Approximately three-fifths of WSI respondents are not satisfied with the policies and practices of senior leaders, see personal favoritism occurring in the organization, feel that management does not understand employee issues, do not respect senior leaders, do not see pay tied to performance, do not view senior leaders as having integrity or taking time to talk to employees and do not understand senior leaders' vision for the organization."

Blunt himself also said a separate in-house survey had found half the people at the agency afraid to speak up at work. And another firm, Denison Consulting, found only 6 percent of employees agreed with the statement "Leaders and managers practice what they preach" and most said the agency's approach to doing its business was inconsistent and unpredictable.

Smith is incredulous that board members say they had no idea what was going on, especially when an entire division experienced an exodus, such as ES suffered. He said it shows a serious disconnect.

"We told them about the morale problems," he said, but nothing substantial was done after his and the other studies. "And now Conolly comes in and it's the bible."

Smith said the Blunt era contains lessons with widespread applications.

"I wonder if you couldn't teach a course at Harvard Business School about how to tear a business down," he said. "It's sad people's lives were turned upside down."

Janell Cole works for Forum Communications Co., which owns The Dickinson Press.