Community Health Systems

When companies ignore the risks under their noses

May 17, 2011: 10:34 AM ET

More companies are building elaborate risk management plans, but they are failing to heed warnings from their own employees and shareholders. Directors at Community Health Systems just might pay for it with their board seats.

By Eleanor Bloxham, contributor

FORTUNE -- In the rush to adopt sophisticated approaches to risk management, some companies are missing the risks sitting right in front of them.

Last year, the safety issues that engulfed Toyota (TM) damaged their reputation and customer trust, and they were issues the automaker should have been aware of. The company had ignored warnings from one of their unions in 2006. BP ignored warning signs from their workers. The result was the largest oil spill in U.S. history.

Shareholders will decide today whether the risk oversight practices of the directors of hospital operator Community Health Systems (CHS) have been sufficient. CHS vigorously defends their practices, but the Change to Win Investment Group (CtW), which works with the pension funds of union workers, is convinced that they have not been.

CtW sent a letter to CHS' (CYH) board in September 2010 (with a CC to the U.S. Department of Health and Human Services) outlining its concerns with the company's reportedly aggressive Medicare billing practices, a topic that has attracted considerable attention amid debates surrounding the national deficit.

CtW requested that CHS' board immediately establish a special committee to investigate the issues. ┬áSpecifically, the letter asked that the "Special Committee of independent directors … investigate the risks to future earnings and potential liabilities" of CHS' "aggressive and unsustainable" Medicare billing practices, and "provide a preliminary report to shareholders on the findings of the investigation no later than October 31, 2010," including next steps and a timeline. More

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