Lochlin Partners, the executive search firm retained by the MBTA to find its new general manager, conducted background checks on finalist candidates as a concluding step in the search process, but pledged to do so only “if a background check is required.”
WBUR has obtained a copy of the contract signed by the MBTA and Lochlin Partners. The contract states that the search firm would conduct “comprehensive reference checks” on finalist candidates, verify educational degrees, and “validate the past performance and qualities of these candidates.”
The language of the contract raises new questions about the thoroughness of the vetting process that led to the appointment of Luis Ramirez, 50, a private sector leader who has no significant transportation or public sector experience, to one of the most high-profile positions in state government.
Ramirez was named the MBTA’s new general manager last week. T officials specifically cited Ramirez’s experience turning around complex organizations, saying the business executive is the “right person to lead the MBTA.”
But soon after the announcement, details of Ramirez’s track record emerged. He faces a shareholder class action lawsuit and a Securities and Exchange Commission investigation into error-riddled financial statements he certified as CEO of his former company, as first reported by WBUR. Global Power Equipment Group, the Dallas-based firm, has lost almost 75 percent of its stock value due to a myriad of accounting errors made before and during Ramirez’s tenure at the company.
Global Power acknowledged the errors and failures in “internal controls” in a March 2017 SEC filing where it states that its previous financial statements from 2011-2015 could “not be relied upon.” Ramirez served as Global Power's CEO from July 2012-March 2015.
The T’s agreement with Lochlin Partners, the executive search firm, does not specify what kind of background checks would be conducted on GM finalists, or specifically how the search firm would measure a finalist’s “past performance.”
“Certainly, if you’re dealing with a top executive for something as complicated as the MBTA, you’re gonna want to see how that person performed in his or her job,” said James Rowe, vice president of the investigative research firm the James Mintz Group.
“That should be a standard step, but I think there are a lot of governmental entities that do not cover the regulatory environment as rigorously as they might a criminal check,” Rowe said.
According to Rowe, most corporate firms would do an extensive search of the professional background of a potential executive hire, including a search for civil and criminal records, as well as looking at regulatory records. But not all government agencies will do that kind of search.
“I can’t tell you that it’s unprecedented for governmental entities not to do a rigorous regulatory check,” Rowe said, explaining that corporations have more money and often more regulation requiring them to do a more extensive search.
In most cases, the organization hiring the search firm chooses what the background check would entail. The T’s contract with Lochlin Partners does not specify the exact type or terms of any background check the firm performed in the general manager search.
State Transportation Secretary Stephanie Pollack told WBUR in a statement Thursday night that Ramirez went through a “thorough vetting process.” Pollack repeated support for Ramirez, saying he has “demonstrated proactive management — having the judgment, insight, and skill in looking at organizational structure, business processes and then collaborating with colleagues to transform and turn around complex organizations.”
An MBTA spokesman says Ramirez disclosed the Global Power shareholder’s lawsuit twice during the search process. The spokesman did not answer questions about whether Pollack or Lochlin Partners knew about the SEC investigation of Global Power, or that the company had to refile four years worth of financial statements.
The MBTA paid the search firm more than $93,000, according to state records. Lochlin Partners, which is based in Virginia, has not responded to multiple phone calls and emails from WBUR.
This is at least the second search the company has conducted for a major national public transit system. Lochlin Partners managed the yearlong search for a new CEO of the Washington Metropolitan Area Transit Authority. That search was plagued by problems including leaks to the press and negotiation breakdowns, until Paul Wiedefeld was named CEO in November 2015.
By contrast, the MBTA search was conducted largely out of public scrutiny. The process was “designed to ensure the confidentiality of all candidates,” according to an MBTA spokesman.
In addition, the T says that while Pollack did have a five-member advisory group that reviewed resumes and interviewed candidates, the group did not take a vote. The decision to hire Ramirez was made by Pollack, according to the T.
The process had previously been handled by the Massachusetts Department of Transportation board of directors, which is subject to the state’s open meeting laws. In 2012, the board’s general manager search committee met in private, executive session in the early stages of its search until finalists were named. Those finalists were interviewed in public by the MassDOT board.
That process changed in 2015, with the creation of the MBTA Fiscal and Management Control Board. The legislation that created the FMCB also gave the transportation secretary exclusive authority to hire and fire the T’s general manager. Pollack did not conduct any public interviews or meetings with the recent round of finalists prior to announcing Ramirez’s appointment last week.
Pollack, however, did receive input from Gov. Charlie Baker’s office. Steve Kadish, Baker’s former chief of staff who left the job last month, served on the search advisory committee, along with several members of the FMCB, acting MBTA GM Steve Poftak and Jeff Gonneville, the T’s chief operating officer.
Ramirez begins work as the T’s new CEO on Sept. 12.
Meanwhile, the shareholder class action lawsuit filed against Global Power, Ramirez and another former executive is still pending in a northern Texas district court. The plaintiffs allege that Ramirez knew about Global Power’s financial problems while he was CEO, and knowingly filed inaccurate financial statements with the SEC, a violation of the Sarbanes-Oxley Act.
In June, Ramirez’s defense lawyers asked the court to dismiss the case, saying that the plaintiff’s allegations that Ramirez was a “hands-on manager” who “cut back on administrative expenses,” and “focused on quarterly numbers,” proved only that Ramirez was a competent CEO.
The plaintiff’s attorneys filed their response this week. The added further detail to their lawsuit, including allegations that Ramirez filed inaccurate financial statements even though he and other company executives were warned multiple times about Global Power’s accounting problems, and that the issues were discussed in weekly calls and meetings. The plaintiffs also allege that Ramirez fired at least one employee who had voiced specific concerns about the company’s accounting practices.
Ramirez and his attorney have not responded to multiple requests for comment.
A judge’s ruling on the dismissal motion is likely months away. The MBTA said it would not comment on pending litigation.
This segment aired on August 25, 2017.