NEW VA SECRETARY UNDERTAKES THE BIGGEST REORGANIZATION IN VA HISTORY, AS ROBERT McDONALD MAY FIRE OR DEMOTE UP TO 1,000 - HE TELLS "60 MINUTES"

Key to Fixing Huge Bureaucracy is Rewarding Staff for Identifying Problems, Not Punishing Them

U.S. Secretary for Veterans Affairs Robert McDonald will announce the largest reorganization of the VA in the organization's history on Monday. He will also dismiss or demote up to 1,000 of its massive staff, he tells Scott Pelley in his first major interview. Pelley's report on the troubled VA and McDonald's plans to fix it will be broadcast on 60 MINUTES Sunday, Nov. 9 (7:00-8:00 PM, ET/PT) on the CBS Television Network An excerpt of Sunday's story will appear on THE CBS EVENING NEWS WITH SCOTT PELLEY tonight, Nov. 7. A transcript of that material is at the end of this release.

The VA has been under intense criticism since its Phoenix operation was found concealing long patient waiting times that may have caused the deaths of some veterans. The problems at the vast bureaucracy that serves 22 million veterans is systemic; there are currently more than 90 federal investigations looking into them. McDonald, who retired from the Army as a captain before a highly successful career in business, was brought in a few months ago. He says a house cleaning is necessary. "We're taking aggressive, expeditious disciplinary action - consistent with the law... The report we've passed up to the Senate Committee and House Committee has about 35 names on it. I've got another report that has over 1,000," he tells Pelley.

One of the things McDonald wants to root out is the organization's tendency to hide bad news or punish those who try to expose it. He knows how important customer feedback and employee input is to improving a company's product because he spent 33 years at Procter & Gamble, the giant international consumer goods company. He retired from P&G as chairman and CEO after guiding the company through the recession.

McDonald says he has already visited 35 VA locations to get information first-hand. "So the adverse information gets from the bottom to the top as quick as possible. People get rewarded for criticizing what we're doing. People get rewarded for bringing adverse information forward," he says.

The vets themselves have approached him on such visits. He shows Pelley a note a woman placed in his hands. "It says, 'I'm from Alabama and I had to come here to Boston to get care.' That breaks my heart," McDonald tells Pelley.

Part of McDonald's plan is a new customer service organization for the VA that offers veterans one-stop-shopping for all benefits.

Please credit 60 MINUTES:

SCOTT PELLEY: If 1,000 people need to go, give me a sense of what are some of the things that they did?

U.S. SECRETARY FOR VETERANS AFFAIRS ROBERT McDONALD: We're simplistically talking about people who violated our values.

PELLEY: And those values are what?

McDONALD: It's integrity, it's advocacy, it's respect, it's excellence. These are the things that we try to do for our veterans.

BUT BOB McDONALD CAN'T WRITE A THOUSAND PINK SLIPS RIGHT NOW. HE IS DISCOVERING HOW DIFFERENT THE CAPITAL IS FROM CAPITALISM. TO FIRE A GOVERNMENT MANAGER HE HAS TO PUT TOGETHER A CASE AND PROVE IT TO AN ADMINISTRATIVE JUDGE.

McDONALD: Scott, the reason this is, reason this is okay in some respects is that -

PELLEY: A lot of people think it's not okay - that if people lied and put veterans -

McDONALD: That's different.

PELLEY: And their self first, they should be cleared out.

McDONALD: Absolutely. Absolutely. But we've got to make it stick.

PELLEY: How do you mean?

McDONALD: So we propose the action, the judge rules and the individual has a time to appeal, that's why, what we're most concerned about is caring for veterans so if someone has violated our values and we think has done bad things, we move them out, and that's why we have a lot of people on administrative leave. We move them out, we don't want any harm to our veterans.