Health Care and Government

BEHIND THE NEWS: WellPoint succession breeds unease on Wall Street

March 12, 2007

This isn't the Well-Point Inc. way.

The last two times the Indianapolisbased health insurer appointed a CEO-when Ben Lytle took the job in 1989 and Larry Glasscock succeeded him in 1999-there was no drama. The board had publicly, and painstakingly, groomed the new leader.

WellPoint did nothing remotely similar this time around.

As CIBC World Markets analyst Carl McDonald pointedly observed in a research note, "There's clearly a gap in succession planning when a company of Well-Point's size has to specify the correct pronunciation of the incoming CEO's last name in a press release."

Such was the case when WellPoint announced Feb. 26 that Angela Braly, the company's chief counsel, would succeed Glasscock as president and CEO on June 1.

For the record, Braly-pronounced "brawl-ee"-might turn out to be another exceptional CEO at a company with a history of strong leadership.

But Wall Street types have reason to feel a little unnerved. For starters, they hadn't known that the well-liked Glasscock, 58, was poised to give up the reins.

He'll remain chairman, but says he's giv-GREG ANDREWS gandrews@ibj.com

ing up day-to-day duties for family reasons, the details of which he won't discuss.

In a conference call with analysts, Glasscock said that after he told board members "about my needs to retire from day-to-day responsibilities, they were very interested in me remaining as chair.

"That's something I am happy to do. I love this company. I love what we stand for. I am going to be as active as I can be."

That comment, like many others on the call, appeared aimed at reassuring investors, who made a bundle under Glasscock's reign and liked the status quo.

Glasscock, for instance, said: "We have a very robust succession-planning effort, and ... with the help of outside experts, we reviewed all kinds of options, including external options. Our board, through a lot of research, concluded we had the best candidate right here within WellPoint."

Speedy selection?

But it all seemed hasty to Wall Street analysts. They noted that Braly, 45, had not even made a presentation at the company's day-long investor conference in December.

"We believe this tells us something about the relative speed with which Glasscock's decision to leave was made, likely becoming a reality only very early this year and potentially a contributing factor as to why Wall Street was caught somewhat off guard by the board's choice," Bear Stearns analyst John Rex wrote in a research note.

To be sure, Braly has an impressive resume. Among other things, she was an architect of the conversion of Missouri's Blue Cross Blue Shield into a for-profit in 2000. And since April 2005, she's been an executive vice president at WellPoint, overseeing public policy and other areas.

But in picking Braly, the board passed over several insiders with more businessoperations experience, including David Colby, John Watts and Joan Herman.

Analysts see Braly's selection as an acknowledgement by WellPoint's board that public-affairs savvy has become crucial to the company's future, thanks to the government's growing role in regulating and financing health care.

But other factors also could be at play, including a desire by the board to choose a relative newcomer in order to avoid the perception that it is favoring either side of the $16.5 billion merger that created WellPoint Inc. in December 2004, FTN Midwest analyst Peter Costa wrote in a report.

In that deal, Indianapolis-based Anthem Inc. acquired California-based WellPoint Health Networks, then adopted the Well-Point moniker. Braly had been with the California company since it bought the Missouri plan in 2002.

We're left to speculate on all this, because the company isn't filling in the blanks. A spokesman did not make a board member available for comment, and he wouldn't say how long the board had known Glasscock was retiring.

Recruiters to pounce?

But you can be sure of this: WellPoint insiders passed over for the top job will get calls from headhunters-even if, like Chief Financial Officer Colby-they say publicly they have no intention of leaving.

On the conference call, Colby, 53, said: "I am not sure I am near disappointed at all. ... I think she has great skills to run the company and I am very happy to work alongside her."

What else could he say? As CIBC's McDonald observed in a research note, "His new boss was listening closely on the other end of the line, so he didn't exactly have a lot of flexibility."

Analysts say that's one of the unsettling aspects of Glasscock's departure-executives who didn't get the job will be invited to explore other opportunities.

WellPoint's board need look no further than fellow insurer Conseco Inc. for a peek at how these things can play out.

The Carmel-based company in August appointed an outsider, C. James Prieur, as CEO, passing over interim President James Hohmann. The two would make a great team, the board chairman said at the time.

In December, Hohmann quit to become CEO of Illinois-based Allstate Financial.
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