WellPoint CFO's affairs exposed by lawsuit

June 11, 2007

In this era of hyper-scrutiny of corporate ethics, even messy personal lives can fell the career of a "well-loved and well-respected" executive.

Such appears to be the case with David C. Colby, whom WellPoint Inc. forced to resign as its vice chairman and chief financial officer on May 30 for violating the company's code of conduct in a "non-business" way.

Details seeping out since then suggest Colby was maintaining extramarital affairs, at least one of which had overlapped with his work life and was on the cusp of bursting into public view.

One woman in California was living in a house he owns and using his last name. Another woman in Indianapolis was doing the same. Colby, 53, is married but has had a divorce pending for three years.

How long WellPoint officials had known of Colby's personal dalliances isn't clear. They have declined to comment on whether Colby's extramarital relationships led to his ouster.

However, WellPoint's employment agreement with Colby says the company had the right to fire him for "conduct which tends to bring us into substantial public disgrace or disrepute."

Colby could not be reached for comment. He did not return a message left on his cell phone. His attorney in Los Angeles did not return a phone call.

Colby was the No. 2 executive at WellPoint, which is the nation's second-largest health benefits company, behind Minnesota-based UnitedHealth Group.

Five days before his resignation, Colby was sued by California resident Rita DiCarlo, 43, who uses Colby's last name and lives in his mansion in Lake Sherwood, a suburb of Los Angeles. She claims Colby promised to give her the mansion but has failed to do so.

A little more than a week before that, DiCarlo signed over book and movie rights for her story to Larry Garrison, an author and television producer who also lives in Lake Sherwood. Garrison said he later phoned officials at WellPoint's Indianapolis headquarters, asking them about Colby and DiCarlo.

DiCarlo could not be reached, and her attorney, Mark M. Hathaway of Los Angeles, would not make her available for comment.

In a letter written by DiCarlo and viewed by IBJ, she claims she hosted WellPoint investors at Colby's Lake Sherwood house and that she accompanied Colby to WellPoint functions as his "corporate wife."

Such actions cross the line from personal to business, said Karl Ahlrichs, an independent human resources consultant in Indianapolis. If Colby lied by telling investors that DiCarlo was his wife, that by itself might have been something WellPoint couldn't tolerate.

"The CFO, fairly or unfairly, is held to a higher standard because they're the benchmark for the financial ethics of the company," Ahlrichs said.

Acclaimed executive

Until last month, Colby appeared to be the model CFO. In its March issue, Institutional Investor magazine named him the best CFO among all managed-care companies for the fourth straight year.

Colby moved from the Los Angeles area to Indianapolis in late 2004 after WellPoint Inc. was formed by the $16.5 billion merger of Indianapolis-based Anthem Inc. and California-based WellPoint Health Networks Inc.

The combined company compiled a 25-page conduct code, called the WellPoint Standards of Ethical Business Conduct. An opening statement to the document from Chairman Larry Glasscock and CEO Angela F. Braly, says, "We all have the personal and professional responsibility to live and support an ethical culture at WellPoint."

Braly succeeded Glasscock as CEO when he retired on June 1--just two days after Colby was forced out.

WellPoint's code of conduct has a lengthy section detailing proper and improper uses of company e-mail and phones. Hathaway, DiCarlo's attorney, wants to examine any e-mails and text messages from Colby to DiCarlo.

Hathaway has subpoenaed WellPoint for those messages, as well as records from WellPoint's own investigation into Colby.

Ethics experts say using company computers and phones to maintain questionable personal relationships is usually not a major offense. The content of e-mails would have to be objectionable to merit dismissal.

Garrison said DiCarlo showed him dozens of e-mails and text messages she exchanged with Colby. He also said he has since been phoned by numerous women claiming they, too, have had romantic relationships with Colby.

Garrison, who is the president of SilverCreek Entertainment, wrote a best-selling book about the disappearance of Natalee Holloway in Aruba and has produced stories for various television shows.

"It is quite obvious that Rita DiCarlo and others may have been deceived," Garrison said.

Two residences

While Colby's house in California sparked a lawsuit, his house in Indianapolis won an award.

Colby lives in a Victorian-era home on North Pennsylvania Street with a woman who goes by the name Angela Colby. Her real surname is Doan. She could not be reached for comment.

The Historic Landmarks Foundation of Indiana gave an award last month to "the Colbys" for rehabilitating the house, which they purchased in October 2005.

Four months after Colby and Doan bought the house, DiCarlo paid for an engagement announcement in The Indianapolis Star. It ran with a posed photo of Colby and DiCarlo. It said the couple had been engaged for a year and were planning a summer wedding at the Lake Sherwood home.

Hathaway, DiCarlo's attorney, said Colby asked her to put the announcement in the paper. But the wedding never happened.

DiCarlo now wants Colby to give her his $4.4 million home, where she has lived since January 2005. A neighbor said DiCarlo drives Colby's Jaguar and is listed as Rita Colby on a registry maintained at the entrance to the gated community.

DiCarlo's lawsuit, filed in Ventura County, Calif., claims that in March 2005 Colby promised "orally and in writing" that he would give her the house. It claims DiCarlo has already provided "consideration" to Colby. But Hathaway declined to elaborate on the nature of the consideration.

WellPoint officials would not say if DiCarlo's lawsuit prompted them to ask for Colby to step down. Whatever Colby's infraction was, Glasscock said on May 31 that WellPoint officials had learned of it only days before Colby's departure.

But DiCarlo says she first complained to WellPoint about Colby's conduct in August 2006, according to Garrison.

Colby's sudden exit perplexed Wall Street analysts.

On a conference call May 31, Citigroup's Charles Boorady praised Colby for working "tirelessly" for WellPoint and being "very accessible" to analysts and investors.

"He was well-loved and well-respected and still is," Boorady said, adding, "I'm just wondering if a period of penance and a second chance was an option here since no law was broken?"

In response, Glasscock said, "All of us read and agree to abide by the code of conduct of the company. ... We have made the decision [with Colby] consistent with how we have treated other associates."

Heightened standards

Colby's stunning departure is by no means the first time personal behavior has undone an executive.

Boeing Co. dismissed CEO Harry Stonecipher in 2005 for having an affair with a subordinate--which constituted a conflict of interest under an ethics policy Stonecipher had helped to craft.

And last month, Home Box Office Inc. fired its CEO, Chris Albrecht, after he was arrested for fighting with his girlfriend outside a casino in Las Vegas.

Still, some experts say Colby's case might have had a different ending a decade ago.

Since the Enron and WorldCom financial scandals put ethics front and center in corporate America, companies across the nation have cracked down on conflicts of interest, pumped up ethics training, and generally tried to appear as squeaky clean as possible.

At the same time, e-mail and the Internet have made it possible for an executive's personal life to be broadcast further and faster than ever before.

"I think it would have been treated differently. There's much more pressure on companies to act quickly," said John Challenger, CEO of Challenger Gray and Christmas, a human resource consulting firm in Chicago. "They look for ways to prevent legal exposure and public relations damage."

WellPoint has done a good job with the crisis, both for itself and for Colby, said Bill O'Donnell, director of MBA programs at Butler University and a former director of human resources at ATA Airlines.

"I really like how WellPoint's handling it," he said. "They do not need to have an excuse. They do not need to slander or smear this gentleman."

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