WellPoint Chairwoman and Chief Executive Angela Braly, 51, had been dogged… (Ann Heisenfelt, Associated…)
Bowing to intense investor pressure, the chairwoman and chief executive of health insurance giant WellPoint Inc. abruptly resigned and the company named an interim CEO.
The nation's second-largest health insurer, which runs Anthem Blue Cross in California, announced late Tuesday that Angela Braly, 51, had stepped down effective immediately. WellPoint, which runs Blue Cross plans in 14 states and has more than 33 million customers nationwide, named John Cannon, its general counsel, as interim CEO.
Braly had been dogged by criticism over WellPoint's slumping stock, managerial blunders and disappointing earnings. She also caught the ire of consumers and even President Obama in 2010 for trying to raise rates by up to 39% in California. The national outrage that ensued helped Obama win approval for his healthcare overhaul in Congress.
The Indianapolis company said its board of directors would consider internal and external candidates for its next CEO and noted that Cannon didn't want to be considered for the full-time job. Jackie Ward, WellPoint's lead outside director, was named company chairwoman.
"Now is the right time for a leadership change," Ward said in a statement released after the stock markets closed Tuesday. "We believe the remaining executive team is dynamic and strong, with great potential to drive WellPoint's future success."
Analysts and investors cheered the move as criticism mounted over WellPoint's lackluster performance in recent years. But the sudden decision leaves the company without a permanent leader as the healthcare industry grapples with massive changes from the federal healthcare law and WellPoint nears completion of a $4.9-billion acquisition agreed to last month.
"Investors were losing patience, and they were ready for a change," said Ana Gupte, an analyst at Sanford C. Bernstein. "The board decided it was time to move on before it played out any further."
Indeed, Tuesday's decision marked a major turnabout for the WellPoint board, which had repeatedly expressed strong support for Braly in the face of growing complaints from major shareholders in the last month. On Monday, for a story in The Times, Ward reiterated that the board was supportive of "our management team."
Investor demands for Braly's ouster grew louder after WellPoint slashed its full-year profit outlook last month and posted an 8% drop in second-quarter earnings. That followed a string of inconsistent quarterly results as the company struggled to price its health plans appropriately and manage rising medical costs.
Royal Capital Management, a New York hedge fund that owns about 800,000 WellPoint shares, sent a letter to the board last week saying that Braly had "failed miserably" and called for her ouster.
Billionaire investor Leon Cooperman and his Omega Advisors hedge fund, another influential WellPoint shareholder, also urged the board to make a change in management in hopes the health insurer could resuscitate its slumping share price.
WellPoint's stock has dropped 30% since Braly took over as CEO in 2007. Investors were particularly frustrated because rival UnitedHealth Group Inc., the nation's biggest health insurer, was weathering the industry turbulence in better fashion. UnitedHealth's shares have risen 7% this year, while WellPoint's stock has dropped 13%.
WellPoint shares shot up more than 3% to $59.29 in after-hours trading Tuesday once Braly's departure was announced.
Braly was met with skepticism by some investors and consumers since taking the helm of WellPoint. The Dallas native and longtime corporate lawyer was known more for making deals, and she lacked experience running a large insurance company.
One of the top priorities for Cannon, the interim CEO, will be to complete WellPoint's acquisition of Medicaid insurer Amerigroup Corp. That acquisition and last year's purchase of Cerritos-based CareMore Health Group were orchestrated by Braly in a bid to diversify WellPoint and enable it to grab more government business through Medicaid and Medicare. CareMore specializes in Medicare plans helping seniors with severe medical needs.
Consumer advocates expressed relief at Braly's departure. Many Anthem Blue Cross customers in California have complained about getting hit with double-digit rate hikes year after year.
"Let's hope the next CEO understands that indifference to patients' pain and suffering is no way to run a business," said Jamie Court, president of Consumer Watchdog, an advocacy group in Santa Monica.
WellPoint's move also highlights the lack of management depth at the company, which has lost several key executives over the years, analysts say. Experts say WellPoint faces a delicate task of finding its next leader.
"The company's performance has been eroding for a while now," said Peter Kongstvedt, a healthcare consultant and faculty member at George Mason University. "This is a big job to fill. In a sense, they need someone who knows how to read the river currents and guide the ship forward, rather than run it into a rock."