CEO Jeffrey Barbakow is leading a parade of longtime directors out of the company's boardroom.
Criticized for his
company oversight and the
timing of a hefty stock sale, Barbakow will resign as chairman but continue as Tenet's CEO. He and three other directors are leaving a board accused of lax governance in the wake of a Medicare scandal that has hammered the company's stock and triggered multiple investigations.
Following Barbakow's exit, the board will no longer include any Tenet executives.
"My decision to step down as chairman, as well as the decision of the three other dedicated individuals to retire from the board, is simply the right thing to do for the company," Barbakow said in a prepared statement Tuesday.
Tenet has hired a professional search firm to locate four independent directors to replace the outgoing members of its board. It also plans to eliminate its staggered board terms, requiring directors to stand for re-election annually instead.
Michael Gallagher, who's leading a group bent on reforming Tenet, applauded the company for carrying out many of the initiatives that shareholders have demanded.
"This is terrific," he said. "It's the right thing to do."
But the market was initially jarred by the news. Tenet's stock tumbled 3% to open at $14.82 before recovering some ground to trade at $15.02 by late morning. The stock has hemorrhaged 70% of its value since last fall, when Tenet found itself accused of performing unnecessary surgeries and billing Medicare too aggressively. The company has denied wrongdoing -- stressing that the surgery accusations are directed at two doctors at a single facility -- but has since adopted more conservative Medicare policies that are expected to cut earnings growth significantly.
The announcement of Tenet's board overhaul comes just two days before the company is set to release its first quarterly earnings report fully reflecting the Medicare hit.
"These actions, which have been under discussion by the board for several months, underscore our commitment to enhancing shareholder-focused corporate governance, improving performance and restoring investor confidence," Barbakow said.
In addition to Barbakow, Tenet's three longest-serving directors will give up the board seats they've filled for at least a decade. Departing are Maurice DeWald, chair of the audit committee; Bernice Bratter, chair of the compensation committee; and Lester Korn, chair of the nominating committee.
Prior to his exit, DeWald had raised eyebrows for selling Tenet stock just ahead of the Medicare blowup. He has also fielded
widespread criticism for his actions as the former CFO and one of two directors at Omnigon, a struggling California start-up that's raised millions from private investors now outraged by an absence of disclosures and returns.
Nevertheless, Barkbakow said that the three outside directors had done an "exemplary" job, and he indicated that they were simply resigning to make room for fresh blood.
"We wanted to do this without enlarging the board," Barbakow said. "Seniority was simply the best way to facilitate this renewal."
The outgoing directors are not among those criticized for their related-party dealings with the company. Of the six remaining board members, five have been singled out by concerned Tenet shareholders for potential conflicts.
Gallagher expressed some lingering worry about this matter.
"On paper, the
outgoing directors are the least conflicted," he said. "Most of the others are very clearly listed in the proxy of having intertwined relationships with the company."
Lawrence Biondi, the chairman of Tenet's ethics committee, also serves as president of Saint Louis University, which sold Tenet its hospital in 1997. In 2001 the university received a total of $27 million from Tenet and the hospital.
Floyd Loop, a member of Tenet's audit committee, is CEO of theCleveland Clinic Foundation, which last year received $4.7 million inpartnership distributions and $3 million in fees from a joint venture withTenet.
Van Honeycutt, a member of Tenet's corporate governance and auditcommittees, leads a company that received $1 million in consulting feesfrom Tenet in 2000.
Sanford Cloud, chairman of Tenet's corporate governance committee,presides over the National Conference for Community and Justice, which isslated to receive $500,000 in donations from Tenet over a five-year period.
And Monica Lozano, one of Tenet's newest "independent" directors, serves as president of a Spanish-language paper that last year received $118,000 in advertising revenue from Tenet.