I suppose anytime the stock of a particular company falls 75% in a year, the CEO’s job is on the line. So it’s not a big surprise that Coventry Health Care (Bethesda, MD) announced the resignation of president and chief executive Dale Wolf this week. Returning to the CEO slot is Allen Wise, who ran the company from 1996 to 2004 and was well respected for engineering a major financial turnaround.
Even under Wolf, Coventry has always been considered a company with a very strong management team, so the shakeup is ironic. Most of the pain was the result of higher-than-expected costs and lower-than-expected revenues, in other words a premium pricing miss that won’t be corrected in full until 2010.
For me, though, the questions really started in 2005 when the company completed its $1.7 billion acquisition of First Health. The deal marked a major departure from Conventry’s long-standing strategy of acquiring relatively small money-losing plans and turning them around. Coventry was now attempting to build an organization with nationwide reach by combining its local health plans with First Health’s national PPO. These types of strategic shifts always make me nervous, and as it turned out First Health ended up being a drag on earnings.
Wolf’s credibility was hurt further because the company didn’t notice it’s pricing was lagging costs until October 2008, well after other plans had already announced corrective actions. So for Coventry, 2009 is a throwaway year.
All of which was too much for Wolf to keep his job. Re-enter Wise. Can he save the day again?
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