For Immediate Release
Thursday, March 27, 2003
AFSCME Employees Pension Plan Submits Shareholder Proposal at Tenet
Plan Seeks Separation of CEO Board and Chairman Positions
WASHINGTON —The American Federation of State, County and Municipal Employees (AFSCME) Pension Plan has submitted a shareholder proposal to the Tenet Healthcare Corporation (NYSE:THC) asking the company's board to split the jobs of Chairman and Chief Executive Officer. Currently Jeffrey Barbakow holds both positions at the scandal-plagued for-profit hospital chain.
"The pricing and disclosure problems as well as reports of government investigations that have come to light in the last six months have caused a $17 billion drop in Tenet's market value. We believe these problems are a result of inadequate monitoring and control at the highest levels of the company. A new structure must be implemented that will allow for greater board oversight if the company is to quickly regain the confidence of investors. We have asked the company to agree to implement our proposal or face a vote later this year," said AFSCME Pension Plan Chair Gerald W. McEntee.
The AFSCME Pension Plan is an owner of Tenet stock and is the sponsor of the proposal. Public employee pension plans that provide retirement benefits for AFSCME members own over four percent of Tenet's outstanding shares.
AFSCME represents 1.3 million public service employees and health care workers nationwide. The union represents approximately three percent of Tenet's employees at hospitals in California and Pennsylvania.
AFSCME Employees Pension Plan Proposal to Tenet Healthcare Corporation
RESOLVED, that the shareholders of Tenet Healthcare Corporation ("Tenet") ask the board of directors to adopt a policy that the board's chairperson be an independent director who has not previously served as an officer of Tenet; provided that the policy should be implemented in a way that does not violate any existing contractual provision.
This proposal requests the board separate the roles of chairman and chief executive officer at Tenet. In our view it is important to take this action in light of the performance of the top officers of our company over the past year. From October to March 24, 2003 Tenet experienced a $17 billion loss in share value. We believe this loss has been caused by a series of revelations about company strategy and regulatory investigations which reveal deep problems with Tenet's monitoring and control systems.
Tenet's problems first surfaced last year when Federal agents raided the Company's Redding Medical Center in an investigation into unnecessary medical procedures. This was followed by revelations that the Company's management pursued a business strategy involving aggressive pricing, which led to Tenet receiving high levels of Medicare "outlier" payments and other reimbursements by third-party insurers.
Tenet came under fire for these practices from both patient advocates and government agencies and has now revised its billing practices. A January 9, 2003 editorial in the Wall Street Journal noted the damage that has been caused by these practices: "Tenet's mistake wasn't in getting what it could from Medicare loopholes, but that it didn't let shareholders know that the windfall couldn't last." Numerous lawsuits have been filed against the company, some of them alleging that Tenet failed to disclose how dependent it was on its aggressive pricing strategy.
The leadership of Tenet's Chairman and CEO Jeffrey Barbakow has been faulted during this crisis. He professed that he was unaware of the relationship between Tenet's aggressive pricing and its high levels of Medicare "outlier" payments, firing his CFO and COO who were reportedly the architects of the strategy. Analyst David Woodyatt stated in a November 11, 2002 Wall Street Journal article that Mr. Barbakow "'obviously fumbled the ball to some degree by not asking the right questions...You get into a situation where either he knew and didn't tell us, so you can't trust him, or he didn't know something he should have known.'"
Given the profound failures of the past and the challenges of the future it is clear in our view that our company would benefit from having the additional oversight an independent director would bring to the chairman's role. Although the board may work collaboratively with the CEO, we believe the tasks that lie ahead for the board have the potential to bring it into a more contentious relationship with management. There is a heightened risk now that our CEO's interests will conflict with the board's duty to direct and monitor the company's business and affairs.
We urge shareholders to vote For this proposal.
