The California Public Employee Retirement System (CalPERS) has sided with dissident Tenet Healthcare Corporation shareholder Dr. M. Lee Pearce of Miami to elect a slate of four new board directors at Tenet’s October 11 annual shareholder meeting. The American Federation of State, County and Municipal Employees (AFSCME) supports the current ten-member board.
Pearce’s dissident slate would elect only four, but would oust Tenet CEO Jeffrey C. Barbakow.
Executive compensation is a key issue, centering on Tenet’s private e-commerce subsidiary Broadlane. Formed with corporate assets and backed financially by Barbakow and other management members, the subsidiary was valued by Lehman Brothers in March, 2000 at between $3 and $11 billion. Barbakow’s 2.3% ownership position in Broadlane would thus net him personally between $57.8 and $251.8 million. Dr. Pearce has been vocal about the conflicts of interest he feels this represents against Tenet shareholders.
CalPERS, which owns less than 1% of Tenet, has expressed concerns about top management’s investment in Broadlane, as well as the current board’s unresponsiveness to changes that would make it more accountable to shareholders.
On the other hand, AFSCME has expressed its own concerns about Dr. Pearce’s potential conflicts of interest, including a controlling interest in properties and companies that compete with Tenet. AFSCME owns 6.5 million shares of Tenet Healthcare, about 2% of the outstanding shares.
Still, both sides agree that executive compensation is a problem. Michael Zucker, Director of the Office of Corporate Affairs for AFSCME, told PLANSPONSOR.com, “ We agree with much of CalPERS’ sentiment as it relates to problems at Tenet. We don’t disagree that there are problems with the executive compensation at Tenet that need to be addressed. We just don’t think that Internet entrepreneurs are necessarily the people we want to put on the Board to fix an Internet entrepreneurial/excessive executive pay problem.”
AFSCME’s Zucker said, “If you knock the CEO off the Board, we think that’s pretty serious. We think the solution is to have reform from within; to have additional independent directors who have no conflicts.”
For its part, CalPERS may be rethinking its current support for the dissenters. “The concerns about Dr. Pearce surfaced after we announced our support for his slate,” CalPERS spokesman Brad Pacheco told PLANSPONSOR.com . “Dr. Pearce’s Tenet Shareholder Group will be coming to meet with us Thursday to address these allegations.”
Tenet Healthcare Corporation’s Senior Director of Corporate Communications Harry Anderson says Tenet has urged support for current management’s slate of nominees, citing:
* Tenet stock’s value has gone up over 100% in the last year
* The corporation has made “significant inroads” toward paying down debt
* The company has had a record cash flow in the last twelve months
“We’ve made quite a turnaround since the lean years after the Balanced Budget Act of 1997 cut Medicare payments,” said Anderson.
By Ann Bidou
See Related Article, Battle Lines Drawn in Tenet Vote