Risk & Compliance

WellPoint to CFO: Quit for Bad Conduct

Secrecy swirls around the case of finance chief David Colby, who was asked to quit his post at the healthcare company for breaking its code of cond...
Marie LeoneMay 31, 2007

After allegedly violating WellPoint Inc.’s code of conduct, CFO David Colby was asked by management and the board to resign his post on Thursday. Colby agreed to resign.

Concurrently, the managed-care company named Wayne DeVeydt CFO and executive vice president. DeVeydt had been the company’s chief accountant and director of investor relations.

“This resignation is in no way related to the company’s performance or financial condition,” WellPoint chairman, president, and chief executive officer Larry Glasscock noted in a conference call Thursday. He added that Colby’s conduct was not illegal. Declining to elaborate on the circumstances surrounding Colby’s dismissal, the CEO said that an “external investigation” was conducted immediately after management and the board were made aware of the former executive’s actions.

WellPoint has a 25-page code of conduct, last updated in March of 2007. The code covers a wide range of potential violations, ranging from accepting gifts, kickbacks, and lobbying legislators to discrimination, sexual harassment and using company assets to blog or chat online. Glasscock asserted during the conference call that all executives “read and agree to abide” by the code.

Effective Friday, Glasscock will retire as president and CEO, staying on as non-executive chairman. Incoming CEO Angela Braly confirmed the accuracy of the company’s financial statements and practices, as well as its forward-looking guidance. DeVeydt noted that the company is fully compliant with the internal controls provisions of the Sarbanes-Oxley Act.

No other employee was asked to resign or was fired in connection with the incident. Glasscock also noted that the change in management—Braly will become CEO on Friday—had no connection to Colby’s resignation.

No mention was made of whether Colby would have to forfeit his severance package or other long-term compensation. Last year the former CFO made a total of $1.8 million, $1.1 million of which was his annual bonus. Colby could not be reached for comment.

Glasscock said he did not know whether the former finance chief was preparing to sue the company. He stressed, however, that from WellPoint’s perspective, “we did absolutely the right thing” in response to the facts uncovered by the investigation.

Colby, 52, joined Wellpoint in 1997, and during his tenure the company’s revenues grew from $5 billion to more than $20 billion. He was heavily involved in mergers and acquisitions while at Wellpoint, including the 2005 acquisition of WellChoice for $6.5 billion. Wellpoint is the result of a 2004 merger between WellPoint Health Networks and Anthem Inc.

Prior to joining Wellpoint, Colby was CFO of American Medical Response, where during an 18-month stint AMR grew revenues from $700 million to $1.3 billion. Prior to his post at AMR, Colby was CFO and treasurer at Columbia/HCA Healthcare, and finance chief at The Methodist Hospital in Houston.

DeVeydt, who in addition to his other duties became chief of staff for Glasscock in 2006, was a partner with PricewaterhouseCoopers prior to joining WellPoint. Glasscock pointed out that although Colby had been replaced quickly, the company had in place a long-term succession plan as well as an emergency succession plan, which left the Wellpoint “well prepared.” As Braly takes the helm, she said decisions would be made regarding DeVeydt’s replacements and whether DeVeydt would assume the lead role for M&A at the company.

Analysts on the conference call noted that Colby had a good relationship with Wall Street and investors and worked diligently through complex merger transactions. In light of his past performance, one analyst asked if giving Colby a second chance was an option. Glasscock only said that the company did not have “double standards” regarding applying its ethics policies, and that the code of conduct “applies to everyone.”