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Aetna: Succession At Full Speed


Aetna president Ronald A. Williams and Chief Executive John W. "Jack" Rowe have accomplished two feats surprisingly unusual in the corporate world these days: Over the past five years they have revived a troubled company in an intensely competitive industry, and now they are pulling off a carefully planned succession.

One of the reasons for their success is how well they complement each other. Rowe is a renowned 61-year-old geriatrician and former head of Mount Sinai NYU Health, one of the country's largest private hospital systems. Williams, 56, is a lifelong insurance executive who built his reputation at troubled companies. Rowe is an outspoken and charismatic leader who told an investor at the onset of his tenure, when Aetna Inc. (AET) still symbolized all that was wrong with managed health care, to think of the corporate turnaround as a trip to the airport: He couldn't predict which red lights they'd hit on the way, but he promised they'd eventually get there. Williams, by contrast, is so soft-spoken that he brings down the volume in an entire room. While Rowe is the visionary who has been responsible for reshaping how Aetna runs, Williams is the operations czar who has put those ideas into practice.

Together, Rowe and Williams turned Aetna into an industry leader. The company has introduced innovative products, influenced health-care policy, and beat its rivals in profit growth for the past two years. Its stock is up some 700% since May, 2001, when business was so bad Rowe gave up predicting earnings for the year. Aetna's market valuation is $27 billion, up from $3.3 billion in 2001, and net earnings in 2006 are expected to be about $1.3 billion, vs. a net loss of $279.6 million in 2001.

But come Feb. 14, the partnership will end, leaving Williams with some serious challenges. He will assume the role of CEO while holding on to his job as president of the company. That puts him in the difficult position of having to keep Aetna growing at a time when consolidations have narrowed the industry to just three significant competitors -- and Aetna has roughly half the membership of the other two, UnitedHealth Group Inc. (UNH) and WellPoint Inc. (WLP).

Williams will be alone at the top, responsible for the company's strategy. His plan is to provide more of what has made Aetna so successful. But many of those big ideas came from the man who is retiring. "I really need to see that he defines himself, whether it's through a certain type of product development offering, whether it is in going into a certain region," says Ken H. Tsuboi of RCM Global Investors, which holds 3.3 million Aetna shares.

QUALITY, NOT QUANTITY

Williams' focus has always been internal. He specialized in operations in his previous positions at WellPoint and its subsidiary, Blue Cross of California. At Aetna, his office was on the first floor of the Hartford headquarters, while other executives sat on the eighth. Williams holds quarterly meetings with approximately 5,000 managers and supervisors, or nearly 20% of Aetna's 27,000 employees. He regularly updates a column called "Ask Ron" on the company intranet, where employees from all over the company pose questions and offer suggestions.

When it comes to company strategy, Williams, like Rowe, believes that better profitability will come from improving the quality of Aetna's products rather than increasing the number of subscribers. When Rowe became CEO in September, 2000, he moved quickly to settle outstanding lawsuits with doctors and dentists, laid off 15,000 employees, and slashed the customer base to a low of 13 million, from 21 million members. Rowe did that in part by jettisoning almost half the counties in which Aetna offered Medicare. Today membership stands at 14.65 million and is expected to grow by at least a million over the next year.

It was Rowe, with his years of clinical experience, who established Aetna as an innovator. He led the charge to create health savings accounts, employer-sponsored funds that give people a set amount of money to spend on medical care. He created the industry's first guidelines for genetic testing. And he found a way to save money and improve care by ranking doctors and then rewarding members who choose physicians in the top tiers.

Williams' idea is to get employers involved, too: Companies could encourage employees to select recommended physicians by adding funds into their health savings accounts. "We all believe that quality costs less," said Williams in an exclusive interview before the Jan. 4 succession announcement. "Getting members to see physicians who seem to have better outcomes will result in better quality for the member." He expects this program to be in place by early 2007.

The company has also taken a lead in the controversial practice of collecting racial and ethnic data about its subscribers. It does so, Williams says, as a way to address the now widely accepted problem of disparities in health care based on racial, ethnic, and even gender differences. "Many of us initially believed those differences are based on economic status or the presence of insurance," says Williams, who says he has seen these gaps in the African-American community. But, he explains, those inequities are also a result of a medical establishment that doesn't always appreciate "cultural differences" in eating or exercise habits, for example.

That's all well and good, but analysts believe Aetna must also cut costs -- a suggestion Williams agrees with -- and consider big acquisitions, maybe even a merger. Williams is interested in buying other companies he says. When it comes to talk of a merger, though, he says what any incoming CEO would: nothing.

By Jessi Hempel, with Diane Brady in New York


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