CEO SUMMARY: Three public laboratories experiencing serious financial pressure enter the new year with a change in presidents. It is a sign that stockholders and creditors are growing increasingly restless with these organizations’ inability to earn satisfactory profits.
Turnover among chief executive officers is usually not a good sign. During the last 45 days, three public laboratories issued formal announcements that their existing president was stepping down and a new president would assume duties.
First to name a new president was Meris Laboratories of San Jose, California. On December 12, 1996, Meris released a short statement to the public stating that William McCormick would assume duties as President and Chief Operating Officer. He replaces James Neeley, M.D. Neeley had resigned in late October 1996.
Next was Laboratory Corporation of America. On January 7, 1997, LabCorp announced that Thomas P. Mac Mahon would replace James B. Powell, M.D., effective on that date.
Rounding out this series of announcements was a statement by Unilab, Inc. of Tarzana, California. Issued on January 20, 1997, it stated that David Weavil would become Chairman, President and Chief Executive Officer. Current CEO
Andrew Baker was departing to assume duties with another company.
Despite the fact that all three laboratories are changing their chief executive officers, each has different reasons for seeking a new president. What is noteworthy is that these events are a consequence, directly or indirectly, of the poor financial performance of the three laboratories.
No Easy Solution
There is no easy solution to the problems challenging all three laboratories. Their management strategies to regain profitability will teach the industry valuable lessons about the right and wrong ways to respond.
When Meris Labs filled the open position of President, they picked someone from outside the industry. Most recently William McCormick had been President and CEO of an electronic claims processing service for healthcare providers.
At Laboratory Corporation of America, the departure of current president James B. Powell, M.D., caps a lengthy career in the laboratory industry. Dr. Powell founded the original laboratory which eventually was acquired by Hoffman-La Roche, Inc. This laboratory became known as Roche Biomedical Laboratories Inc. and was later merged with National Health Laboratories in 1995 to form LabCorp.
Powell is leaving to become Chief Executive Officer of AutoCyte, Inc. This company was recently spun off from Roche and is developing automated Pap smear technology.
Powell’s replacement lacks the extensive hands-on operating experience which Powell accumulated. Thomas Mac Mahon’s entire career has been with Roche since his graduation from college in the late 1960s. He became a member of Roche’s Worldwide Diagnostics Executive Committee. As a member of this committee from 1988 to 1995, he had oversight responsibility for Roche Biomedical Laboratories.
After LabCorp Merger
After the merger forming LabCorp, Mac Mahon served as Vice Chairman until he was named Chairman in April 1996. In contrast to Powell, who had first-hand experience in all phases of clinical laboratory operations, Mac Mahon has more of a “board of directors” perspective. Possibly his diagnostics experience may help point LabCorp towards other business opportunities besides clinical testing.
Events currently unfolding at Unilab will be intriguing to watch because of the change in corporate cultures. Departing CEO Andrew Baker originally came from MetPath (now Quest Diagnostics Inc.). Incoming CEO David Weavil was, until recently, Executive Vice President and Chief Operating Officer at LabCorp.
Weavil resigned in early December 1996. His departure was apparently related to LabCorp’s $187 million settlement with the federal government, but details behind this aspect of the transaction have never been made public.
Weavil has a reputation for strong operations skills. Unilab has need of such skills. The $200 million laboratory is working to bring its statewide operations infrastructure onto a common system. Weavil will face some tough challenges, because Unilab’s operating profit margins continue to erode in the face of California’s aggressive managed care market.
All three incoming CEOs face daunting challenges. With the laboratory industry continuing to encounter shrinking reimbursements and declining test utilization, financial success may prove to be an elusive goal.