The only nun believed to be serving on the board of a publicly traded healthcare company could earn her order $180,000-plus stock options-through her calling to the governance of Columbia/HCA Healthcare Corp.
Sister Judith Ann Karam, major superior of the Sisters of Charity of St. Augustine and the newest member of Columbia's board, is entitled to stock options and a retainer just like other board members. Karam, however, won't be pocketing her perks.
"Any of the funds she receives from Columbia, or anybody for that matter, go to the charitable works of the congregation," says Sue Cray, vice president for corporate development for Cleveland-based Sisters of Charity of St. Augustine Health System, or CSA.
The congregation's seat on the board was a part of the 1995 agreement establishing Columbia's 50-50 joint venture with the Sisters of Charity, who sponsor the healthcare system.
Karam was elected to a three-year term on the board in May 1996, and her rewards as a member were detailed, along with those of the other board members, in Columbia's most recent proxy, filed March 27 with the Securities and Exchange Commission.
Board members are paid an annual retainer of $26,000, plus $1,000 for each quarterly meeting.
In addition, the proxy says Karam has options on 1,475 shares of common stock. In future years, she has an option to buy additional stock equivalent to one year's retainer.
Karam's stock options are a pittance compared with the holdings of Richard Scott, Columbia's chairman and chief executive officer, and Thomas Frist Jr., M.D., the company's vice chairman. Frist holds 14.6 million shares while Scott holds 9.4 million shares, according to the proxy.
According to the proxy, Columbia maintains the annual retainer and quarterly meeting payments at current levels, the Sisters of Charity would net $180,000 over the six-year life of the congregation's term. Those figures don't include any potential stock appreciation. "The company's obligation is a six-year commitment and expires under certain circumstances," Columbia's proxy states.
Having nuns on the boards of publicly traded companies isn't unusual. Cray points out Sister Mary Martha Reinhard, of the Sisters of Notre Dame of South Bend, Ind., served on the board of Centerior Energy Corp. of Independence, Ohio.
And most recently, Sister M. Josepha Schaeffer of the Order of St. Francis sat on the board of Nashville-based Surgical Care Affiliates. She served until 1996, when Surgical Care was acquired by Birmingham, Ala.-based HealthSouth Corp.
Karam's congregation plans to put the rewards of her board seat to good use.
"Funds such as this are related to charitable efforts and support many things, including the sisters, parishes and housing efforts such as a retirement home and nursing homes for religious sisters from 20 different orders," Cray says.
Canon lawyers say religious sisters can't administer the stock themselves, and it is held as part of their patrimony. For example, if a parent of a nun died and left stock in the will, the nun couldn't use it. Catholic sisters take a vow of poverty and often leave inheritances to their congregations.
CSA's board considered many people, including lay executives at the system, before passing a name along to Columbia for the board seat. "There was never the thinking that this had to be a sister," Cray says. "The arrangement was to convey the mission perspective at a board level of Columbia as it related to the uniqueness of this deal."
The CSA-Columbia deal hasn't been without controversy.
The congregation took heat from the Catholic Health Association and other leaders in the Catholic Church. Within months after CSA announced its deal with Columbia in 1995, the CHA voted to ban CSA and others from the organization's membership if they became for-profit. But CSA has always maintained it is preserving its Catholic identity.
Canon law, which governs Catholic Church activities, doesn't address the issue of Catholic hospitals converting to for-profit status, attorneys say.
Proceeds from the partial sale of CSA to Columbia allowed the Sisters of Charity to create foundations worth more than $200 million.
Specific terms of the deal weren't disclosed, but the congregation has a great deal more control than Columbia's other joint venture partners. CSA's joint venture agreement ensures the Sisters of Charity will retain equal board membership as long as their equity stake doesn't dip below 20%.
After the CSA deal was completed, Karam told a conference in Chicago last year that "(Columbia executives) said they have never undergone such intense scrutiny as what (the congregation) put them through" (April 1, 1996, p. 19).
If Columbia wants to add other hospitals and facilities to the CSA partnership, CSA has the right of first refusal.
The Columbia-CSA system has become a beachhead for Columbia's Ohio operations.
What started as CSA's four hospitals (one of which is in South Carolina) has grown into a partnership that acquired Saint Luke's Medical Center in Cleveland in March 1996. It's also negotiating to acquire Massillon (Ohio) Community Hospital, a deal that would establish a $22 million community foundation in exchange for the facility's assets (April 7, p. 14).