Tenet Healthcare Corp. said it would move its headquarters from Santa Barbara, Calif., to Dallas over the next 12 months, as the company continues the total makeover it initiated in November 2002.
Critics of the company have suggested the move as a way to change Tenet's culture and improve management by centralizing it. Trevor Fetter, Tenet's president and chief executive officer, seemed to agree. In his prepared remarks to Tenet's annual shareholders meeting last week in Dallas, Fetter said, "It's not easy to close an office that has served as the company's headquarters for more than eight years, but I believe strongly that now is the time for Tenet to make real changes to improve operational effectiveness and sharpen our focus. Consolidating our corporate staff in Dallas will definitely help us do that."
According to published reports, a memo that Fetter wrote to employees earlier this year warned that company officials were considering a move because the Santa Barbara location was largely an accommodation to former Chairman and CEO Jeffrey Barbakow, who resigned the CEO post in May 2003. The company later confirmed that the memo addressed the possibility of moving the headquarters but did not release the memo or discuss its specifics.
Tenet's most persistent critic, shareholder and physician M. Lee Pearce, first called for the company to leave Santa Barbara in his 2000 proxy fight to elect directors to the company's board, said Jeff Villwock, an adviser to Pearce.
"This has cost the company, I'm sure, hundreds of millions of dollars to have a headquarters so out of touch with the rest of their company," Villwock said. "There's a direct cost of having the (corporate jet) shuttle executives back and forth between Santa Barbara and Dallas. There's also the softer cost of King Barbakow being in California when you've got all your operating executives in Dallas. There's a disconnect between the executive management team and the operating management team."
Tenet's Dallas operations center is already its largest corporate office, with more than 700 employees. Fetter told shareholders that many of the 115 employees in Santa Barbara would not make the move to Dallas. Department heads will be writing relocation plans within the next 30 days, and one of the decisions will be which workers are offered the opportunity to relocate, Tenet spokesman Steven Campanini said.
The company won't know how much the move will cost until those plans are firmed up, Campanini said. That uncertainty extends to any charges against earnings the company may take to account for the costs of relocation and severance. Tenet also reported a slightly larger loss than expected last week of $122 million, or 26 cents per share, for the quarter ended March 31. An arbitration ruling in a dispute with a managed-care payer cost Tenet $5 million, after taxes, and increased the loss from the $117 million that the company had expected to report.
The company owns the Santa Barbara building that serves as its headquarters and holds a long-term lease on the land, Campanini said. Tenet plans to sell the 35,000-square-foot building.
Santa Barbara became the company's headquarters in 1996. Before that, the company and its predecessor, National Medical Enterprises, were based in Santa Monica, Calif. NME had a corporate office in Dallas, and American Medical International, which merged with NME to form Tenet in 1995, was headquartered in Dallas.