In another example of high-profile healthcare executives teaming up with the companies that sell goods and services to their organizations, the head of "the most comprehensive healthcare system in Georgia" has been nominated to a paid board position at "the world's most broadly based healthcare products company."
Michael Johns, executive vice president for health affairs at Emory University in Atlanta, chief executive officer of the university's Robert W. Woodruff Health Sciences Center and a physician by training, has been nominated for election to Johnson & Johnson's board of directors. Johns will stand for election at the company's annual meeting on April 28. The announcement came on the heels of a study released by the American College of Physician Executives that showed physicians remain concerned about potential board-member conflicts of interest, including those between physicians and vendors, and between executive leaders and vendors (March 7, p. 6).
Johns, 63, is one of 12 nominees up for election for one-year terms on the J&J board. Nine of the nominees, including Johns, have been deemed "independent" under New York Stock Exchange standards, as well as in the assessment of the J&J board, according to its 2005 proxy statement filed with the Securities and Exchange Commission.
Other independent directors on the J&J board who are up for re-election have ties to the medical industry, although not in quite the same executive capacity as Johns. They include Susan Lindquist, member and former director of the Whitehead Institute for Biomedical Research and professor of biology at the Massachusetts Institute of Technology; and Ann Dibble Jordan, former director of the Social Services Department at the University of Chicago Medical Center. Mary Sue Coleman, president of the University of Michigan, which includes the University of Michigan Hospitals and Health Centers, Ann Arbor, also serves on the board of directors and is up for re-election.
J&J has established a threshold of $1 million or 2% of a company's consolidated gross revenue-whichever is greater-as its standard of independence for directors who are executive officers or employees of companies that do business with J&J, according to the proxy statement. J&J spokesman Jeffrey Leebaw said Johns met the company's standard. "We take corporate governance and the independence of outside board members very seriously," he said.
Kent Alexander, general counsel and senior vice president of Emory, said he and the university's senior leadership thoroughly scrutinized Johns' nomination immediately after Johns got the J&J offer, and it was determined that there were no significant con- flicts of interest that could not be managed. "Dr. Johns has no purchasing authority when it comes to J&J products," he said. "Where people (at Emory) are making (purchasing) decisions it's based on the best products at fair-market value. They are not being influenced by anyone's role in any company."
Alexander said he could not say how much business the university conducts with J&J each year, but it was "not significant compared to other supplier expenses."
"The bottom line is we took a look at this, spoke with the chairman of the board and the president of the university, ran down how much business we do with J&J," Alexander said. "We have a process in place and will certainly make sure there are no conflicts we can't manage. ... I'm a former U.S. attorney. I don't take things like this lightly."
Under a new compensation plan this year subject to J&J shareholder approval, each nonemployee director like Johns will receive an annual fee of $85,000 this year. Directors also will receive $5,000 for service on a committee or $15,000 as a committee chairperson. Non-employee directors also are eligible to receive a $1,500 per-day meeting fee. In lieu of stock options under the new long-term incentive plan, each independent director will receive equity compensation each year in the form of restricted stock having a value of $100,000 according to the company's proxy statement. In addition each future nonemployee director will receive a one-time grant of 1,000 shares of company stock when first elected to the board.
A cancer surgeon by training, Johns has stellar credentials, leading the healthcare arm of Emory since July 1996, including three hospitals and the schools of medicine, nursing and public health. He also is a member of the Institute of Medicine and a member of the administrative board of the Association of American Medical Colleges' Council of Teaching Hospitals.
Johns is only the most recent high-profile healthcare executive to be nominated for a paid board position at a medical technology com-pany. Last month, two prominent executives were elected to the board of needle manufacturer Becton, Dickinson and Co. (Feb. 7, p. 8).
Alexander said it wouldn't make sense for healthcare companies such as J&J to appoint directors without any understanding of the medical industry.
"It's absolutely appropriate," Alexander said. "If this was a publicly traded company, this appointment would have passed with flying colors and that's the approach we take."