In addition to serving on the governing boards of their own organizations, prominent physician-executives increasingly are being tapped to serve on the boards of a number of outside companies. The companies say they welcome the medical expertise of the physician-executives, although such arrangements can pose potential conflict-of-interest concerns if the physicians are on active duty within their own organizations.
For example, Michael Johns, executive vice president of 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, last month was nominated for election to Johnson & Johnson's board of directors. Johns will stand for election at the company's annual meeting on April 28.
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" by 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.
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 says Johns met the company's standard. "We take corporate governance and the independence of outside board members very seriously," he says.
Kent Alexander, general counsel and senior vice president of Emory, says 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 conflicts of interest that could not be managed.
"Dr. Johns has no purchasing authority when it comes to J&J products," he says. "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 says 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 says. "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 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 committee service or $15,000 as a committee chairperson. Nonemployee 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 an administrative board member of the Association of American Medical Colleges' Council of Teaching Hospitals and Health Systems.
Alexander says 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 says. "If this (Emory) was a publicly traded company, this appointment would have passed with flying colors and that's the approach we take."
Meanwhile, shareholders at Becton, Dickinson and Co. elected Alfred Sommer, M.D., to the company's 13-member board of directors at their annual shareholders meeting on Feb. 1. Sommer, 62, is dean of the Bloomberg School of Public Health at Johns Hopkins University in Baltimore. Sommer was elected to a three-year term on the board of the Franklin Lakes, N.J., company, best known for its diabetes and healthcare worker safety products. For his expertise, the company, also known as BD, will pay Sommer $55,000 annually plus $1,500 for every half day spent on board business outside of regularly scheduled board meetings. In addition, he will receive annual stock options worth $35,000.
In its most recently completed fiscal year, BD earned a profit of $582.5 million on total revenue of $4.9 billion. BD does business with Johns Hopkins. BD disclosed that it sponsored several research arrangements at Bloomberg worth $230,000 and a research "collaboration" worth $600,000 over the next three years.
The BD board determined that Sommer and BD Chairman, President and CEO Edward Ludwig are not independent under the New York Stock Exchange rules and BD's own corporate governance principles because they have material relationships with BD and each other. BD's Ludwig serves on the Johns Hopkins University board of trustees and was recently appointed to Bloomberg's advisory board, which Sommer heads. Tim Parsons, the Bloomberg school's director of public affairs, says the school makes no material purchases from BD.
"We don't have a financial purchasing relationship but have a long-standing philanthropic relationship which preceded Dean Sommer, his election to BD's board, Ed Ludwig's election as BD CEO and his appointment to (Bloomberg's) advisory board," Parsons says. "We don't perceive any conflict of interest."
Separately, two other well-known physician-executives, now retired from the daily rigors of running hospitals, have landed on the boards of two national companies that sell services to the healthcare industry.
Floyd Loop, M.D., who retired last October after 15 years as chairman and CEO of the Cleveland Clinic Foundation, joined the board of Cleveland-based Noteworthy Medical Systems, which develops computer-based electronic medical record systems. Loop, 68, an
expert in coronary artery surgery, is known as a savvy businessman who helped boost the clinic's annual revenue to $3.6 billion a year from $700 million a year during his tenure.
Noteworthy specializes in electronic health records for medical-group practices, teaching institutions and outpatient hospital facilities. Financial figures were not made available by the private company.
Lawrence Dolin, the company's chairman, president and CEO, said in a statement, "The knowledge, experience and vision (Loop) brings to the Noteworthy board will be instrumental in guiding us toward our objective of changing the way healthcare is practiced and delivered through technology."
Ralph Snyderman, M.D., a nationally recognized immunologist who is the former president and CEO of Duke University Health System in Durham, N.C., was appointed to the board of LifeMasters Supported SelfCare, a San Francisco-based provider of disease-management programs that assist some 350,000 individuals nationwide. Snyderman, 64, who also served as the health system's chancellor, stepped down from those posts in June 2004 and is now chancellor emeritus of health affairs at the university.
Snyderman becomes the seventh board member at LifeMasters, which provides online education and telephone support, among other services, to chronically ill patients with diabetes, heart disease, asthma and other conditions. The company expects revenue of $75 million to
$90 million this year, a spokeswoman says. Snyderman, whose appointment was announced March 4, is also a board member at Cardiome Pharma Corp., Procter & Gamble Co., Axonyx and Science Applications International Corp.
"I'm about as un-retired as I've been in my life," Snyderman says. He says he accepted the appointment because the company's business model squarely fit into the kind of clinical approaches he's been focusing on for years at Duke, where he still sees patients.
He will also add a wealth of clinical experience and practical business acumen to a board now composed primarily of the firm's founders. "I hope I bring a clinical perspective as well as the perspective of an individual who had a broad view of a health system with $2.2 billion in annual revenues," he says.
Noteworthy and LifeMasters say their board members receive compensation but would not disclose the amount of those stipends.
with Mark Taylor