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Executives probably will be distracted and investors jittery now that WellPoint Inc. has fired its highly regarded chief financial officer two days before its CEO retires.
That was the immediate take Wall Street analysts took after the Indianapolis-based health benefits firm announced this morning that it dismissed CFO David C. Colby on Wednesday for violating the company’s code of conduct.
WellPoint executives refused to elaborate on Colby’s infraction other than to say it was not illegal and did not relate to the company’s business. The company’s code of conduct runs 25 pages, leaving a lot to violate.
Colby, 53, was a star in the health benefits industry. In March, Institutional Investor magazine named him the top CFO among WellPoint’s managed-care peers a fourth year in a row.
Many observers expected Colby to replace CEO Larry C. Glasscock when WellPoint announced his retirement in February. Instead, the board selected the company’s general counsel, Angela F. Braly, as his successor.
After speculation that Colby might leave the company, WellPoint made him vice chairman of its board and boosted his compensation. WellPoint paid Colby $3.8 million last year and gave him stock options valued at $4.8 million.
WellPoint immediately appointed Wayne S. DeVeydt, 37, to replace Colby and tried to reassure investors that its reported financial results are sound. DeVeydt had worked under Colby as WellPoint’s chief accounting officer since March 2005.
Still, investors pushed WellPoint’s shares down $1.60, or 1.9 percent, in morning trading.
“Wall Street always gets concerned when CFOs depart under unplanned circumstances,” said Les Funtleyder, a health care analyst at Miller Tabak & Co. in New York.
Questions about Colby’s conduct surfaced in recent days, Glasscock told analysts in a conference call this morning. To investigate, WellPoint hired an outside attorney, whom it did not name publicly. Based on the probe’s findings, WellPoint’s board of directors and top managers asked for Colby to resign.
“The resignation of David Colby (under circumstances that can only be described as mysterious) is a loss for WellPoint. David Colby was the ‘face of WellPoint’ to investors,” Morgan Stanley analyst Christine Arnold wrote in a note to investors this morning.
That Colby’s ouster was revealed one day before Glasscock hands WellPoint’s reins to Braly only adds to investors concerns, Arnold wrote. “It is hard to argue that so much senior management change at the same time does not have the potential to be disruptive.”
Another analyst, Peter Costa of FTN Midwest Research, asked if WellPoint expected Colby to sue the company.
“Dave Colby will make the decisions that he thinks are appropriate for Dave Colby,” Glasscock responded. “But I believe we’ve done absolutely the right things based on where the facts led us.”
Not all analysts thought Colby’s resignation was a big deal.
“We do not expect that the earnings trajectory or strength of the Blue brand will be affected by this activity, Prudential Financial analysts Dave Shove wrote to investors. “[We] suggest that investors take advantage of any temporary weakness in the share price as a result of this announcement.”
Shove and other analysts express confidence in DeVeydt. Before joining WellPoint, DeVeydt was a partner at PricewaterhouseCoopers in its Los Angeles office and was the lead accountant serving WellPoint Health Networks.
Braly lauded DeVeydt for his “business acumen” and “personal integrity.”
Earlier this year, DeVeydt told IBJ, “I believe that God gave every one of us a gift. It is our job to figure out what that gift is and use it for His greater good. That’s what drives me.”
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