These are tough times at Aetna Inc., and David
Kelso knows it. As the recently named executive vice president of
administration, a lot of the job of rebuilding a health insurance giant that has
sagged under its own weight is falling on Kelso's shoulders a fact that is not
escaping anyone's notice.
My priority is a broader view of the business: to pay attention to what
businesses we're in, which units we should be funding heavily and which we
should be paying less attention to, says Kelso, 49, who joined the Hartford,
Conn.-based, $26.8 billion company last month. It's also to devise
brand-new models that allow us to excel in the marketplace.
Changing a Culture
What else can he say? But to be sure, it's a tall order for the former chief
financial officer of Warren, N.J.-based property-and-casualty insurer Chubb
Corp. Kelso has been assigned a wide if somewhat unconventional berth. Besides
being a member of an executive vice presidential troika that reports to Aetna
Chairman John Rowe, Kelso has reporting to him the company's entire finance team
including CFO Alan Bennett. I bring a set of skills that are different
from Alan's, Kelso says of his CFO. Alan is a superb CFO in a more
traditional sense, very much on top of the more traditional finance activities.
Observers agree. Having been [Aetna's] controller, Bennett can handle the
financial part, says Shellie Stoddard, a Standard & Poor's health insurance
analyst. But maybe Aetna felt that he wasn't as strong as they would like
on the public side: communications, Wall Street. With Kelso, Stoddard
says, Aetna may have a chance to rebuild eroding investor confidence. Plus, say
analysts, Kelso may benefit from being an outsider. It's more about trying
to change the culture, says Doug Meyer, an analyst at Fitch. One way to do
it is to bring in someone new from the outside.
While finance will report to him, Kelso is likely to be spending more time with
Ronald Williams, Aetna's executive vice president and chief of health
operations. Kelso says he will bolster businesses with high revenue potential,
shift Aetna's product mix toward less risky ventures and stress fee-based
businesses that soak up less capital and have a higher return on equity.
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Product Flexibility
As an example of the new direction he wants to take the company, he cites Aetna
HealthFund, a product to help employers custom-tailor their health packages by
combining high deductibles, a preferred provider plan (PPO) and employer-funded
savings accounts for employees. That's an example of how we are
customizing our offerings, Kelso says. We?re anticipating customer
demands by coming out with products that have flexibility.
Such moves represent a shift from the 1990s, when Aetna set out to become the
nation's leading health care supermarket through acquisitions. It started in
1996 with US Healthcare, followed by New York Life's managed health business in
1997, and then Prudential's PruCare in 1998. When the buying spree was over,
Aetna had more than 20 million members, but was plagued by costly integrating
woes. that helped lead to a second-quarter loss of $95.9 million, versus a
year-earlier profit of $36.4 million. Making matters worse: Aetna had gone
through two other chief executive officers before Rowe joined in the fall of
2000.
Under Rowe, Aetna has implemented a three-pronged strategy of hiring new
management, shrinking operations and concentrating only on health care. But Rowe
has told investors he doesn't see a return
to profitability until the end of 2002.
Yet numbers aren't entirely Kelso's focus.
My role is to oversee the finance function, but I won?t need to spend a lot of
time on the nuts and bolts, he says. I can spend more time thinking about
how shareholder value is created and linking what goes on in the marketplace to
how we make money.
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