In the late 1990s, after a disastrous merger produced Apria Healthcare Group Inc., the newly created Lake Forest, Calif.-based home healthcare provider faced more trauma than an emergency room doctor at an inner city hospital. Field operations were not in compliance with Food and Drug Administration regulations; products and services were being sold below cost; top executives were accused of insider trading; and allegations were circulating that Apria had bilked insurance companies and Medicare and paid kickbacks to doctors for referrals.
Apria did what most companies would do when caught with both hands and feet in the cookie jar–it named a new CEO. But it went a step or two further by picking a new chairman known as a shareholder activist and corporate governance advocate–in other words, a guy that most top managers would consider the enemy and not a savior. The chairman’s first act: to pack the board with directors in his own image. “I asked five directors in one day to resign,” recalls Ralph Whitworth, a former president of United Shareholders Association, a founder and principal of corporate governance fund Relational Investors LLC, and chairman of Apria between 1998 and April 2005, when he has said he will step down. “The culture of the board when I joined was a collegial, ‘good ole boys’ network. Today, the culture is what I would call constructive tension. If management came in and said we have a great deal for you but you have to waive the ethics policy, [there's] no way we would do that. Five people would blow the whistle at once.”
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