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Case Study #1 -- A Merger Gone Bad
In March 2001, two neighboring non-profit hospital systems (A & B) formally merged. System A agreed to close one of its two facilities and encourage the physicians to take their patients to System B’s hospital. System A became the managing member of the new entity. The merged entity’s new Board of Trustees was composed of an equal number of individuals who formerly served on the individual hospitals’ boards.
Within six months of the merger, it was discovered that the financial statements for System A, for the period immediately prior to the merger, were somewhat overstated and that the CFO of System A, who has since left, may have withheld critical information, during due diligence. Soon thereafter, System B announced its intention to seek a dissolution of the merger unless the original terms of the merger were materially modified, and its founding CEO resigned.
The Board decided that, while it attempted to resolve its governance issues, it would not be prudent to recruit a new CEO. Consequently, it engaged a seasoned health care executive, who was mutually satisfactory to both parties, to serve as an interim CEO. It soon became clear that the differences would not be resolved amicably. The merger agreement indicated that dissolution could only occur if both founding systems agreed. System A did not wish the partnership to end, while System B insisted on dissolution of the merger. Citing fraud, System B filed a petition in the local court to achieve its desired outcome.
The case was assigned to Judge C. He directed the interim CEO to continue to manage the merged entity until the issue could be settled as if the new entity was going to remain as originally conceived. Over the next several years, there were numerous attempts to resolve the case. During this period, the original CFO and VP for Human Resources resigned. Since the ‘merger’ appeared to be perpetually in flux, it was impossible to recruit qualified health care executive replacements. Consequently, the interim CEO was authorized to recruit other experienced professionals to also serve in interim management positions. Collectively, the interim team provided effective management and leadership for operational, financial and mutually agreed upon strategic initiatives. JCAHO surveys were successfully passed and the financial conditions of both Systems’ hospitals improved.
Finally Judge C, after hearing some initial testimony, proposed to settle the case and authorize a dissolution of the merger. With the agreement of the two original Systems, the interim executives were authorized to effectuate a fair and equitable dissolution strategy. The executives achieved this goal within the approved timetables and to the unanimous satisfaction of the two systems, the Court, bond holders and insurers. All parties agreed that it had been most prudent to hire interim executives, as quality permanent leaders would have been impossible to recruit during the litigation, and that the involvement of staff from a “turnaround” firm would have further exacerbated an already volatile situation.
Case Study #2 -- Revitalizing a Suburban Teaching Hospital >>