Table of Contents:
Page 1 – Report on
Shareholders’ Meeting
Page 3 – ARA and Aetna
Page 4 - Further
Questions
Page 6 – Letter on
Donaldson Commitment
Page 7 – Approval of
Nonprofit Status
Aetna
Shareholders Meeting
The following
report attempts to capture those issues discussed at the Shareholders meeting
that might be of greatest interest to Aetna Retirees.
The
Aetna Shareholders meeting was held on April 29th in Philadelphia,
PA. Chairman John Rowe presided and
gave the reason for the change in venue as management’s desire to move the meeting
to where Aetna has a major customer base.
This seemed a little strange because customers would not be welcome if
they were not shareholders as well. We
thought the Company might have made a special effort to bring employees from
Blue Bell (the former home of US Healthcare) but that did not appear to be the
case. Attendance was less than a third
of what it was in Hartford meetings.
Opening Remarks:
Chairman Rowe’s opening statement focused on
the incredible results that the Company has achieved. He called it the “best year in the history of
the Company.” Aetna stock has
appreciated 72% since the last shareholders’ meeting. Operating earnings were up 44%. The Company was able to buy back $1.5 billion
worth of Company stock to increase shareholder value. He recognized all employees as playing a role
in this success as Aetna moves to a high performance culture, and he credited
being steadfast in disciplined expense management as key. Strong membership growth was now becoming a
factor as well.
Rowe
expressed his pride in Aetna being recognized by Business Ethics Magazine as
the number one “top corporate citizen” in our industry and by Fortune Magazine
as number two in the industry for its list of “most respected companies.” He felt these awards showed Aetna to not only
be doing the right things but to be doing them in the right way.
Aetna’s
cost structure still exceeds the best of its competitors, whom he later
referred to as United Healthcare, Wellpoint and Pacificare in an answer to a
John Dwyer question. He had also
mentioned CIGNA as a competitor in response to another question. When later asked for more specific
information on expenses, he indicated they had reduced expenses by 2.5
percentage points to 19.6%. The target
they are after is 19.1% and he indicated they still have several points of
additional improvement to equal their most efficient competitors. Rowe indicated that most of these competitors
are doing less for retirees than Aetna is.
Management is very proud of what they have been able to do, not only in
reducing expenses, but in continuing the benefits they have for retirees.
Rowe
also announced that Aetna would support a government mandate that all people
must obtain basic health insurance. He
called for subsidies to help low-income people afford coverage. He also emphasized that a way must be found
not to overload such a program with mandates or place unreasonable burdens on
insurers or employers. His willingness
to step out on this issue is likely to remind retirees of the “old Aetna.”
Ron Williams spoke after Rowe and
emphasized the importance of a combination of innovation and integration of
products. He sees putting the customer
at the center of all Aetna services and then adhering to Aetna values as critical
to future success. He cited the values
as: a.) integrity; b.) employee
engagement; c.) excellence and accountability; d.) quality service and value.
He
sees Aetna’s strategy as involving: a.) innovation; b.) information; c.)
integration of data to get a better view of what is happening; d.) leadership
in high performance, consumer directed, health plans (currently Aetna is the
only one on such a plan); e.) true differentiation in a unique value
proposition.
Preliminary vote:
Rowe
then announced that all the proxy proposals were approved. The surprises were, of course, that the
proposals on cumulative voting (with 54% approval) and expensing of stock
options (with 76% approval) were approved by shareholders contrary to the
recommendation of Aetna management (but consistent with ARA’s recommended
voting stance). It is a clear victory
for shareholder involvement and should serve as a reminder to all shareholders
that understanding issues of corporate governance and voting one’s shares do
get management’s attention. These
outcomes had to be a surprise to management.
It will be interesting to see how quickly the Board reacts to the clear
direction of shareholders.
Questions on Agenda Items:
Appointment of Board: Emmett McTeague commented that he was very interested
in the comments the Chairman had made on ethics because he had observed that
most large companies that failed seemed to first fail in their commitment to
ethical behavior. He asked whether there
was anyone on the Board with the specific responsibility of looking at the
Company’s ethics “to assure it fulfils its promises to shareholders, customers,
employees, retirees and other constituencies.”
Rowe indicated that he thought that was primarily the job of management
and the Board as a whole but that the Audit Committee was probably the focal
point for the Board’s consideration of such corporate risks.
McTeague
then asked whether there was any information on how members of the Board voted
because it was very hard to decide on how to vote when you don’t give
shareholders any information on how Board members vote on given issues. (If such information were available the
follow-up question would have been to ask which Board members supported the
dental subsidy elimination.) However,
Rowe answered that only abstentions are recorded and they are not shared. McTeague recommended that they share Board
voting information so shareholders may vote more intelligently in the future.
Incentive Stock Options: John Dwyer read from the
Morningstar Report on Aetna that, among other things, talked about the
“confiscation of shareholder wealth” and how executives are “egregiously
overpaid.” He then asked how we can be
assured of a better balance between executive pay and shareholder
interests. Rowe indicated that most
analysts see Aetna’s quality of earnings as high and that he believes executive
pay is properly aligned with shareholder interests. If share price had not risen, executives
would not have earned so much.
Emmett
McTeague indicated that he had an accountant look at their “incentive plan” and
that the accountant had informed him that twelve of the twenty measures would
be positively affected by reducing employee and retiree benefits. This means that executives directly increase
their own income by cutting the benefits of those who are not making such
generous incomes. Rowe indicated that
they look at cuts in expense separate from executive compensation. When they focus on expenses, they must look
at all options. McTeague responded that
he understood that retirees average $6,000 a year while executives are making
millions. Benefits cuts should not
enhance those millions. One shareholder
applauded.
General Questions: John Dwyer commented that his
proposal to restore the dental subsidy based on Chairman Donaldson’s commitment
at the 2000 shareholders’ meeting was rejected by Aetna and that rejection was
supported by the SEC. This was doubly
disappointing given the approval of two other shareholder proposals. “You are familiar with Donaldson’s assurance
that benefits would continue as is. Now
people are trying to say we took it out of context. It is hard to see how that statement could be
misinterpreted. How can shareholders or
employees trust the word of any executive when the people who come behind him
can change it?” Rowe responded that “We
have agreed to disagree on Donaldson’s comments.” He went on to say it is difficult to be
confident that what has been said will hold in the future. He again claimed that they had put $44
million into retiree benefits (Editor’s note: almost as much as they put in the
Aetna Foundation) and a billion into the pension fund while continuing to
provide other benefits and absorb this year’s medical cost increases. He went on to say to John that “we appreciate
your engagement with us and we are increasingly aware of the impact of these
changes” on retirees. “That is why we
absorbed the increase in cost this year.”
In one
of the final questions, Alyce Rawlins asked her annual question on whether they
were going to put a black woman on the Board.
Chairman Rowe indicated that they were very hopeful of doing so this
year. Thus Alyce shows us the importance
of sticking with our issues and seeing them become reality.
Editor’s Note: It should be clear that not
all shareholders support us in our efforts.
One suggested they hold the meetings where retirees can’t show up. We will need to take the time to educate as
many as we can in the issues that concern us.
Above all we must be willing to persist in our determination to be
heard. It is in assuring that we are
heard that we will have our ideas considered; and change will become possible.
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ARA and
Aetna:
It is clear
from the comments in Chairman Rowe’s opening remarks as well as in his
thoughtful responses to our questions that Aetna management is more aware of
retiree concerns and retirees willingness to challenge management on those
concerns. The Chairman indicated that
this increased awareness resulted in the Company absorbing medical costs
increases for this year. Both the
Chairman (at the Shareholders’ meeting) and Aetna’s General Counsel (at a
Retiree Matters information meeting) have mentioned that the Company has been
discussing these issues with John Dwyer and others. John is hopeful that “these discussions may
yet prove fruitful.” But he also
cautions that “such discussions are complex and require a great deal of time
and thought. The specifics discussed
must remain confidential until there is sufficient substance to share. There is no timetable for when the
discussions may reach a conclusion.
However, when they are concluded, we will provide all members with
details.”
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Other
Questions:
There were many questions
that your ARA representatives would have liked to ask Aetna management but only
so many were appropriate in the context, and within the time limits, of the
shareholders meeting. We hope that our
members will take it upon themselves to ask these questions in meetings such as
those for “Retiree Matters,” in letters to Chairman Rowe, in letters to Board
members, or in other contacts with Aetna or any of its constituents.
1.
Who has fiduciary responsibility for protecting retiree benefits
and what role has that person (have those persons) played in the elimination of
the dental subsidy for retirees? Would you consider making a retiree a member
of the committee that looks at these issues?
2.
The 3-17-04 WSJ reported that “thanks to ceilings put in a decade
ago, Aetna’s health care costs have not been rising substantially.” If this is
true, why is Aetna claiming they are rising? As a matter of fact, according to
Aetna’s 10K, the actual cost to the Aetna, pre-tax in those three years was
$304.5 million as opposed to the $1 billion claimed by Ms. Wright in her recent letter to the editor of
the Hartford Courant. The 10K goes on to
show on page 71 that in 2004 there was actually $9.9 of income, not cost, due
to the other post-retirement plans.
This resulted largely from a $31.8 million “curtailment benefit”. The footnote to that entry notes that this
is due to “a plan amendment related to the elimination of the dental subsidy
for all retirees…” It also shows benefits curtailments totaling $46 million for
the years 2002 and 2003.
3.
Aetna retirees are concerned that Aetna may consider further
erosion of our retiree benefits. Aetna
has already eliminated the subsidy for our Dental benefits. Does Aetna have any plans at this time to
change any other Medical benefits?
4.
Aetna has announced that it filed a letter of intent with CMS
indicating it plans to become a national provider of the new Medicare
Prescription Drug Plan. How will this affect
Aetna retirees who are under Medicare? We have a very good mail order
drug program now. We don't want to have
it jeopardized.
5.
It wasn’t too long ago that Aetna had a pension surplus. Acknowledging the stock market downturn,
whatever happened to all that money?
6.
The retiree newsletter implies a desire for parity between active
employee and retiree benefits, but active employees are still getting
paychecks, raises, bonuses, and stock options while retiree incomes are
fixed. Since the implied “contract” with
retirees is being changed by Aetna, can retirees get their jobs back and/or can
they renegotiate their retirements?
7.
The recent retiree newsletter seems to be saying that maintaining
and increasing executive compensation is more important than maintaining
benefits, including benefits of those already retired. Is that correct? If so why?
8.
If reducing retiree benefits contributes to Aetna’s profitability,
will future profitability be shared with retirees? Will subsidies be restored?
(Or do we only get to contribute to profitability but not benefit from it?)
9.
Did you involve the Board in the decision to eliminate the dental
subsidy? If not, should I conclude that neither you nor they consider the
treatment of the people who made Aetna great should be a matter of good
corporate governance?
10.
In light of all the corporate scandals and outrage over excessive
executive pay, what is Aetna doing to ensure executive compensation is
reasonable? What is Aetna doing to ensure its Board isn’t merely a rubber stamp
for senior management?
11. How can the Board support such
high levels of executive compensation at the expense of those who are already
retired?
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Further
Clarifying the Donaldson Commitment:
The following
letter, which was sent to Elease Wright, conveys with great clarity the reality
of the events surrounding Chairman Bill Donaldson’s assertion at the 2000
shareholders’ meeting. We share this and
other letters with our members in hopes that you will continue to share your
views with Aetna management, Board members, legislators and others. When they receive one such letter, no matter
how well written, they see it as that person’s view. When they receive ten letters they know there
are probably a hundred others with that view.
Please think about what you may be able to do to reinforce this message
as you read this letter.
Dear Ms. Wright;
Re: Chairman Donaldson’s promises to Aetna Retirees.
The April, 2005 edition of Retiree
Matters that Aetna sent to retirees claims that the answer is “No” to the
question of whether former Aetna Chairman Donaldson once promised that Aetna
would not change the dental subsidy [which, as we know, Aetna totally
eliminated for all retirees beginning in 2005]. This revisionist history by Aetna is most
disappointing.
At the April 28, 2000 Aetna, Inc. Annual Shareholders meeting, then-Aetna
Chairman William H. Donaldson was asked
about an April 3, 2000 letter that he had written to Aetna retirees. That “Dear Retiree” letter explaining Aetna’s
strategic plans said “No decisions have been made about the Retiree Health and
Life Plans”, prompting the following question and answer [from the actual,
official transcript of the April 28, 2000 Shareholders meeting obtained from
Aetna]:
p.
28-29
MR. ROGER
LAWSON, shareholder: Mr. Donaldson, I am a shareholder and one of the
16,000-plus Aetna retirees that received your April 3 letter in which you
indicated that we would get further information regarding certain pension and
health benefits that we are currently being provided. We believe very strongly that these benefits
are a corporate obligations (sic) of Aetna, whether it is divided into two
corporations or in the event that it might be acquired in the future by another
organization. Any reduction or
elimination of these benefits would cause substantial financial hardship to
retirees. And we think that it would
also have a very negative impact on Aetna’s reputation as a responsible
employer. My obvious question is,
Mr. Donaldson, do we have your
assurances that this benefits (sic) will continue as promised?
CHAIRMAN DONALDSON: It’s a good question. I know retiree benefits are of concern, of
great concern. You have the commitment of
this Corporation that the retiree
benefits will not change in terms of what benefits you have now, and the obligations and the details of the
future are, will be the same as they are right now. Nothing is going to change with the two
Companies being split into two pieces.
In fact, it is my hope that the two companies will, through the focus
that they will get from being two separate companies, will be even more
profitable companies and will have even more resources to fulfill their
obligations. Aetna will stand behind its obligation. Thank You.[1][1]
[1][1] Notably, Mr.
Donaldson began that meeting by introducing nominees for Aetna’s Board
of Directors, noting that Aetna’s “senior officers” were arrayed in the front,
and that Aetna’s independent auditor was present.
No equivocation, no caveats were
included in Mr. Donaldson’s response, and he did not misspeak at the
Shareholders meeting, because Mr. Donaldson subsequently repeated the same
unqualified assurance to retiree George L. Hogeman, who had written expressing
concern that Aetna’s Board might decide to cut retiree benefits for those
already retired. Mr. Donaldson replied
to Mr. Hogeman as follows on May 8, 2000, a few days after the Shareholders meeting:
“Please be assured that the concerns
you have raised are important to us.
That is why, when it comes to retiree benefits, the separation of the
company will not cause any change. We will stand behind our obligations and
retiree benefits will not change in terms of what retirees have today.”
Mr. Donaldson’s answers were
unqualified, and in keeping with Aetna’s long tradition of not curtailing
benefits and subsidies to those already retired.
However, Mr. Donaldson’s assurances obviously
caused some consternation within Aetna, because the spin control effort began a
few weeks later when Aetna issued Vol. 1, No. 1 of Retiree Matters in
June, 2000. Under the headline “Chairman
States Aetna Will Stand Behind Its Obligations to Retirees”, the body of the
article started waffling, adding qualifications not included by Mr. Donaldson,
saying that Aetna “retains the right to make any changes or terminate any of
its programs in the future.” That is
exactly the opposite of what Mr. Donaldson said.
Apparently Aetna is still quite
sensitive about former Chairman Donaldson’s honest, straightforward assurances
to retirees in front of Aetna’s Board of Directors, Aetna’s top management, and
Aetna’s auditor--with Aetna’s shareholders as his audience. The spin control effort by Aetna to create
confusion where absolutely none existed concerning former Chairman Donaldson’s
promises to retirees continues, unfortunately, to this day.
Sincerely,
John S.
Backer
Aetna retiree
Manchester, CT
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Nonprofit
Status Approved:
In
addition to the initiatives we have undertaken to reverse the cut in dental
benefits, ARA continues to make progress on the organizational front. The IRS has recently approved our application
for non-profit status. This means
that our income from members will not be subject to federal income
tax. As a reminder, due to
the nature of our activities, our tax exempt status does not allow for
individual members to deduct their dues and donations on their federal tax
return.
We are
very grateful to Dick Baxter for his work with Bob Gilligan and others to make
this possible.
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