To outsiders, the shake-up in 2017 that led to the ousting of Mario and John Molina from the company their father founded seemed to unfold in a manner of days. But it was actually years in the making.
The company was at a crucial junction. Founded 40 years prior, Long Beach, California–based Molina Healthcare was grappling with poor financial performance and lackluster growth. Questionable acquisitions and a purported “friends-and-family” legacy approach to talent decisions were hindering progress on a critical imperative: adapting to the newly enacted Affordable Care Act. Dale Wolf, whose healthcare industry experience included four years as CEO of Coventry Healthcare, had been scratching his head over decision-making at Molina since the very start of his tenure on its board in 2013. So when the opportunity presented itself, he seized the opportunity to make the case for a change.
“I like to think I had some credibility because I’d run a company in this business, and I knew the business,” he says. “So my speech that day was very much me explaining to the board why the behaviors of this management team were not consistent with success in managed care.”
Within a week, after a follow-up call and an in-person meeting, the board reached a consensus to terminate both executives, appoint an interim CEO and name Wolf non-executive board chair. Seven years later, the results speak for themselves: a near tenfold increase in enterprise value from approximately $2 billion in 2017 to more than $20 billion in 2023. In addition to delivering substantial value to shareholders, the growth reshaped Molina Healthcare’s market presence, positioning it for expansion.
CBM recently spoke with Wolf about the board’s decision and Molina’s journey of transformation. Excerpts of that conversation, edited for length and clarity, follow:
Can you tell us a little about the situation at Molina Healthcare in 2017 that led to a leadership change?
The primary issue was the underperformance of the company on a continuing basis and the board feeling the need to act.
Shortly after I joined the board, the ACA was passed. Afterward, the company grew revenue materially during that period of time, but profits lagged. If you looked at the earnings profile of our company, we seriously lagged competitors, and we’d miss our numbers. It just was not well managed financially. That’s the business issue that led the board to conclude that we had to make a change.
What were the conversations about removing the founding family from leadership like? Was there pushback from members who felt loyalty to management?
It was an interesting board meeting, with really only one subject. There were some people there who were handpicked by Mario to be on that board, so it was hard for them, because they had long history with Mario. But cooler heads prevailed, and we got there. It wasn’t easy, but it wasn’t as hard as you might think, because we spent a lot of time talking through this issue. We didn’t act until everybody was solidly on board. So, the board itself, at that point, was ready for a change, notwithstanding prior relationships, and embraced me as chair.
I wouldn’t say we wouldn’t have done it if it weren’t unanimous, but it was much better for it to be unanimous. So we worked really hard to get to unanimity. And once we did, nobody looked back. Everybody got on board. And the rest is history.
How did the company’s shareholders, employees and clients react, and how much engagement did you need to do after the decision?
Everybody was surprised, because it’s no mean task to accomplish what we accomplished. In this business, your customers are the state Medicaid agencies, so it’s a different kind of customer. I’ve never, ever talked to one of those guys. In some respects, they don’t care what’s going on at the corporate level. They care about their people and their specific state contract.
Shareholders were delighted. The stock reaction the day we announced was very positive and continued to be thereafter. They thought the assets were there and the opportunity was there, but the performance was not there. So they thought somebody else could improve the performance, which turned out to be right.
During the period that we had an interim CEO, I did meet with our largest shareholder to talk about why we did this, what we were looking for in a new CEO and why Molina was a good business. They didn’t have any concerns about the change. What they wanted to know was, who are you going to get to run this business? And how do you think it can be successful?
We also had some activists sniffing around at the time, and I talked to two or three of them several times.
What were they looking for, and how did you handle those conversations?
You know activists. They’re looking to get you to sell the company so they can make a quick buck. So, that discussion was very much like my discussion with the large shareholders about why this was a good business, what kind of person we were going to find for the CEO role. I remember saying, “This is a great job. We’re not going to have any trouble finding the right person to do this.”
I just told them the truth, just like I do with everybody. The company was badly managed. It needed a change. We took action. Look at the opportunity if we can get earnings or margins up to where the rest of the industry is. And then, “Just watch us.”
The leadership change came about so suddenly, yet you were able to bring in a new CEO fairly quickly—how did you go about finding a replacement?
You never can go as fast as you want, but yeah, you’ve got to get it done. We hired a search firm I had used before. They did a good job for us. I felt like it was a normal CEO search process for coming out of the blue. We fired the team in May, and we had a new guy—Joe Zubretsky, who had led Hanover Insurance—on board in November.
This is partly my bias, but I for sure thought we needed somebody who was steeped in this business and really knew what levers to pull to make a managed care company successful. And, of course, the person had to have leadership qualities and believe he could build a team, communicate with investors, create the right culture and some of the stuff we talked about. Joe just checked all the boxes.
What else did you prioritize strategically? What changes led to the transformation that occurred afterward?
One priority was people. Only one executive survived from the old regime to the new regime. He’s still there. He’s terrific. Joe loved him instantly. The rest of the team was totally rebuilt. The family members were exited. Performance standards were implemented. Culture was changed totally.
The second thing was financial discipline. In this business, low cost wins. Joe and the team have exemplified that. Know your business, know your numbers, put out guidance that you can meet or exceed. And that was the second piece of it.
Third, which is tied in: Have expectations about performance. Today, we have the best margins in the industry and are growing as fast or faster than anybody else. That was our goal, and that’s where we got.
How did you get to the best margins in the industry—and take the company from $2 billion to $20 billion in valuation—from where you were?
In fairness, we’ve grown. We added scale. That helps. The other thing though is they don’t waste money. They pay attention to expenses and keep costs down. Another is the basics of managed care. You have to do claim edits correctly. You have to negotiate correctly with the states. It’s basics of the business. So, they paid attention to the basics, they kept costs down, and we changed the culture and the people.
Also leadership. Joe is a terrific executive. He knows this business backward and forward. He’s an excellent communicator with the board and an excellent pied piper of talent. Honestly, once he was in the chair and had some background from us, we just let him go.
Your industry experience proved valuable to Molina. How important is relevant industry experience in board service? And how, when you have it, do you guard against the temptation to overstep?
Good questions. Personally, I could never go be on the board of a technology company or a manufacturing company. Actually, I could, but I wouldn’t think that I would add value to it. So, I think industry experience is very important. That doesn’t mean everybody has to have it, but you have to have some industry experience on a board.
As for the second question, one of the advantages I had is that as a CEO, I had had a board. I understood the pressures that a CEO felt, and I understood how a board could be helpful or disruptive. Having experience in both chairs, I know the right role for a board member and/or chairman to fulfill. I’ve seen people fit well into that role, and I’ve seen the opposite. People who are very detail-oriented, operationally oriented, sometimes stray over the line, and you have to corral that and not let it happen at the board meeting. That just comes with experience.
What advice can you offer other board members and chairs in dealing with a contentious development and building that consensus that you were able to reach?
The first is trust your gut. We should have known that this was the right thing to do earlier than we did. The signs were all there. Replacing a family CEO, CFO, in a public company is no mean task. So I don’t think anybody should take it lightly. But on the other hand, it’s like every employee matter I’ve ever dealt with, when it’s over, you say, “Geez, I should have done that earlier.” So trust your gut and act. Don’t wait.
On building consensus, there’s no substitute for just talking to people and sharing your experiences, your views, your concerns. As you do, consensus will develop. This situation was pretty unique, with the founders and the family, so I don’t know that I apply much of that to my other work these days. But it always goes back to trusting your gut. If something quacks like a duck and walks like a duck, it’s probably a duck. So just trust your instincts and go.
What do you see as the big issues boards are facing now and should be thinking about and planning for today?
Aside from the usual things—succession planning, strategy, incentive systems, executive hiring and firing—I would say, don’t get hung up on the latest fad. I happen to believe AI is very real and will transform business in so many ways. But I am quite happy to be a fast follower. That’s the approach we’re taking with it. If you’ve been around long enough, you’ve seen these fads come and go. DEI was the buzzword for a while. AI is the buzzword now. Enterprise risk management was the buzzword for a while.
The risk of not jumping on board early is that you’re late, but it’s not hard to be a fast follower. I always think that’s the safest, most successful approach.
