Director of the Year, DaVita Chair Pamela Arway: ‘You Have To Be Bold’

Pamela Arway became chair of DaVita in 2020, just in time to help the critical care provider grapple with some of the most difficult decisions it’s ever faced.

 

 

Editors’ Note: Pamela Arway, Chair of DaVita, was named “2021 Independent Director of the Year” by Corporate Board Member in its 3rd annual Board Leadership Awards, presented in partnership with Galt & Company. She is one of three honorees an independent committee of directors recognized for their work during a year of challenges and difficulties worldwide. The others include: The board of Johnson & Johnson, who was given the “Courage in the Boardroom” award and the board of Xcel Energy, who received the “Greatest Impact on Corporate Boards” award. In addition, Corporate Board Member will honor Clint Allen, founder and president of the American College of Corporate Directors, with a special lifetime achievement award.

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When the pandemic hit, DaVita didn’t have the option to shutter its doors and send workers home. Instead, the company had to figure out how to continue providing life-sustaining care for patients with kidney failure while keeping its army of clinicians safe. “We care for people with multiple diseases, comorbidities,” says Pamela Arway, chair of DaVita’s board. “If they’re not treated in our clinics three times a week, their kidneys fail, so our clinics have to stay open. There was no choice.”

Before much of America was even aware of Covid-19, DaVita’s board had already whipped into gear, holding several meetings a week to support management through the crisis. Led by Arway, who also serves on the board of Hershey Company, the company’s board worked closely with management on critical financial decisions, from providing relief payments to employees to returning millions in government funding.

In a recent conversation with CBM, Arway shared her perspective on the company’s pandemic journey and other pressing governance challenges. Excerpts of that conversation, edited for length and clarity, follow:

You were elected board chair in 2020, probably one of the more difficult years to hold the role. Can you tell me a bit about what that was like?

The past year and a half has been an exceptional time for every company, particularly for companies such as DaVita. Covid brought an entirely new dimension to the work that we do because the health and safety of our teammates—our clinical care staff and all of our workforce—as well as the health and safety of our patients is paramount. In the early days, the management team and our staff were working 24/7, so the board really mobilized to support them in every way that we possibly could.

Walk me through how the board handled the surfacing of Covid and coping with the pandemic.

As a board we always regularly go through possible risks to the company. We had a generalized plan for a pandemic which originated when the SARS epidemic started. We also started planning specifically for Covid back in January, before it really broke out in the U.S., using a three-pronged approach. It was: prepare for it, prevent the spread and then respond as it got more and more serious. Then, when the vaccine came out, we added another element: recover.

In terms of “prepare,” a clinic needs to protect the patients coming in and the clinicians. We were fortunate that we had strong sources of PPE because so many institutions were struggling to find it. We were prepared in that sense.

During the initial waves of Covid, instead of meeting every two months as usual, the board started meeting several times a week. Our goal was to overcommunicate, to understand what was going on as new developments took place and to support management, particularly with decisions such as providing individual funding for our teammates to help them during a difficult time.

We are a big organization of a lot of people, so the situation and decision-making came with financial risk. The board took the time to understand the financial outlook of the company, the impact that Covid was having on our costs and on our future revenues. We participated in lots of discussions and brainstorming sessions so that we could identify the right programs to support our teams because we were asking people to the front lines at a scary time, and everyone was working so hard. So, from a management and board perspective, we wanted to make sure teammates knew that we were there for them, that we wanted to help their families.

That involved additional pay, and we put in place team programs for childcare and for mental health.

DaVita made some difficult decisions during that time. How did the company balance its responsibility to provide dialysis to patients with safety concerns for its employees?

Health outcomes for our patients are really important to everybody at DaVita, but our people on the front lines have a special relationship with their patients because they see them three times a week for years. It’s not a hospital experience where you have an operation and then leave. Our caregivers are very attached to our patients.

But Covid-positive patients were very challenging for us. We could not shift our patients to hospitals because they were overrun, but we had to separate the Covid-positive patients from the non-Covid-positive patients. By asking our people to work extra shifts, we were able to set up special clinics for Covid-positive patients. In fact, we ended up helping out our other dialysis companies by taking their patients and treating them.

We amazingly kept a lot of patients out of the hospitals because hospitals were straining under the load. I feel particularly good about that. In a situation like this, the number one thing you think about is doing what’s right. Financial implications are a part of it, but they’re not the main driver. DaVita is a mission-driven company, so the decision you make is always to do what’s right for the patient.

DaVita’s board and management also chose to return approximately $250 million of CARES Act funding in 2020. Was that a difficult call to make?

It really was a big decision because it was a lot of money that the government generously gave us. It was money that we could have used and that we deserved because we had a lot of substantial cost increases.

At the same time, we felt that we weren’t like physician practices and other healthcare organizations that all of a sudden didn’t have any patients and no revenue coming in. We had to keep going so, unlike others, we had revenue coming in. So, the right thing to do was to say to the government, “There are other institutions that need this more than us.” It was a management recommendation, and the board agreed unanimously with it.

More broadly, what concerns do you see as looming largest for today’s board members? What should boards be thinking about and planning for?

It’s critically important to get CEO succession right. We went through that a few years ago. Fortunately, our former CEO gave us a lot of notice that he was getting ready to step down. The first thing the board did was set up a separate CEO succession committee, which I would recommend to any board. Having a smaller group keeps the process moving.

We also hired an external advisor, and that was really helpful. But before we did that, we spent a lot of time considering the future of the company and deciding the key success factors for the job. What type of leader did we want to take the company forward? What skillsets are going to be important? What kind of personality did DaVita need? By the time we hired the external consultant, we had agreement across the board. It’s really important to get that agreed to in advance. It becomes your roadmap, a touchstone you use to evaluate candidates.

We had an internal candidate and external candidates. We put them all through exactly the same process and, in the end, the board was in unanimous agreement to name the internal candidate our new CEO. It took us a year, and obviously a lot of board discussion, but doing it in that rigorous way really confirmed to all of us that we were making the right decision. A year and a half in, we are fully convinced that we made the right decision for the company, the teammates and the shareholders.

In 2020, you personally led meetings with holders of 19 percent of DaVita’s outstanding shares. What prompted that kind of board-level shareholder engagement and what did you learn from it?

It’s really important that shareholders have access to the board. For board members, our job when we talk to shareholders is to listen. You want to hear what they have to say about the company, how they feel about our direction.

This time, I spent the most discussions with the shareholders on a unique compensation program we implemented for our new CEO. His long-term incentive pay is primarily stock options that he is required to hold for a long time. I was chair of the compensation committee, so I was the right person to explain it. We felt the approach was very aligned with shareholders, and we wanted to be sure that our shareholders understood and supported it, which they did.

But outreach wasn’t just about compensation. We talked about a lot of governance items. The diversity of the board is something that shareholders are interested in, and certainly these days ESG policies and oversight, governance, [are] very much on shareholders’ minds. ESG comes up in virtually all of our shareholder discussions now.

DaVita has been proactive on ESG goal-setting. Tell us about some of the commitments you’ve made.

We set goals for 2025 across all of our pillars of ESG program. We issued our first diversity and belonging report. We call it “belonging,” rather than “inclusion” because we feel that adds an emotional component to it. You can be included, but belonging is stronger. We also set a goal of reducing our carbon emissions by 50 percent.

We aligned all our reporting with the SASB framework. We also created an ESG reporting hub to make it easier to find our disclosures. And in 2021, 20 percent of the annual bonus target for our most senior executives is tied to three ESG metrics. A clinical metric involves home dialysis. The bulk of our dialysis is done in clinics, but home dialysis is really positive for patients, a little bit easier on them. And we set goals in terms of the penetration of home dialysis. We also have a team focus metric—teammate engagement scores—and an environmental metric, which is the energy efficiency of our clinics.

DaVita’s board is made up of 44 percent women and 33 percent people of color. What advice can you offer other boards about recruiting directors with diverse backgrounds and viewpoint?

You have to be bold, and you have to be aggressive. If you are intentional about it, there are fantastic candidates. To say that there are not diverse candidates, that’s just not true. You have to expand your lens, to [consider] people in the C-Suite or coming up to the C-Suite. You can’t be so restrictive that you eliminate a very worthy pool of candidates. And get professional advice and guidance because all of the professional recruiting firms now have expanded their rosters.

When I joined DaVita’s board in 2009, our former CEO talked about diversity a lot. Every time we had an opening, we would make sure that we had a diverse pool of candidates. We think about diversity not just in terms of gender and race, but in terms of backgrounds, experience and tenure because all of those things really contribute to a highly effective board. You want to be able to look at a problem from all sides, and you want to offer advice and guidance to management, and you can’t do that if everybody looks exactly the same.

We have been very intentional about diversity. We have a majorly diverse workforce, and our teammates find it inspirational. If you’re going to talk about diversity, it’s really important to demonstrate it from the top level of the company throughout.

What do you see as the biggest challenge for DaVita’s board in general moving forward?

We spend a lot of time on the ongoing issues with Covid. The board spends a lot of time on innovation and what we’re doing to lead the industry in patient care. And we’re a highly regulated industry, so making sure that we are always in compliance. We’ve always had a very robust compliance committee.

In general, I go to our enterprise risk framework. Cyber is a big one that we review constantly, as well as the war for talent. We’re in an industry with very high turnover, and Covid has made it worse. So, we have to make sure that we have the right talent and that they are motivated and feel that DaVita is the best place for them to work.

Right now, we’re discussing what return to work looks like in terms of virtual versus in-person. Our CEO is taking a very thoughtful approach to what’s right for what we call “the village.” It’s a bit of a work in progress. There’s more to this story to play out. We’re trying to be agile and do what’s right for our patients as well as our teammates because that’s what you do if you are in a community. And we think of our company as a community, as a village where we care for one another.