Wednesday, October 28, 2009

Evan Bayh: Hypocrisy on the Public Option

By Eric Jackson
10/28/2009 3:57 PM EDT
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Evan Bayh, the junior senator from Indiana, is in the middle of a heated debate in the Senate on whether a public option should be included as part of President Obama's health care reforms. An organizer of a group of so-called Senate Blue Dog Democrats, to date, Bayh's been a staunch opponent of any changes to the status quo in this debate.

He's worried aloud that any public option would be a nod to socialism and counter to his principles as a fiscal conservative. When pressed on the issue, he's said he's simply a vessel reflecting the views of his Indiana constituents.

Yet Bayh, who until very late in the campaign last year was considered a top contender to be Obama's vice president, is at best naive and disingenuous, and at worst supremely hypocritical in pushing his views as those of his voters.

His wife, Susan Bayh, sits on the board of WellPoint (WLP - commentary - Trade Now) in her hometown of Indianapolis. Over the last six years, Susan Bayh has received at least $2 million in compensation from WellPoint alone for serving on its board.

She joined Anthem Insurance (the precursor organization to WellPoint) in 1998, when she was 38 years old and a midlevel attorney working for Eli Lilly (LLY - commentary - Trade Now). Her work experience prior to her stint at Lilly was five years as a junior law professor at Butler University in Indianapolis. Her work background at the time she was appointed to the Anthem board would have been surprising, given that she had no insurance experience and was relatively young and inexperienced to serve as a director on a multibillion-dollar board.

However, Susan Bayh had one competitive advantage that made her stand out as attractive to Anthem: She was married to Evan Bayh -- former governor of Indiana who, in 1998, was elected to the U.S. Senate.

Susan Bayh's corporate directorships provide a significant chunk of the Bayh family income. In addition to the $2 million she's received from WellPoint since 2003, she has received likely double that from additional corporate boards she has sat on. Last year, for example, she sat on four other boards besides WellPoint's.

She collected $656,062 in cash and stock for all her board work last year, but half ($327,000) came from her WellPoint directorship. Because she first started taking work as a corporate director in 1994 (when she was 34 -- when Sen. Bayh was still Gov. Bayh), she has served on 14 boards.

She's actually cut back on her directorships in recent years. In 2006, she served on six corporate boards and received just under $1 million in total compensation for the year. That year, Evan Bayh received the standard $165,000 annual salary for serving as a senator.

According to reports he filed that year, Susan Bayh's stock holdings were worth between $1.3 million and $2.7 million that year. Their family's total net worth was between $4.3 million and $15.1 million that year, not including a $1 million home in Washington owned in the name of Susan Bayh.

You don't build that kind of nest egg on a government salary. The Bayhs' wealth is completely thanks to Susan Bayh's numerous corporate directorships.

Quick Stock Sales

But make no mistake, these corporate directorships for Bayh are a cash ATM for her family. Remarkably, although Bayh has always been paid for her work on the WellPoint board in a combination of cash and stock, she has immediately sold her stock as soon as she can. She has never held stock in WellPoint for longer than a year.

If you examine the latest proxy filing with the Securities and Exchange Commission, it shows that Bayh owns exactly zero shares in the company (more than a decade after first being appointed to the board). She's the only director who doesn't hold any shares.

What does this say? To me, it clearly shows that she has no long-term interest in seeing WellPoint's stock price increase. She's there to get her cash and stock and cash out as soon as she possibly can. She's doing this for the money, not for the benefits of seeing shareholder value increase.

There is more proof that Susan Bayh seems oblivious to the concept of increasing shareholder value -- the very purpose of a corporate director -- through effective monitoring of the company's management.

Since 1994, she has served as a director for a small Indiana radio company called Emmis Communications (EMMS - commentary - Trade Now). This is a company with a $40 million market capitalization. Bayh currently serves on the compensation committee. For some unfathomable reason, despite Emmis' tiny size, Bayh has agreed that Emmis should have a corporate jet.

The CEO and COO/CFO are able to fly on the jet for personal use -- paid for by Emmis' shareholders -- at a cost of almost $100,000 last year. This is simply a ridiculous waste of money. A company this size should see its execs flying AirTran (AAI - commentary - Trade Now) and Southwest (LUV - commentary - Trade Now), not in a corporate jet.

A tip to Susan Bayh: When your company's stock is down 93% over the last five years and is being warned that it will be delisted by Nasdaq, it shouldn't own a corporate jet.

I don't begrudge the Bayhs making money; this is America. However, I am highly dubious when I read that Evan Bayh has repeatedly said that he is not influenced by the corporate ties of his wife.

In 2007, he told the Fort Wayne Journal Gazette: "I can honestly tell you that if my wife did not have a job, none, I can't think of a single decision I've made that would be any different. I look at what's best for our state and our country and my own conscience. My integrity matters more to me than anything, so I always do what's right for the people who put their trust in me."

He points out that lobbyists for his wife's companies aren't allowed contact with his staff as proof of the ethical wall that exists.

Yet Evan Bayh, Susan Bayh and WellPoint seem to share almost identical views on health care and the current public option debate. Bayh recently refused to commit to voting for cloture on a bill with a public option saying: "It's not fair to ask people to facilitate the enactment of policies with which we ultimately disagree."

Susan Bayh recently argued to Business Week that, "Traditional Medicare pays for quantity rather than quality, and all of the pilot programs that were intended to help government change that ... have failed." She strongly opposes any public option and instead supports reforms that would require everyone to own private insurance plans so that "everyone is in the pool."

WellPoint, the largest health insurer in the country, has 80 million customers who buy private insurance. It would greatly benefit from any government initiative to encourage more people to buy more private insurance. To that end, WellPoint spent $2.6 million in campaign contributions in 2008 for Democrat and Republican candidates. (Evan Bayh himself received more than $500,000 in campaign contributions from the health care industry in 2008.)

(Calls to Evan Bayh's Senate office and WellPoint public relations were not returned by the time this article was published.)

While my personal views on health care favor a market-based rather than a government-based solution, I find the hypocrisy of Evan Bayh highly offensive. You would have to be clueless not to see the conflict of interest of his views on this topic and the personal gain his family stands to reap as a result of his wife's connection to WellPoint, if his stated views -- in the name of his constituents -- are seen through.

Evan Bayh, Susan Bayh and WellPoint all look bad here. Until he recuses himself from votes on health care or she resigns from the WellPoint board, criticism of them on this topic will deservedly continue.

At the time of publication, Jackson had no positions in stocks mentioned in this article. Eric Jackson is founder and president of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.

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