Taking Control of Blue Cross

October 27, 1992

Bad news for top executives of Blue Cross and Blue Shield of Maryland: The previously quiescent board of directors has canceled their annual bonuses, terminated corporate membership in a posh golf club, put the insurer's Oriole Park skybox up for sale and folded the Blues' Preakness Day hospitality tent at Pimlico. Even more ominous are indications that there may be more substantive changes forthcoming from the board.

It's about time. Until recently, this board sat on its hands, rubber-stamping a management that lost tens of millions of dollars for the Blues in risky subsidiary ventures, approved the payment of inflated salaries and lavish perks to its own top executives and withheld vital data on the company's operations from state regulators. The directors have much to do if they intend to regain public credibility.

A good first step was the replacement of Carl J. Sardegna as board chairman. He remains as chief executive of the company and retains a seat on the board. But now he won't be able to run the meetings. That will be the job of Frank A. Gunther, a respected retired Baltimore businessman and civic leader. It will take considerable courage on Mr. Gunther's part to sort out the mess at Blue Cross and Blue Shield of Maryland and bring about sweeping reform.

Most alarming is the picture that has emerged from Senate hearings and articles in The Sun of a company that is totally dominated by management with little oversight from the board. Management's prime objective, it appears, has been its own aggrandizement. Maximizing benefits and keeping costs down for the Blues' 1.4 million subscribers appear to have been secondary concerns.

One of the most important reforms the board could make deals with its own composition.

At the moment, the panel is self-perpetuating. There are no representatives of the public. That ought to change. The board should voluntarily alter its method of selecting new members so that the governor, top legislative leaders and the attorney general get to nominate individuals for some of the seats. They would speak for subscribers' interests at board meetings.

Should the board of directors fail to move in this direction, the Maryland General Assembly ought to take matters into its own hands, amending the Blues' charter to mandate public representation on the board.

Yet judging from the actions so far, the Blues' board may not need that kind of prodding from Annapolis. As a special committee completes its internal review of the company, we expect to see big changes in the attitude and operation of Blue Cross and Blue Shield of Maryland. The board members must start acting as directors of the company, rather than merely serving as compliant, well-paid guests of management.

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