One of the strangest CEO sagas of the year came to an end this week when Jonathan Bush, cousin to George W. Bush and nephew to George H.W. Bush, announced his resignation as the chief executive of Athenahealth, the Watertown, Mass.-based health software firm.
Bush founded the company with Todd Park (who later went on to become chief technology officer of the United States in the Obama administration) in 1997 and oversaw its growth from a small startup to a health IT giant with a market cap of more than $6 billion. The colorful Bush was the definitive face of the company, a consistent keynote presence at industry conferences and frequently outspoken about the country’s broken healthcare system.
His downfall began in May 2017, when activist investor, Elliot Management—led by Paul Singer—took a 9.2 percent stake in Athenahealth. Singer is notorious for buying into companies, shaking up management, and selling them. His investment into Athenahealth prompted the Board of Directors to make an initial change in management in August of last year, with Bush relinquishing his role as Chairman and President, but staying on as CEO.
While the company saw year-over-year revenue growth, its financial troubles (bookings were down 15 percent year-over-year) led to a 9-percent reduction in staff in October. Moreover, in February, Athenahealth welcomed former GE CEO Jeff Immelt to the board as its new Chairman. The moves were not enough to quiet the complaints from Singer’s Elliot Management, and in May of this year, the firm offered to buy Athenahealth outright for $6.9 billion or $160 per share, citing the need for operational and management changes.
Soon after this bid was announced, news surrounding Bush’s past started popping up. The Daily Mail reported court documents revealed in 2006 that Bush had attacked his ex-wife. Other media reports popped up about Bush’s alleged misbehavior, including a video of him at an event last year making lewd remarks to a female employee.
With the reports piling up, Bush resigned as CEO of Athenahealth earlier this week. Immelt was named Executive Chairman and CFO Mark Levine will take more control over day-to-day operations, as Athenahealth reviews its options for a sale.
Same Old Story
Many CEOs may wonder how a successful, charismatic personality like Bush found himself pushed out the door and what they can do to avoid a similar fate. We spoke to leadership experts who say it’s not that uncommon. Jeffrey Sonnenfeld, senior associate dean for leadership studies at the Yale School of Management told Chief Executive he has seen this story before, citing Arconic’s recent showdown with Singer that cost CEO Klaus Kleinfeld his job.
“This same activist group found their inferior takeover offer rejected and then suspiciously, an unending campaign of misleading, wilting character attacks was unleashed with a series of stories unfairly attacking the character of the CEO.”
In both cases, Sonnenfeld says the boards didn’t have the fortitude to stand up to the attacks. David E. Williams, president, Health Business Group in Boston, similarly seen this scenario play out before where a founding CEO is ousted by investors.
“It actually usually happens at an earlier stage than what you’re seeing here. What’s so noticeable here is that [the CEO] has been involved with the company for a long time and is a large publicly-traded company,” Williams says.
Next page: An Athenahealth institutional investor explains why he never lost faith in Jonathan Bush
Despite the fact this situation has played out before, the departure of Bush leaves many business leadership experts shaking their head. Joel Shulman, PhD, CFA, Professor of Entrepreneurship at Babson College in Boston, is Managing Director of EntrepreneurShares LLC, which owns shares in Athenahealth (more than a $1 million in stock), says his company started investing in Athenahealth because of Bush himself. He says the firm’s investment strategy centers around founder/CEOs, such as Bush, who tend to have more skin in the game.
“We got in because he was a founder/CEO and has been there from the beginning. If you look at the way they’ve run the company, the company has improved and made progress over the last few years,” Shulman says to Chief Executive.
Contrary to the complaints coming from Singer and Elliot Management, Shulman was a firm believer in the company’s financial direction. In the last few years, he notes that under Bush’s leadership, Athenahealth has improved the company’s margins, decreased SG&A, and oversaw a revenue growth of 13-20%.
“As an investor, this is good. Who doesn’t like that? We didn’t have a problem with him, we thought he was making good progress.” Shulman says Bush had a small ownership stake, which left him vulnerable to the interference of Singer and Elliot Management.
“We didn’t have a problem with him, we thought he was making good progress.”
Shulman says his firm’s motto is when the founder goes, they go, and they’ll sell the Athenahealth shares. He notes that financial buyers often underestimate “the cultural impact’ that a founder/CEO like Bush brought to the table and that the long-term impact of losing someone like this is not in the company’s best interest.
Sonnenfeld agrees that founders are “those with the greatest strategic insight and cultural credibility to redefine an evolving business.” He says Bush had done a “done a magnificent job in creating, building, and redirecting this company.”
But not everyone is universally in praise of Bush. Williams says the former CEO’s dynamic and unconventional style, had definite pros and cons. While he was able to take action and act decisively, Williams notes his comments to a female employee are intolerable, especially in the thick of the “Me Too” movement.
In this regard, CEOs need to moderate their behavior when necessary, Williams says. “Jonathan was, let’s say, an outlier in terms of his public persona and his willingness to do unconventional things,” he says, adding that this can eventually blow up in someone’s face, as it has with Bush.
Williams also recommends for those that have a dynamic personality, such as Bush, it may be best to pair up with someone who is the quiet, capable type. In the early days of Athenahealth, Bush had this relationship with Park, his cofounder.
In terms of dealing with someone like Singer, Sonnenfeld says CEOs can’t be frightened by the threats and character attacks of activist investors. “None of us are angels or saints who never made a bad call in our careers,” he says.
He also says to not let activists “lead you to separate and run for cover out of individual self-interest,” and not overly rely on lawyers. “The lawyers are not business people and driven by risk aversion not entrepreneurship,” he notes. Finally, Sonnenfeld advises CEOs find “directors who have the fortitude to withstand malicious outside attacks, while still able to ask tough independent questions themselves.”