Cardinal Health

Topics: Board of directors, Corporate governance, Executive compensation Pages: 9 (1918 words) Published: October 9, 2014


Executive Summary
Cardinal Health is a Fortune 22 company known as the business behind healthcare in America. Cardinal Health helps pharmacies, hospitals and ambulatory care sites focus on patient care while reducing costs, improving efficiency and quality, and increasing profitability. Cardinal Health was founded in 1971 by Robert D. Walter, who initially opened a small distribution center in Columbus, Ohio. In less than ten years, the then-named Cardinal Foods became a prominent regional food distributor until branching into pharmaceutical distribution in 1979. That same year the company purchased a drug distributor based out of Zanesville, Ohio, and re-branded itself as Cardinal Distribution. The company re-branded itself a third time in 1983 while also going public. Following their NYSE debut, the company grew rapidly throughout the 80's and 90's with the acquisition of more than a dozen U.S. drug distributors. By 1991, Cardinal Health had reached revenues exceeding $1B. By 1994, Cardinal Health had established itself as a leader in the drug distribution business with a nationwide presence and annual revenues of approximately $6B. Today Cardinal Health boasts $100+B in annual revenue.

Board Composition
Cardinal Health's Board of Directors has remained mostly the same preceding and after Sarbanes-Oxley legislation. The Board is composed of independent industry experts within Healthcare, Technology, and Academic fields. Some of the organizations represented on Cardinal's Board are The Bing Group, Gardner, Priority Health Group, Bank One, Harvard University, and Akamai Technologies. The one interesting point to note about the Board’s structure is in regards to CEO duality. Cardinal’s CEO and founder Robert D. Walter had also served as the Chairman of the Board since the company’s inception through to 2009 when he retired. The company’s definition of an “independent” board member has always been aligned with the New York Stock Exchange’s listing standards. NYSE Rule 303A.01 requires that each listed company's board of directors be comprised of a majority of independent directors. A director can only qualify as "independent" if they do not have a "material relationship with the company" with which they serve as a board member. In addition, the director is not considered independent under NYSE Rule 303A.02(b) if the director receives more than $120,000 in direct compensation, other than director’s fees, during any of the previous three years. While Cardinal Health is “technically” abiding by the rules, one could argue that Robert D. Walter both has a material relationship with the company as the founder, as well as compensation that well exceeds board member rules in that he is paid as both CEO and a Board member. There is likely not a better example of a grey board member than what is represented by Robert D. Walter's duality role. At Cardinal Health board membership criteria is the responsibility of the Nominating and Governance Committee, who is tasked with reviewing and submitting qualified candidates to the Board for approval. The criteria for consideration includes, among other things, an individual’s business experience, qualifications, attributes and skills that are relevant industry knowledge of healthcare, supply chain, logistics, operations, and strategic planning. In 2001, there were thirteen members of the Board of Directors, composed by eleven white male, one minority male, and one female board member. This makeup remained the same through 2004. Today, in 2014, the board is more eclectic with a total composition of eight white males, four women, and two minorities.

Compensation & Incentives
The Executive Compensation committee of Cardinal Health went through some changes in the early 2000’s. Some suspect this was due to SOX implementation as well as overall regulatory reforms that brought greater scrutiny to executive compensation as a whole. Prior...

References: Business Roundtable 2014 Sustainability Report. (2014). Retrieved August 29, 2014, from http://businessroundtable.org/sites/default/files/Cardinal-Health.pdf
Cardinal Health Annual Report
Cardinal Health Annual Report. (2013). Retrieved September 2, 2014, from
http://ir.cardinalhealth.com/files/doc_financials/annual/2013/2013_annual_report.pdf
GRC Capability Model “Red Book” 2.0. (2009). Retrieved August 29, 2014, from http://thegrcbluebook.com/wp-content/uploads/2011/12/uploads_OCEG.RedBook2-BASIC.pdf
New York Stock Exchange Listed Company Manual
SEC Sues Cardinal Health, Inc. For Fraudulent Earnings and Revenue Management Scheme. (2007). Retrieved September 1, 2014, from
http://www.sec.gov/news/press/2007/2007-147.htm
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