Nicklaus: New Centene CEO inherits a strong culture with a mandate for change | David Nicklaus

It’s difficult to follow the late Michael Neidoff, but no one expects new Centene CEO Sarah London to follow the same script.

Neidorff was a master builder who created a $130 billion healthcare behemoth through acquisitions and aggressive expansion. Analysts see London, which took over the top post 16 days before Neidorff’s death at the age of 79, as more of an optimizer and technologist who will try to make the business more profitable.

“They will steer clear of large-scale acquisitions and focus on getting more out of their assets,” said Scott Harrison, portfolio manager at Argent Capital Management. Centene outlined this strategy in December, when London was vice-chairman and Neidorf planned to remain chairman for a year.

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“I would consider that a seamless transition,” Harrison said. “She helped create the plan.”

In a research note about the new CEO, Justin Lake, an analyst at Wolfe Research, wrote that she would have “a thoughtful view of strategy and a clear focus on delivering on management’s promise of margin improvement.”

Centene has said it will grow earnings by $2 per share, or about 37%, in three years by cutting costs, introducing new technology, reducing debt and buying back shares. It can also sell non-core assets, including businesses in the UK and Spain.

It’s not a rejection of Neidorff’s growth strategy — Centene still expects revenue to grow — but it does mark a renewed emphasis on profitability.

Neidorff, who ran Centene for 26 years, has provided investors with a return of over 6,000% since the company went public in 2001, but earnings growth has slowed in recent years. A run-in with an activist investor last year forced Centene to be more accommodating on both succession planning and profit growth.

London, who joined Centene in 2020 from United Healthcare’s Optum Ventures unit, brings technology expertise that should help the company keep pace in a rapidly changing industry. However, following a legendary leader is never easy.

“An organization like this has a certain imprint that is reflected in social norms and the way they run the organization,” said Peter Boumgarden, professor of family business at Washington University’s Olin Business School.

“The downside of this deep imprint is that when the world changes, what made it successful can hold it back,” he added. “They have to wrestle with where they need to change without losing what made them who we are.”

Corporate history is full of examples of companies that went downhill after the departure of a larger-than-life CEO, like General Electric after Jack Welch.

There are also positive examples. Many smart people said Apple would struggle after Steve Jobs died, but Tim Cook made it the most valuable company in the world at $2.7 trillion.

Harrison at least sees the potential for Centene to be an Apple-style success. Neidorff “laid the foundation for the entry and success of other executives,” he said. “While this might seem like a big transition, the reason I like Centene is because of how strong the culture is.”

As the largest corporation in St. Louis, Centene plays a large role in the area’s civic affairs. Jason Hall, CEO of Greater St. Louis Inc., has yet to meet London but is pushing for their success.

“Michael left a powerful legacy to our city,” Hall said. “I hope Centene continues to be the most successful healthcare company in the world, improving the lives of patients and continuing to be one of St. Louis’ most committed corporate citizens.”

Updated: April 15, 2022 — 12:52 pm

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