New Health Net chief foresees no big layoffs.

Gallagher sees role as adjusting corporate structure

Michael E. Gallagher has enjoyed numerous successes: Marine Corps officer, supervisor at Coopers & Lybrand, group vice president at the former American Medical International Inc., and general partner at Century City-based Shamrock Investments.

But he admitted that in his new role as CEO, chairman and president of Health Net - a health maintenance organization with more than 1.3 million members in California and revenues of more than $2 billion last year - he will, in some ways, be unable to live up to the image created by his predecessor, Roger F. Greaves.

Greaves, 57, could be called the Lee Iacocca of health care, an executive as well known as his company and intertwined with its corporate image. For several years Greaves appeared in Health Net television and radio commercials as himself, imparting a comforting, father-figure image.

"Often it is self-serving for the head of a company to anoint himself advertising pitchman, but in this case, it worked," said Bradley Johnson, Los Angeles bureau chief for Advertising Age. "Greaves definitely gave his HMO a distinctive image and voice in the market."

Edged out

In terms of health care-related personalities, Greaves is probably as well known in Los Angeles as former surgeon general C. Everett Koop, Johnson noted.

But when Health Net's parent company, Woodland Hills-based Health Systems International Inc., announced its intention last March 31 to merge with next-door neighbor WellPoint Health Networks Inc., Greaves' position was untenable.

His HSI co-chair and co-CEO, Dr. Malik M. Hasan, was to be named chairman of the merged company. Leonard D. Schaeffer, WellPoint's chairman and CEO, was to become CEO.

That left Greaves with no high management spot to occupy in the new order, and sources say he was not on the best of terms with either Schaeffer or Hasan. He resigned days after the merger was announced.

"It's impossible to fill Mr. Greaves' shoes," admitted Gallagher during a recent interview. However, that does not mean the 45-year-old Gallagher executive is daunted.

He has been a member of the HSI board of directors since last year, and Shamrock has acted as a consultant to the company in a limited role, giving Gallagher familiarity with Health Net's operations.

Accoutrements change

Gallagher assumed his duties on May 30, taking over a spacious but relatively Spartan office, and making it even more so by chucking the plants and replacing them with banks of chalkboards. He is currently putting in 16-hour days, despite a 35-mile, traffic-laden commute from his home in Manhattan Beach.

"I've rolled up my sleeves," Gallagher said.

Contrary to several published reports, his position is not permanent; his role is to oversee Health Net's integration into the merged company, then return to Shamrock, according to Gallagher.

"My job is to minimize Health Net's weaknesses and help guide the company into a post-merger environment," he said.

To that end, he has implemented a hiring freeze, and is meeting individually with members of the management team. Some layoffs and replacements of managers are likely to occur, but Gallagher said it would not be on a large scale.

Health Net's corporate identity will likely remain intact, but whether it will appear as a seemingly distinct entity after the merger is complete is still a matter to be determined, according to Gallagher. He expects to be at his post at least until year's end.

"It's a significant commitment that precludes his heavy involvement here, but that is the kind of thing we do at Shamrock," said Charles P. Reilly, Shamrock's general managing partner.

Along with Gallagher, Reilly formed Shamrock - which involves itself in health care mergers and acquisitions - over a drink of Paddy's Irish whiskey on St. Patrick's Day eight years ago.

Ironically, Shamrock made an unsuccessful acquisition bid for Health Net in 1991.

"Michael is a terrific guy; he's intelligent, quick, thorough and a very decisive man who is able to communicate effectively," Reilly said.

Gallager conceded that he is also demanding. "Good enough is often not good enough," he said.

Rather than immediately entering the business world from college, the San Francisco native served a stint as an officer in the Marine Corps after earning his B.A. and M.B.A. from USC, and received his CPA certificate while in the service. Gallagher's idol is Lewis B. "Chesty" Puller - a Marine commander hero of the Korean War and World War Two.

But Gallagher, who revealed a diverse intellectual side by quoting George Bernard Shaw and T.E. Lawrence (Lawrence of Arabia) during a recent interview, also believes in empowerment of employees.

"I expect everyone to be a leader in terms of making decisions, and my door is always open to accomplish a goal. ... I really believe in the team approach," he said.

He is also enjoying his current post. "I'm having a hell of a time," Gallagher said.