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Can Reynolds save DHS?: former hospital CEO taking the helm at troubled state agency.

Before Jack Reynolds accepted the job as director of the state Department of Human Services, he sat down and read a month's worth of press clippings concerning the troubled agency.

He still took the job.

Reynolds' friends and former associates were shocked.

Isn't this the same Jack Reynolds who left his job as president and chief executive officer of Little Rock's St. Vincent Infirmary Medical Center just five months ago?

Isn't this the same Jack Reynolds who was fed up with red tape, inadequate Medicaid and Medicare funding and other bureaucratic headaches?

Isn't this the same Jack Reynolds who recently joined the Little Rock law firm of Jack Lyon & Jones?




Reynolds pleads guilty on all counts.

"People have said, 'Have you taken leave of your senses?'" Reynolds says. "They read the papers. There had been a lot written about my leaving St. Vincent. I was going to practice law, play golf and tennis. There also had been a lot written about |DHS~ and its problems. People key off the newspapers. The thinking is nobody wants to take that kind of criticism."

When the offer came in mid-May to replace Terry Yamauchi as director of DHS, Reynolds discussed the possibility with a handful of confidants. Then, he left town to visit his daughter in Texas.

For two days, he thought of nothing but the job.

"I listened to what everybody said and did what I wanted," Reynolds says. "... If worse comes to worse, I can always go back and retire."

Can Jack Reynolds -- or any one individual -- save DHS?

The largest state agency has 8,300 employees, 13 divisions and severe budget problems.

It has been hit with lawsuits concerning its child welfare services.

Many legislators believe the problems at state government's most bloated agency are too much for one man to tackle.

They call for its dismantling.

In any event, it's in Reynolds' lap now.

Yamauchi offers this bit of advice for his successor: "He's going to have to watch his backside at all times."

Yamauchi admits that, to some degree, he feels like a scapegoat. But he also admits that criticism comes with the job.

"There was always the inference that there was mismanagement," Yamauchi says. "Talk to some of my directors. I was a good administrator."

In an interview with Arkansas Business in January 1990, just weeks before he took over DHS, Yamauchi said, "A great deal of this job is to try to appease everyone. That's impossible. Somebody is going to be upset."

Since stepping down at DHS, Yamauchi has returned to Arkansas Children's Hospital. It was 17 years ago that he was lured from Los Angeles to Little Rock by Children's.

He is nationally known for his work in pediatrics.

Nine months ago, Yamauchi turned down a better-paying job offer from a medical school in his home state of Oregon.

"People said I should have taken that job," he says.

Instead, he weathered the storm until he had no choice but to bail out.

In his desk at Children's, Yamauchi keeps more than 40 letters he has received during the past three weeks from legislators and others supporting his work at DHS.

"Most of those who sent the letters thought I was doing a good job," he says. "They were surprised at this, but they understand politics."

'Impossible Situation'

State Rep. Pat Flanagin of Forrest City is among the sympathizers.

"He's a gifted and dedicated professional who gave it his best shot," Flanagin says. "I never understood why he took the job, and I can understand why he got burned out. The more dedicated |a DHS director~ is and the more ability he has, the more he will be in an impossible situation.

"|Yamauchi~ beat his head against the wall thinking it would come down."

Flanagin has been outspoken in his criticism of the agency. He is examining a 1985 reorganization study and has developed several alternatives.

Flanagin favors elevating the Division of Children and Family Services to a department.

He also notes that the Division of Rehabilitation Services once was under the Department of Education. He suggests examining why it was moved and whether it should be returned to the Education Department.

"The director must deal with brushfires every week and meet with the press, the governor's people, legislative committees," Flanagin says. "By the time he gets through with meetings, that's half the day.

"A person with a management-oriented background may be able to resist frustration, but it does not mean that person will be effective."

Reynolds realizes what he's walking into.

He knows he is giving up tennis and golf for political games.

He's leaving a plush office at a respected downtown law firm for the hot seat a few blocks west down Capitol Avenue.

He is confident, however, that his background has prepared him as well as any.

And those who know him agree.

"Jack was a tremendously competent administrator," says Little Rock businessman Gene Fortson, chairman of the St. Vincent board. "That job calls for a man who understands those types of problems."

"There's no question about his administrative skills," adds Reynolds' close friend Bill Bowen, Gov. Bill Clinton's chief of staff.

Bowen was instrumental in persuading Reynolds to take the DHS job.

In fact, Reynolds' move into state government is similar to that of Bowen, who joined Clinton's staff last fall. Both were well-known in the private sector, Bowen in banking as chairman of Little Rock's First Commercial Corp. and Reynolds in health care as CEO at St. Vincent.

Both are considered excellent administrators.

Both have military backgrounds.

Reynolds was a tank commander in the U.S. Marine Corps.

"He brings personal discipline to the job," Bowen says. "You see it on the tennis court. He plays to win."

Who is Jack Reynolds?

A native of West Monroe, La., Reynolds graduated from the U.S. Naval Academy in 1954 and served as a commissioned officer in the Marines.

In 1958, he joined the U.S. Army Corps of Engineers in Little Rock. He also attended law school.

Reynolds left Arkansas in 1962 to work as a construction management engineer with the National Aeronautics and Space Administration in Virginia. He also served as a civil engineer with what is now the U.S. Postal Service at Washington.

In 1967, Reynolds returned to Little Rock as associate administrator of St. Vincent.

He stayed, climbing the corporate ladder at the state's second-largest hospital. He was named president in 1986 and CEO in 1988.

Last year at age 60, Reynolds surprised the business sector by announcing his retirement. At the time, he cited health care industry trends that did not make it easy on an administrator. Topping the list was red tape.

"You get a little tired of it," Reynolds said then. "I think there is some sort of cumulative effect. Ten years ago, I would have wrestled with it.

"Today, it's more and more of an aggravation."

Reminded of those comments, Reynolds smiles.

"Now, I'm on government's side," he says. "You know what they say: 'If you can't beat them, join them.'"

Don Jack, a senior partner in the law firm that temporarily had Reynolds' services, had looked forward to practicing law with his friend of more than 20 years.

He has kept the door open. Reynolds took a leave of absence from the firm to rescue DHS. He could be gone from six months to 2 1/2 years, he says.

Don Jack understands.

"This is an opportunity for him to make a significant contribution to the state," Jack says. "That agency touches the lives of 40 percent of the population, people who need help. And he has the administrative skills to provide that."

Lt. Gov. Jim Guy Tucker stresses the importance of Reynolds' experience as a hospital administrator.

"He has some understanding of the problems associated with inflation in medical costs," Tucker says.

Yamauchi took over at DHS without that kind of administrative experience. The first Asian-American to reach a Cabinet-level position in Arkansas, Yamauchi was a medical doctor who was highly respected internationally but lacked administrative skills.

At the time Yamauchi was hired, Clinton wanted a high-profile person who could hold news conferences and speak at seminars across the country, someone (preferably a minority) who could draw attention to Clinton administration initiatives, much as Joycelyn Elders has done at the state Department of Health.

This time, the leaders of state government went in another direction. Reynolds is a pure administrator, less likely to hold news conferences and speak at seminars.

Money, Money, Money

Reynolds brings an open mind to the job. He says he will listen to suggestions, including the possibility of breaking up the agency.

Yet he doubts that is the answer.

Reynolds also is considering adding liaisons between the director and division heads.

One of Flanagin's favorite sayings is that after the DHS director has said hello to the division directors, the day is over.

"I don't want to get into micro-management," Reynolds says. "I want good, strong division heads ... Every division is not going to be perfectly funded or perfectly staffed ... There is only so much money. It's always going to be a problem."

At DHS, it always comes back to money.

Despite the legal problems concerning child welfare, Yamauchi blames budget troubles for his undoing.

Because of an anticipated $40 million shortfall in Medicaid, Yamauchi instituted a furlough program that angered many DHS employees.

It was announced last week that the projected gap in the department's Medicaid budget for the upcoming fiscal year has been reduced. Still, Tucker says cuts must be made.

"There is no way the department can be broken up and the duties performed cheaper," Yamauchi says. "From a dollars standpoint, there is no way to run it cheaper unless you cut services."

Yamauchi and Reynolds spoke for the first time during a conference call June 9. The two have a meeting scheduled for June 22.

Deputy Director Richard Howell is acting as director until Reynolds officially takes over July 1.

For Howell and other DHS employees, the change at the top is the final blow of a tumultuous fiscal year.

"It had been a rough year to begin with," Howell says. "Then, we heard Dr. Yamauchi was leaving. It was a shock.

"A combination of a lot of things -- the furloughs, the reduction in funds, the director resigning -- has caused concern."

Yamauchi met with his executive staff on the morning of Thursday, May 21. He told Howell and 13 division directors that he was stepping down.

"We felt we had a good team built," Howell says. "Unfortunately, funding issues got in the way. We thought we had managed it as best we could. Then, here goes a member of the team.

"It was not a pleasant day."

By the end of the day, Jack Reynolds was in place, a few more paragraphs in yet another DHS press clipping.

Serving An Ace

After Months of Courtship, Reynolds Said Yes To Bill Bowen's Offer

It was three months ago after a tennis match at the Little Rock Athletic Club that Bill Bowen, Gov. Bill Clinton's chief of staff, popped the question.

Bowen asked Jack Reynolds, the recently retired president and chief executive officer of Little Rock's St. Vincent Infirmary Medical Center, if he would be interested in a state government job.

Nothing specific.

But one just never knows.

At the time, Reynolds was looking forward to his new position at the Little Rock law firm of Jack Lyon & Jones. He had retired from health care administration on Dec. 31 following 25 years at St. Vincent.

Reynolds had hinted to Bowen months earlier that he might be interested in state government work. He had no idea it would be as director of the huge, often controversial Department of Human Services.

Like Reynolds, Bowen had surprised business leaders across the state with a career move. After having chaired the Little Rock-based bank holding company First Commercial Corp., Bowen accepted an offer from Clinton in September.

Reynolds, who already had announced his plans to leave St. Vincent, said when Bowen accepted the governor's offer, "If you need a worn-out administrator to go along with a worn-out banker, keep me in mind."

Bowen met Reynolds shortly after Reynolds joined St. Vincent as associate administrator in 1967.

"I broached the idea of his working for the state in some capacity," Bowen says. "I think I mentioned it to him in good humor three months ago as we had a sandwich after Saturday tennis."

As the weeks passed, Bowen and Reynolds continued their regular Thursday afternoon tennis matches.

By May 13, the DHS opening seemed imminent.

Bowen recommended Reynolds to the governor, who was anxious to see problems at DHS resolved. Problems in state government mean negative media stories in the midst of Clinton's presidential campaign.

Mutual Agreement?

Once Reynolds and Bowen began talking seriously, things moved quickly.

"He did not say it was the greatest job," Reynolds says with a laugh. "It was only a short time ago that I realized what the job was."

Bowen says the discussions become more serious "the week before the publicity," referring to the May 21 announcement that DHS Director Terry Yamauchi had resigned.

Enter Lt. Gov. Jim Guy Tucker.

Tucker serves as governor when Clinton is out of state, which is most of the time these days.

Observers of state government believe Tucker's influence was strong, especially considering his unhappiness with the way things were being run at DHS.

In mid-May, Tucker and Bowen met with Yamauchi at the governor's office. By then, the department's budgetary and employee morale problems were making headlines almost daily.

The subject of Yamauchi's replacement came up.

"|Reynolds'~ name was mentioned as a possible replacement," Yamauchi says. "I had known for several weeks that the governors were not happy with what was happening within the department ... It was one major episode after the other. I could not seem to get on top of things."

Whose decision was it to oust Yamauchi?

Jim Guy Tucker's?

Bill Clinton's?

Bill Bowen's?

"I would refer you back to the record on that," Tucker says.

The official word is that Yamauchi left by mutual agreement. Yamauchi toes that company line, although he had hoped the timing would be better.

"I thought it would be a little closer to the first of July |the start of the fiscal year~ because of the budget situation," he says.

Yamauchi resigned effective May 22 following days of rumors that a major upheaval was on the horizon.

Reynolds was offered the job a week earlier, just before leaving to visit his daughter in south Texas.

Once Reynolds made up his mind to replace Yamauchi, he spent a few days convincing friends and associates that he was not crazy.

"I said, 'What in the world are you doing?'" says Eldon Dingler, executive vice president at St. Vincent. "He said, 'It's a challenge.'"

Don Jack, a senior partner in the Jack Lyon & Jones law firm, had employed Reynolds in March.

"I knew there had been conversations concerning this possibility," Jack says. "... Bill Bowen is one of the world's best salesmen, and Bill sold Jack on the concept."

Bowen jokes that he drew Reynolds a visual picture, an image of Uncle Sam pointing and saying, "Your country needs you."

"He's very patriotic," Bowen says. "I really believe it goes to the fact that he took a pledge of service long ago as an 18-year-old boy in the military academy.

"... He's had a lifelong commitment. I just stirred that."

For a man named Andrew Jackson Reynolds, the red, white and blue appeal was hard to ignore.
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Title Annotation:includes related article on the negotiation between Gov. Bill Bowen and Jack Reynolds; Jack Reynolds, new director of Arkansas Department of Human Services
Author:Webb, Kane
Publication:Arkansas Business
Date:Jun 15, 1992
Previous Article:Public improvement: most of Arkansas' publicly held companies improve or hold their own in most recent quarter.
Next Article:Trying times: readers, advertisers have varied opinions following six issues of the weekly Arkansas Times.

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