Cano Health, a primary care provider and population health company, announced an action plan in a letter to shareholders that includes plans to separate the roles of chairman of the board and CEO of the company.
The letter to shareholders, which outlines other steps the board plans to take, comes just days after a group of concerned shareholders owning roughly 36% of Cano Health penned an open letter to all Cano Health shareholders discussing their concerns about the company. The signatories of the letter were Elliot Cooperstone, Lewis Gold and Barry Sternlicht, who were formerly board members of Cano Health but who resigned last month over alleged mismanagement of the company following the merger of JAWS Acquisition Corp.
The three signatories noted they had “serious concerns” about the management and trajectory of the company. While stating they were not “activist investors,” the three urged changes at the C suite level and a path for establishing the right corporate governance and value-enhancing strategy for the company. The letter pointed to the destruction of shareholder value and declining performance of the company, naming the -83% loss in shareholder value over the past 12 months and -92.5% since Cano Health went public in 2021.
The letter also called out CEO Marlow Hernandez, who, according to the three former board members, was indebted to the COO, Robert Camerlinck, under a previously undisclosed promissory note.
“...Hernandez, together with other Cano executives, Dr. Richard Aguilar (Chief Clinical Officer), Jason Conger (Chief Growth Officer) and Rick Sanchez, who were named as guarantors, transferred 20,000,000 shares to Mr. Camerlinck on April 5, 2023, pursuant to a loan repayment agreement,” the letter stated.
They argued that the debt raises significant questions about Hernandez’s ability to lead the company––“how could Dr. Hernandez effectively carry out his role of overseeing the C-suite when he was indebted to his own COO? How could this information not have been previously disclosed to the Board and the market?”
The Cano Health board of directors’ decision to separate the role of CEO and chairman of the board came after the letter pointed out the debt with Hernandez. And the board named Solomon Trujillo as the non-executive chairman of the board, effective April 17.
“The Board determined that separating the roles of Chairman and CEO will allow the CEO to focus his full attention on executing our operating plan, while enhancing the Company's governance structure and Board oversight,” the board said.
The disgruntled shareholders and former board members also noted that Cano Health appeared to be a true “family affair,” as it has paid out millions to companies owned by Hernandez’s family members. This includes $23 million to a company controlled by Hernandez’s father for general contractor work at Cano facilities, and $8.5 million to a dental services provider owned by Hernandez’s wife, Dental Excellence Partners, for providing dental services for managed care members of the Company.
In addition to making the leadership structural changes, the board of directors also outlined how it plans to improve its financial performance, including doubling its member capacity at existing medical centers (already in the 2023 guidance); improving patient outcomes and revenue, while decreasing our third-party medical and administrative costs as a percentage of revenue; improving cash flow and liquidity; operational efficiency with the help of a new chief strategy officer; and evaluating non-core assets.
“This is a pivotal time for Cano Health, and we strongly believe we have the right Board and management team to further leverage the Company's robust foundation and enhance its operational and financial performance,” the board said. “After we release our first quarter earnings, we look forward to further communicating directly with our shareholders to share our compelling value creation opportunity, our investment thesis, and progress against our plan.”
The same day the board issued its response to the shareholder letter, shareholder rights firm Labaton Sucharow announced it was investigating Cano Health for potential securities law violations and breach of fiduciary duty. The firm asked stockholders who have suffered a loss to contact the company.
Amy joined TriMed Media as a Senior Writer for HealthExec after covering home care for three years. When not writing about all things healthcare, she fulfills her lifelong dream of becoming a pirate by sailing in regattas and enjoying rum. Fun fact: she sailed 333 miles across Lake Michigan in the Chicago Yacht Club "Race to Mackinac."