The Wrinkle In Aetna's Makeover

A sudden exit will probably not slow the pace of change

On the morning of May 15, Aetna President Joseph T. Sebastianelli walked into the office of Chairman and CEO Ronald E. Compton. "I have something to tell you that is going to be an unhappy surprise," Compton recalls Sebastianelli saying. He then announced his resignation, citing conflicts between family and business life. Sebastianelli, 50, isn't talking, but sources at Aetna Inc. say he faces problems involving his two teenage sons. "The family thing was real," says Vice-Chairman Richard L. Huber. "It's not a euphemism."

Aetna's board must now find a new president--and heir to Compton, who retires next March. Sebastianelli was a pivotal player: He arrived at the insurer last year when it merged with U.S. Healthcare Inc., a leading health-maintenance organization. He and fellow U.S. Healthcare execs were supposed to help change Aetna from an old-line insurer to a top player in managed care.

Both leading candidates to succeed Sebastianelli are likely to keep Aetna's makeover on track, but they may have different approaches. Huber, 60, a former Citibank executive, joined the insurer in 1995. He oversaw the sale of the $4 billion property and casualty business in 1995, and helped land the $8.9 billion U.S. Healthcare deal. Unwedded to traditional insurance businesses and a strong financial strategist, he should continue pushing for aggressive change.

But the board also will look at Michael J. Cardillo, 54, now president of the Aetna/U.S. Healthcare health business. Another U.S. Healthcare transplant, he is steeped in the managed care world. The rap on the marketing whiz, however, is that he is not sufficiently well rounded to leapfrog to the CEO level, say Aetna insiders. "I think they've got a real issue with regard to that role," says Salomon Brothers Inc. analyst Robert Hoehn.

After Sebastianelli gave notice, Compton assured investors that there will be no detour in Aetna's revamping. (Aetna shares dropped on the news, then recovered.) He says he will assume the added duties of president with Sebastianelli's departure and assist the board in finding a successor.

For now, Aetna's makeover seems to be proceeding smoothly. U.S. Healthcare contributed more than two-thirds of Aetna's 1996 revenues of $15.2 billion. And, thanks to consolidation and staff reductions, analysts expect profits to jump 50% in 1997 to $865 million. Sebastianelli's departure shouldn't end this work in progress.