Investors who had been sharply criticizing WellPoint (NYSE:WLP) CEO Angela Braly got their wish on Tuesday afternoon, as Braly resigned both her position as CEO (which she had held since mid-2010) and chair of the board of directors (which she had held since early 2010). With WellPoint taking on both the challenges of the upcoming health insurance reforms and the acquisition/integration of Amerigroup (NYSE:AGP), it will be critical for the board to identify and hire a strong operator that can restore investor confidence in this floundering health insurance giant.

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Execution Issues Bedevil the Chief Executive
Although it's relatively uncommon for a Fortune 500 company to experience an unplanned change in leadership, Braly's resignation is not wholly unexpected. There has been a steady drumbeat of grumbling for a couple of years now; a drumbeat that intensified significantly in recent weeks with the company's disappointing second quarter earnings and guidance announcement. In particular, WellPoint has made a series of execution missteps that are difficult to ignore - from claims cost issues back in 2008 to compliance issues in 2009 to issues with product design, flawed rate increases, and medical costs in recent years. All in all, with problems on both the enrollment and price/cost side, it's been hard to defend WellPoint's performance at a time when companies like Unitedhealth (NYSE:UNH) have been executing so much better. What's more, it's difficult to defend the performance of WellPoint's stock over Braly's tenure, as it has notably lagged Humana (NYSE:HUM), Unitedhealth and Cigna (NYSE:CI).

While a five-year record of execution issues would arguably be enough in its own right, those weren't the only complaints of many investors. I can appreciate the long-term strategic possibilities of the 1-800-Contacts deal, but I'm apparently in the minority and I would agree with those who claim the company has not adequately explained its strategy with this deal. Moreover, with WellPoint facing major exposure to upcoming changes in the commercial health insurance industry, I can appreciate how a lack of confidence in the company's long-term vision led to calls for a change at the top.

SEE: Pages From The Bad CEO Playbook

Where Does WellPoint Go Now?
In the wake of Braly's resignation, the board has named Executive Vice President and Executive Counsel John Cannon as the interim CEO. He has asked not to be considered for the job on a permanent basis, so speculation is going to ensue as to who will follow as the next leader of the company. I don't know enough about Braly's management style to know the extent to which WellPoint's problems reflect a lack of skill on the part of WellPoint's senior management team, or a lack of willingness to listen and follow those managers. Internal candidates would likely include the Chief Financial Officer (DeVeydt) as well as Executive Vice President Goulet. This could be a good opportunity to inject new blood and a new outlook by looking outside the company. Solid external candidates would include Amerigroup's CEO Carlson, former MEDCO CEO Snow, and perhaps senior executives from Unitedhealth. At a minimum, I would hope the board takes this opportunity to take a shareholder-friendly move and permanently separate the positions of CEO and Chair of the board.

SEE: CEO Savvy And Stock's Success Go Hand In Hand

Uncertainty Blended with Opportunity
I have thought that WellPoint's intrinsic value is higher than its market value for some time now, but I think I underestimated the extent of both WellPoint's strategic mistakes and investor perception of management. Perhaps it's a bit ironic, but this reported shareholder revolt against Braly somewhat supports that view - why bother pestering a company's board to change the CEO if you don't think there's substantial unrealized value at stake?

SEE: What Is The Intrinsic Value Of A Stock?

The Bottom Line
With both the Amerigroup deal and the upcoming changes to the industry (barring November election results that could ultimately reverse those changes), WellPoint has ample opportunity and ample uncertainty. With the right CEO and the right strategy, WellPoint ought to be able to lever its large commercial business and Blue Cross licenses into real value. In the meantime, though, while I expect the shares to pop a bit on this news, the uncertainty and risk premium on WellPoint is definitely higher now until the company names its new permanent CEO.

At the time of writing, Stephen D. Simpson did not own shares in any of the companies mentioned in this article.

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