Case | HBS Case Collection | 2007 (Revised from original 2005 version)

Apollo Hospitals--First-World Health Care at Emerging-Market Prices

by Felix Oberholzer-Gee, Tarun Khanna and Carin-Isabel Knoop

Abstract

The Apollo Hospitals Group, one of Asia's premier health care organizations, had come to rival the best health care organizations on the globe. Apollo offered advanced medical procedures, such as cardiac surgery using the beating heart technique, at very high levels of quality but at a fraction of the cost of hospitals in the West. Apollo's managers must decide how best to capitalize on the group's remarkable medical capabilities. One option was to bet on global medical tourism by trying to attract patients from Asia and worldwide needing advanced medical procedures. Thailand had set the example for medical tourism and attracted more than one million patients a year, most of them undergoing plastic surgery. Another option Apollo considered was to build and manage hospitals abroad.

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Oberholzer-Gee, Felix, Tarun Khanna, and Carin-Isabel Knoop. "Apollo Hospitals--First-World Health Care at Emerging-Market Prices." Harvard Business School Case 706-440, June 2007. (Revised from original October 2005 version.)

For centuries Lafite has been the most admired wine Estate in the world. How does Baron Eric de Rothschild protect this crown jewel in a conservative manner while DBR develops other Chateaux blending wine programs, reaches out to new areas such as China and begins to take a more active interest in the world's number one market—the United States.

In this paper, we examine the circumstances under which so-called “independent” directors voice their independent views on public boards in a sample of Chinese firms. First, we ask why independent directors dissent, i.e. how they justify such dissent to public investors. We find that when independent directors dissent, they tend to offer mild, subjective justifications. Overt criticism of the management team is rare. Next, we ask when an independent director is more likely to dissent and who is more likely to dissent. Controlling for firm and board characteristics, we find that independent directors’ dissent is associated with breakdown of social ties between the independent director and the board chairperson, who is at the center of the board bureaucracy in China. Dissent is more likely to occur when the chairperson who appointed the independent director has left the board. Dissent also tends to occur at the end of board “games”, defined as a 60-day window prior to departure of the board chairperson or departure of the independent director herself. The endgame effect is particularly strong, seeing 27% of the dissent issued at board “endgames” which represents only 4% of independent directors’ average tenure. While directors with foreign experience are more likely to dissent, we do not find that academics, accountants and lawyers are significantly more active in dissenting. Lastly, we show that dissent is consequential to the director and the firm. For directors, we show that dissent is significantly associated with the likelihood of exiting the director labor market. For firms, we document an economically and statistically significant cumulative abnormal return of -0.97% around announcement of dissent. Although the literature has suggested that dissent might be reflective of diverse viewpoints, and perhaps beneficial in and of itself through reduction of firm variability, we do not find this offsetting beneficial effect to be strong.

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