The scandal-tarred CEO turned Tea Party darling is learning that running a state isn't at all like running a company.
By Tory Newmyer, writer
FORTUNE -- Rick Scott, the Florida governor, doesn't look like a governor. Standing behind the desk in his office, shifting his weight with nervous energy, he looks like a telemarketer. The former health care tycoon is wearing a wireless headset on his narrow bald pate and a white work shirt with his name stitched across the breast. He quickly scans a call sheet, bends down to tap out a phone number, then straightens up and waits.
"Hi, Jeff," Scott says unsteadily to the telecom executive on the other end of the line. "This is Governor Rick Scott. How you doing?"
Scott has let me observe this weekly ritual. One of the most unpopular and polarizing political figures in America, he spends an hour cold-calling CEOs, taking their temperature, but also trying to persuade them to open up shop or expand in the Sunshine State.
Scott wants those employers. With enough of them, he's sure he can shake Florida's economic malaise. (Unemployment of 10%, three of every 20 houses in foreclosure, a state budget up to $2 billion in the hole.) In the process he hopes to secure his own reelection and, more broadly, personal redemption. But the stakes are higher than Scott's reputation: Florida is the biggest swing state and could well determine the winner of the 2012 presidential election -- a fact that has some Republicans sweating what Scott's fractious performance one year into his governorship means for the GOP there. (The Obama campaign is already making it clear that its Florida strategy involves lashing the eventual Republican nominee to the unpopular governor. "We won't have to work that hard. Rick Scott has made himself a whopping political liability," says Florida Rep. Debbie Wasserman Schultz, the Democratic Party's national chair.)
Nobody knows for sure how to pull off the economic turnaround the new governor is aiming for, and Scott, 59, is an unlikely figure to lead the charge. He's never held elected office, and if he hadn't won this one, his epitaph might have been etched in 1997, when he was tossed from the top job at Columbia/HCA (HCA). Scott, a domineering, results-oriented entrepreneur, built it into the largest hospital company in the country -- a decade-long run that ended when federal investigators launched a probe into massive Medicare fraud at the company; Scott was never charged with wrongdoing, but Columbia/HCA ended up settling with the Justice Department for a record $1.7 billion.
Scott is trying to bring his aggressive style to the governorship. When he took office he sought a wholesale revamping of state government to make it behave more like a business, with Scott as CEO. And at times he's been literal-minded in pursuing it, packing his administration with recruits from the business world -- a former Wal-Mart (WMT) executive runs the state's emergency operations, a shipbuilding executive runs its EPA -- handing his team such management tomes as The Goal and The One Minute Manager and treating a standoff with the White House over a rail project like a high-stakes corporate negotiation. And to hear Scott tell it, he's sticking to his business plan, with some modest tweaks along the way. "Set a goal, measure it, change if you need to, keep going after the goal," he says. "That's what business does; that's what I'm doing."
But the people closest to him say that Scott is in the midst of a reinvention aimed at salvaging his governorship. Introverted by nature, he's embracing the retail dimension of his office. Long used to wielding dictatorial power, he's honing his soft touch with a colicky legislature, recently hosting a series of private dinners at the governor's mansion with lawmakers. And even as he presses his vision of Florida Inc., he's learning, as one adviser says Scott told him, that "not all of government can run like a business." The man who came to Tallahassee to change government is finding, grudgingly, that government is changing him.
Crazy but calculated
It's hard to overstate the shock that Scott's gubernatorial bid sent through the Florida political establishment. Talk about ballsy: a guy who ran a company guilty of the biggest Medicare rip-off in history, wooing voters in a state in which roughly half the Republican electorate receives Medicare. Before he got into the race, Scott's own pollster privately gave him only a 35% chance of capturing the GOP nod.
But Scott had the bug. He caught it after Barack Obama won the White House. Before the new President was sworn in, Scott decided to tap his estimated $218 million personal fortune to bankroll a campaign flat-out opposing Obama's nascent health care reform push as bad for consumers. He founded Conservatives for Patients' Rights and under the group's banner starred in his own television ads and started making the rounds on cable talk shows and on Capitol Hill. At Tea Party rallies, he basked in enthusiastic applause. "It can be intoxicating," says Tony Fabrizio, Scott's pollster and chief political strategist.
By the end of the year, Scott and his team were taking a hard look at the open U.S. Senate seat in Florida. But as a rising-star state senator named Marco Rubio locked up conservative support in that race, Scott decided to run for governor instead. "It was a crazy, crazy idea," says Enu Mainigi, one of Scott's closest advisers since representing him in his Columbia/HCA litigation, "but it was a calculated one."
Personal experience told Scott he could beat the odds. The son of a truck driver and a J.C. Penney clerk, Scott grew up poor in North Kansas City, Mo., including a stint living in public housing. He enlisted in the Navy for GI-bill assistance, and built a tidy nest egg by selling contraband sodas he'd hidden aboard his ship. He socked away enough to buy a flagging doughnut shop in his home town that Scott turned around by adding workplace delivery. After graduating from the University of Missouri-Kansas City, Scott and his wife, Ann, his high school sweetheart, lived on a spartan budget while he worked his way through law school at Southern Methodist University. He went on to practice corporate law in Dallas, a gig that gave him access to some of the movers and shakers of Texas business, including financier Richard Rainwater. In 1987 the men each put up $125,000 to purchase a pair of struggling hospitals in El Paso. Scott expanded the mini-chain into Florida, then beyond, in an industry-rattling cascade of mergers and acquisitions. His focus on growing his business left no time for politics, and he gave no inkling he'd ever seek public office as he built an empire of more than 340 hospitals employing 285,000 people in less than a decade. Instead, he revolutionized the industry, uprooting the clubby network that had dominated it, bringing a profit-minded rigor to a sector crowded with nonprofits -- and earning plenty of critics for his relentless push for growth. Then, as spectacularly as he had risen, Scott fell.
As he considered the governor's race, the most important calculation was how to handle his ouster from a company tarred by scandal. The organizing theme of his candidacy, his experience as CEO, was also his greatest vulnerability. Though remember Scott was not personally implicated in the federal probe, Columbia/HCA later pleaded guilty to 14 felony charges, including paying illegal kickbacks to doctors and intentionally overcharging Medicare. Investigators maintained that Scott and other top executives were directly involved, signing off on payments to doctors in return for patient referrals. Joe Ford, the lead FBI investigator on the case, has since said he regrets that no top executives were prosecuted. During the health care reform debate, Scott, who by this time had launched a chain of urgent care clinics called Solantic, parried attacks on his corporate history by noting that he was never accused of wrongdoing at Columbia/HCA, and that the charges the company faced were common in the industry at the time.
It was a dodge, and Team Scott knew it wouldn't fly on the campaign trail. So the candidate boiled a qualified mea culpa down to a refrain: He had no knowledge of the fraud, but "mistakes were made," and as CEO, he had to accept responsibility. He should've imposed more "internal and external controls." The experience, he said, made him a better leader.
Scott's corporate history wasn't his only challenge. To win the governorship, Scott first had to rout the Republican establishment, an intra-party fight that would follow him into office. His campaign recognized the scale of the task by initially budgeting up to $30 million of Scott's fortune to secure the GOP nomination.
Even so, they underestimated how fiercely the powers-that-be would oppose him. Scott's chief rival for the nod -- Bill McCollum, a Chamber of Commerce type serving as Florida's attorney general -- locked up every meaningful endorsement in the state, and the race turned nasty fast; McCollum and his surrogates invested heavily in defining their challenger as a crook. "The fact that Rick Scott is running for governor as a 'reformer' would be funny if it wasn't so outrageous," McCollum's spokesman said at one point. Scott had the resources to return fire, ravaging his opponent as an inept career politician. In an election animated by Tea Party rage at the status quo, it was a winning argument -- but required some tactical wizardry to drive it home.
The Scott campaign squeaked by McCollum, then edged a weak general-election opponent, Democrat Alex Sink, by tossing out the political playbook. In the primary the campaign targeted those who had voted least frequently in previous elections; against Sink, the state's chief financial officer, they focused on voters Fabrizio calls "nose-holders," people who hated Scott only a little. "They were basically saying, 'A pox on both your houses, but at least this guy has a plan,' " says Fabrizio, a cigar-smoking Brooklyn native whose colleagues on the Bob Dole presidential campaign used to call him "the Rat" for fun. Throughout, Scott refused to sit down for editorial board interviews, an unprecedented snub to the press corps. That allowed him to keep a firmer grip on his message but alienated a critical constituency. It's certainly one way to win an election, but it is no way to govern and didn't feel like a mandate for Scott's platform, including his so-called 7-7-7 plan (was Herman Cain watching?), which spelled out seven steps for creating 700,000 jobs over seven years. In the end he spent more than $70 million of his own wealth to win ugly with 48.9% of the vote -- independents siphoned off 3.4% of voters -- the lowest share for a winning governor in at least 50 years. Worse, Scott had the approval of roughly a third of the state, while half disapproved. He was limping into Tallahassee badly bruised before the real battle even started.
Mr. Tea Party plays ball with Mr. Obama
I'm sitting in the governor's Tallahassee office as Scott quizzes his education chief on a plan to rank the state's 3,800 schools, first to last. The concept of imposing new metrics is pure Scott and dates, he is explaining, to his Columbia/HCA days, when he would rank, say, emergency rooms, to distill what separated the best from the worst. "Really, if you think about some of this stuff, it's pretty simplistic," he says. It's also exactly the kind of thing that rankles state employees and constituents ("shareholders," in Scott parlance).
Scott has been needling teachers in particular since he came to office. Convinced schools could do more with less, he proposed a 10% reduction in per-student funding in his first budget. His first major legislative accomplishment was a law to end teacher tenure and impose merit pay.
Teachers weren't the only group in Scott's cross hairs. Taking seriously his primary-eve boast that he had the Tallahassee dealmakers "crying in their cocktails," Scott filled his inner circle with political outsiders. They brought the campaign's bunker mentality to office, keeping potential allies in the legislature and the business community at a distance, continuing to stiff-arm the capital's dogged press corps.
"They were a fresh pair of eyes -- they just didn't know what they were looking at," veteran Republican lobbyist John Stipanovich says of Scott's band of outsiders.
The sweep of Scott's proposals thrilled his Tea Party base. While slashing state employment rolls and asking state workers to pay 5% of their paychecks into their pensions for the first time, Scott was moving to privatize just about everything else: public hospitals and mental-health facilities, Medicaid, pieces of the prison system.
Scott's big idea was to try to goose the state's recovery by shrinking government as much and as quickly as possible and passing the savings along to the private sector. Even in the face of a $4.6 billion budget shortfall, he wanted to cut spending on public programs enough to hand out $1.7 billion in corporate and property tax cuts while stashing $300 million for incentive packages to lure new business to Florida. And he wasn't going to be taking any handouts from Washington, that was for sure.
Or was it? In the context of his doctrinaire spending blueprint, Scott's decision to reject $2.4 billion in federal stimulus money for a high-speed rail project made easy sense. Here was the Tea Party governor following through on his campaign-trail opposition to what he termed "ObamaRail." But a Fortune look into the episode that earned Scott national renown reveals how his thinking can be more nuanced than his presentation.
The feds argued for the project on its economic merits: Just building the 85-mile route between Orlando and Tampa would yield thousands of new jobs. Publicly, Scott answered in kind, reasoning that construction overruns and unseen operating expenses would leave Florida taxpayers on the hook for billions in extra costs. The decision grabbed national headlines, and his political team, which had been advising him to scrap the project, was happy enough to see it framed as a principled stand against runaway government spending.
But Scott was much closer to taking the money than has previously been reported. Though he was skeptical of the project's merits, Scott had been trying to cut a deal with the Obama administration to improve the state's position. He believed the White House badly wanted him to accept the funding to build what they hoped would become a model for a nation-spanning system of high-speed rail. Scott, however, was keener to secure federal help dredging the Jacksonville and Miami ports, to make them accessible to the supertankers that will be ferrying cargo through an enlarged Panama Canal as soon as 2014. Republican state senator Paula Dockery, an early Scott backer and adviser on transportation issues, says Scott at one point told her he was inclined to accept the rail project but was using it as a bargaining chip with Washington. Scott doesn't dispute her account. He says he told Transportation Secretary Ray LaHood, "You want this project done. I can tell you what I'm interested in. If you want to make it interesting to me, make it interesting to me." Scott says that since LaHood refused to negotiate, his original misgivings carried the day.
Longtime Scott-watchers call that a vintage performance: Walk into every negotiation with a line the other side needs to cross, and if they won't budge, shut your briefcase and walk out. A spokeswoman for LaHood declined to comment.
But instead of winning points for trying to cut the best deal for his state, Scott found himself more despised than ever. By the time the legislative session wrapped up in May, his approval rating -- a measly 29% -- made him among the least popular governors in the country. Tallahassee insiders were speculating that Scott wouldn't seek a second term, and there were whispers that if he did, he'd face a primary challenge. Less than a half-year into his four-year term, Scott was facing the prospect of political sunset. "That sank in," one adviser said. A dramatic shakeup was in order.
Re-forming the reformer
Scott frames what came next as a modest course correction. "Like anything in business, you constantly have a better idea what you need," he tells me. The decision to remake his senior staff, however, came with serious heartburn for his closest advisers. The hardest call, made after extended debate: hiring Steve MacNamara as chief of staff. A rumpled but tough-minded 36-year veteran of Florida politics, MacNamara is an insider's insider who was serving as the top aide to the state senate president. Bringing him aboard was more than a personnel change; it was a strategic and philosophical one. Scott had won on a promise to upend the established order. Now he was tapping that order for a key adviser. "He was surrounded by very good people, but they never got out of campaign mode," MacNamara says. Scott understood the problem, telling one senior adviser that he felt handled, an approach that made sense during the campaign but not anymore.
The first changes were cosmetic. Scott 1.0 looked like a "corporate raider trying to take over my parents' mortgage," as one aide described him, and MacNamara was determined to soften his edges. He convinced Scott to ditch his suit and tie, a uniform he discovered the governor hated but felt compelled to wear. (Scott, a notorious penny-pincher, picked up the ties he wore on the campaign trail at Wal-Mart.) Next came the glasnost. Scott ended his ban on editorial boards, a decision eased by the fact that after a tumultuous first session, there was plenty of new grist to chew without relitigating his Columbia/HCA history. He tossed his tightly choreographed weekly press conferences in favor of unstructured bull sessions with reporters as he leaned against the desk in his office. And to remind voters of his up-from-the-bootstraps story and ensure they get the message that he's rolling up his sleeves, he literally rolled up his sleeves in a series of camera-friendly "workdays," going to work at a doughnut shop, a school, and aboard a cruise ship -- an idea he borrowed from former Democratic governor Bob Graham.
As Scott tries to repair his battered public image, he's also tuning up his inside game. With MacNamara's guidance, he has started building relationships with key Republican lawmakers he scrapped with during his first session -- hosting his first social visit with the House Speaker at the governor's mansion, a family dinner; inviting the incoming senate president to his office for an informal talk about education policy over hot dogs that Scott cooked in his kitchenette; and sowing goodwill with the senate budget chief by offering quiet support for the lawmaker's pet project, a controversial bid to establish a polytechnic university in his hometown.
If there is any doubt Scott is capable of making adjustments, witness his latest budget. Released just weeks before Fortune went to press, Scott calls it the result of feedback he's received from Floridians as he travels the state. And it reveals a governor shifting his priorities, suggesting a $1 billion increase in education spending, new funding for environmental programs, and a far more modest slate of tax cuts than his first spending blueprint. He is still Mr. Tea Party, to be sure. Scott recommends paying for the plan by slashing nearly $2.1 billion from the state's Medicaid spending, among other services, eliciting howls from Democrats that he's funding corporate welfare by cutting it for the most vulnerable. But it's a quantum leap from last year.
To pull off a comeback, Scott's team believes one of their best assets is Scott himself. Several tell me a version of the same thing: If people only meet the guy, they can't help but like him. Indeed, I arrived in Tallahassee expecting to meet Gov. Voldemort. Instead, I found Scott to be disarmingly warm to everyone in his path. The problem is that in a big state with big challenges, Scott can't serve his constituents one at a time. And after spending more than $70 million of his own money in a quest to rewrite his legacy, Scott isn't in a hurry to leave Tallahassee as an unloved governor who failed to fix the state's economy. (One bright spot: He's added 120,000 net new jobs.) So while the idealogue in Scott would like to stick to his original pro-business, small-government message, the pragmatist recognizes he needs to edge toward the center to appeal to more voters, a move that is sure to please national GOP leaders as the presidential race enters full swing. Scott will tell you his actions are similar to those of a businessman responding to the demands of the marketplace. They're also the moves of a first-time politician who is mastering the rules of a new game.
This article is from the January 16, 2012 issue of Fortune.
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