UnitedHealth's Board Is Under Fire [WSJ]
By JAMES BANDLER
April 25, 2006; Page A10
Minnesota Attorney General Mike Hatch, stepping up his campaign against UnitedHealth Group Inc., urged around 135 public and private pension funds to withhold votes for four directors seeking re-election to the health insurer's board next month.
In a letter sent yesterday to the big investors, Mr. Hatch accused the board of failing to provide proper oversight in the awarding of stock options "in the billions to top executives" while having "awarded themselves millions of dollars in stock option opportunities." Mr. Hatch, who is running for governor, acknowledges his letter-writing campaign is primarily "symbolic."
The letter was sent to a group that includes the American Federation of Teachers retirement plan and the California Public Employees' Retirement System, or Calpers.
Mr. Hatch's letter comes amid scrutiny of the circumstances under which UnitedHealth Chief Executive William McGuire obtained some of the $1.6 billion in unrealized gains he holds in UnitedHealth stock options. He, and in some years at least 10 other top executives, frequently received options just before big run-ups in the company's share price, which had the effect of making the options more profitable than they otherwise would have been.
Last week, Mr. Hatch intervened in a federal civil suit that names as defendants Dr. McGuire, Chief Operating Officer Stephen J. Hemsley and several board members and alleges that shareholders were harmed by backdated option grants. UnitedHealth's board also has launched a probe of its past option-granting practices, and the company has said it received a call from the Securities and Exchange Commission.
Through a spokeswoman, Dr. McGuire and Mr. Hemsley declined to comment on the suit.
A representative of UnitedHealth said: "We strongly urge the re-election of directors who have overseen an exceptional record of service to customers and value for shareholders." UnitedHealth previously described its options-granting practices as "appropriate." Last week, Dr. McGuire said he recommended that the board stop future options and other stock awards to long-serving senior executives, including himself.
UnitedHealth is the largest public company in Minnesota, though it has few patients there. Mr. Hatch, a Democrat and former state insurance commissioner, has been a strong critic of the state's health-maintenance organizations. Mr. Hatch said his office doesn't usually become involved in securities-related matters, which are under the jurisdiction of the state department of commerce. But he said a statute in Minnesota law allows the attorney general to intervene in legal matters where there is a general public interest. And Mr. Hatch, who is running for governor, said his own mailbox has shown that few issues resonate more with Minnesotans than the size of Dr. McGuire's compensation.
In yesterday's letter, Mr. Hatch cited a Wall Street Journal article that raised questions about option timing practices at UnitedHealth and other companies, and said the board's approval of large option grants to executives indicates a "culture of complacency" among directors.
Mr. Hatch said yesterday that his campaign to oust directors had little chance of success. "It is more symbolic," he said. "I think directors, when they get a significant 'no' vote, pay attention to it."
Four current UnitedHealth directors are seeking re-election at the company's annual shareholder's meeting on May 2. They are: Dr. McGuire, James A. Johnson, Douglas W. Leatherdale and Mary O. Mundinger.
Last week, proxy advisory firm Institutional Shareholder Services recommended withholding votes for Ms. Mundinger and Mr. Johnson. The group advised shareholders to keep Dr. McGuire as chairman and to re-elect Mr. Leatherdale. |
