UnitedHealth CEO to Retire Amid Stock-Options Probe
A WALL STREET JOURNAL ONLINE NEWS ROUNDUP
Sunday, October 15, 2006
UnitedHealth Group Chief Executive William McGuire plans to retire
amid questions about the company's past stock-options grants,
according to a person familiar with the matter. He will be
succeeded as CEO by Stephen Hemsley, Dr. McGuire's top lieutenant at
UnitedHealth, this person said.
The news came after the company's board held a meeting Sunday.
UnitedHealth, one of the nation's largest health insurers with a
market value of $66 billion, is among the most prominent of the more
than 100 companies caught up in the stock-options scandal. Dr.
McGuire has been among the highest-paid executives in U.S. corporate
history, amassing an enormous, options-based fortune over his 15
years running UnitedHealth. At the end of 2005, his unexercised
cache of options was valued at $1.78 billion, far and away the
largest sum held by any U.S. executive, according to Standard &
Also at risk are several directors on UnitedHealth's 12-member board
who served on its compensation committee during the period when the
improperly dated grants were awarded, people familiar with the
situation said. Some past compensation-committee members include
former New Jersey Gov. Thomas H. Kean, New York money-manager
William Spears and Columbia University nursing-school dean Mary
Directors know that executives, and possibly UnitedHealth itself,
face the prospect of civil action from the Securities and Exchange
Commission in the options matter. The matter also is being probed
by federal prosecutors in Manhattan and by Minnesota's attorney
At issue in the UnitedHealth case and others are questions about
whether stock options were improperly backdated. Options are
designed to give recipients the opportunity to profit if the
company's share price rises in the future. Grants typically are
structured so that the recipient can buy shares later at the stock's
market price on the day the option was granted, called the exercise
price. Backdating involves pretending that the grant was awarded on
an earlier day, when the share price was particularly low, giving
the recipient a chance at extra profit.
During his tenure at the helm of UnitedHealth, Dr. McGuire has year
after year received giant grants of options. In many of those
years, the purported dates were suspiciously fortunate. Between
1994 and 2002, he received 12 grants, each dated just before a sharp
rise in the company's share price. Three grants -- in 1997, 1999
and 2000 -- were dated on the day of the stock's lowest closing
price of the year.
A Wall Street Journal analysis published in March found that the
odds of such a fortunate pattern of dates occurring if the dates
were chosen at random were infinitesimal -- less than one in 200
million. The company said at the time that its granting process was
"appropriate," but the article spurred the internal investigation as
well as probes by authorities.
Until recently, some people familiar with the matter said, Dr.
McGuire's chances of surviving the options investigation seemed
fairly high. These people said the options problems -- which the
company had previously indicated would likely cause it to restate
financial results -- appeared confined to sloppy bookkeeping. But
the WilmerHale probe concluded that the issues ran deeper and
included backdating of option grants, said people familiar with its
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