UnitedHealth Group CEO Resigns
Minnesota-based UnitedHealth Group on Sunday announced that company Chair and CEO William McGuire will resign as chair immediately and resign as CEO by Dec. 1, after the release of a report that found McGuire likely received backdated stock options, the AP/Washington Post reports (Freed, AP/Washington Post, 10/16). According to the Minneapolis Star Tribune, McGuire became chair and CEO of UnitedHealth in 1991 and, through a series of acquisitions, "engineered UnitedHealth's rise from a regional health insurer into one of the largest managed care companies in the country" (Phelps, Minneapolis Star Tribune, 10/15).
The report, part of an internal investigation conducted by the law firm Wilmer Cutler Pickering Hale & Dorr at the request of the UnitedHealth board, found that 1.5 million stock options, most of which McGuire received from his 1999 contract, were "likely backdated." The report found that the compensation committee of the UnitedHealth board was not informed about the dates on the stock options and that the board was not informed of the full extent of the financial relationships between McGuire and William Spears, chair of the committee (Girion, Los Angeles Times, 10/16).
Spears and David Lubben, general counsel for UnitedHealth, also will resign, the company said. Stephen Hemsley, a lieutenant to McGuire who the report in large part did not implicate in the issue of the potentially backdated stock options, will replace him as CEO (Bandler/Forelle, Wall Street Journal, 10/16).
UnitedHealth officials said that the company will reprice the potentially backdated stock options from the lowest share price for the years in question to the highest price and will require company officials who received them to return some of them, although they did not specify the amount.
McGuire holds $1.1 billion in potentially backdated stock options (Dash/Freudenheim, New York Times, 10/16).
McGuire in a statement said, "In light of the recently completed investigation, I have determined that it is in the best interests of the company that I assist Steve Hemsley in an orderly transition to succeed me as CEO." In a note to employees, McGuire said, "We have made significant advances in improving access to care, fostering greater affordability and enhancing the quality of health care for all individuals. At the same time, we have built a vital and sustaining company serving a diverse group of customers, health care providers and certainly shareholders" (Los Angeles Times, 10/16).
The "most challenging situation for investors ... might be sizing up Mr. Hemsley, a former chief operating officer at Arthur Andersen recruited by Dr. McGuire in 1997," the Journal reports. Hemsley "has been the key executor of Dr. McGuire's strategy, appreciated by investors for his operational skills and widely seen over the years as his eventual successor," the Journal reports.
Matthew Borsch, an analyst at Goldman Sachs, said, "It might be seen as better than the worst-case scenario. If Hemsley had left too, many investors would have seen this as a complete leadership disruption" (Fuhrmans, Wall Street Journal, 10/16).
Sheryl Skolnick, a health care analyst at CRT Capital Group, said that investors likely will consider the resignation of McGuire a negative, although some consider Hemsley "the guy who makes things happen" at UnitedHealth (New York Times, 10/16).
However, Hemsley also has "amassed a considerable fortune in company stock-options grants" and is named as a defendant in several shareholder lawsuits filed against UnitedHealth over allegedly backdated stock options, the Journal reports (Fuhrmans, Wall Street Journal, 10/16).
UnitedHealth also faces investigations of company stock option practices by the Department of Justice, the Securities and Exchange Commission, the Internal Revenue Service and the Minnesota Attorney General's Office (New York Times, 10/16).
NPR's "Morning Edition" on Monday included an interview with Mark Maremont, investigative series editor for the Journal, about the McGuire resignation (Inskeep, "Morning Edition," NPR, 10/16).
The complete segment is available online in RealPlayer.