'Retirement' can't halt McGuire's UnitedHealth pillaging

Published October 20, 2006

William McGuire ran UnitedHealth Group Inc. like his personal fiefdom, allowing the former CEO and his cronies to gain tremendous wealth with few internal controls to stop them.

That's the startling conclusion of a board-mandated probe of how the health insurance giant timed its stock-option grants over the past decade. But the review headed by former SEC top cop Bill McLucas ends up telling a much more important story: that of a controlling leader who put his personal interests ahead of the welfare of the company's shareholders.

Such revelations led to McGuire's "retirement" this week after a 15-year tenure. Quite a convenient way to go, given the damage he has caused the company and its investors.

McGuire, who joined the company in 1989 and rose to chairman and CEO in 1991, has been lauded for engineering UnitedHealth's rise from a regional health insurer into one of the largest managed-care companies in the country.

But those achievements have been overshadowed in recent months by allegations that the company manipulated the grant dates of stock options to executives to when the company's share price was depressed. The backdating of options documented in the report allowed executives to pocket unfair and potentially illegal profits that they never disclosed to shareholders.

UnitedHealth of Minnetonka, Minn., got swept up in the stock-option scandal in March when the Wall Street Journal detailed how McGuire had received options on the days the company's stock price hit yearly lows in 1997, 1999 and 2000, and that other options grants had occurred on low spots in the company's share price. Statistically, that was nearly impossible unless the options were granted retroactively.

That spurred the company's board to hire an outside law firm to conduct a review. Its findings, released Sunday, provided a detailed look at how the stock-option grants to McGuire and others were likely manipulated, allowing the former CEO amass exercisable options that had soared to a value of $1.6-billion by the end of 2005.

In the 27 grants between 1994 and August 2002 under review, eight were given at the lowest price of the quarter in which they were dated. Some others were close to the lowest price.

When the allegations over options first hit UnitedHealth, McGuire said that he acted appropriately. We know now something far different about the way this CEO enriched himself.

Too bad the company still seems blinded by McGuire's success. In announcing his departure, the company spoke of its "appreciation for the extraordinary contributions made by Dr. McGuire over the past 15 years."

The company also said McGuire has agreed to reprice all the options issued to him from 1994 through 2002. That could cut millions of dollars from their value but might not dent the $1.8-billion in exercisable options he holds today, according to the Corporate Library, an independent governance research firm.

And should the company uphold his employment agreement, he is still entitled to a golden parachute since he technically is retiring - not being fired. He could collect $5.1-million a year in supplemental retirement benefits as well as a lump sum of $6.4-million, and that's on top of a list of cushy perks including an office, secretary, life and disability insurance premiums and health care for his family, according to the Corporate Library.