MINNEAPOLIS, Minn. – UnitedHealth Group Inc. (NYSE: UNH) reports that its chief executive officer, Dr. William W. McGuire, has stepped down as chairman of the board and director, effective yesterday, and will be leaving the company on or before Dec. 1.
Until then, the board of directors said, McGuire will continue as CEO “and assist in an orderly transition to new leadership.” Stephen J. Hemsley, the company’s president and chief operating officer since 1999, was elected by the board to succeed McGuire as CEO
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Those changes followed the submission of a report on UnitedHealth stock-option practices, compiled by a special review committee of the board of directors and its independent counsel, Wilmer Cutler Pickering Hale and Dorr. The 14-page WilmerHale report (available at www.unitedhealthgroup.com/assets/ shared/Wilmer_Hale_Report.pdf) also has been submitted to the U.S. Securities and Exchange Commission and the U.S. Department of Justice.
The WilmerHale report cites problems including poor record-keeping, the apparent backdating of stock options, and “disclosures with respect to stock options and related accounting [that] were not accurate in certain respects.” The company and its auditors are reviewing “accounting and disclosure implications that flow from the option granting practices,” the report said, and any problems “will be addressed and/or corrected, as necessary.”
Other “actions and decisions” also accompanied the board’s acceptance of the report.
Richard T. Burke was elected by the board, effective immediately, to the new position of non-executive chairman. Burke, the founding CEO of UnitedHealth Group, has been a director since 1977.
The resignation of William G. Spears was accepted, with the board’s gratitude “for his many contributions during his 15 years of service to the company.” He “had remained with the board for the past six months to see the review process through to its completion,” the board said.
(Its statement made no reference to the questions raised in the WilmerHale report about Spears’ outside role as an investment advisor to McGuire and his family, at the same time as he was negotiating with McGuire, on the company’s behalf; the “nature and full extent of the financial relationship between Dr. McGuire and Mr. Spears likely were not disclosed … during the time frame that the 1999 employment agreements were being negotiated,” the report said. Spears later had served as a financial advisor to Hemsley, as well, the report noted, but not while negotitiating with him on the company’s behalf.)
David J. Lubben “will proceed with plans to retire,” the board said. He has resigned his positions as general counsel and secretary, effective yesterday, but “will remain with the company to effect an orderly transition.” The board expressed gratitude “for his 25 years of outstanding service and commitment to the company,” as in-house counsel, and before that, as outside counsel.
Over the next three years, the board will have five seats filled by new independent directors, “to bring new experiences, expertise and perspectives.”
A new senior executive position of Chief Legal Officer will be established, and a national search conducted.
A separate position of Secretary of the Board will be established to support the activities of the board and its committees and ensure that their activities and recordkeeping are in line with best practices. The new secretary will report to the board and have an “administrative reporting line” to the Chief Legal Officer.
The positions of Chief Ethics Officer, responsible for communicating and monitoring company-wide compliance with standards of ethics and business integrity, and Chief Administrative Officer, responsible for functions including human capital, personnel, compensation, internal audit, business risk management and staff support, will be made senior executive positions.
In addition, Helmsley, the CEO-elect, was directed to review the conduct of senior executives in the company’s legal, accounting and human capital functions, “and recommend any additional personnel actions to the Board, should they be necessary.”
Helmsley has voluntarily agreed to “reprice” all options awarded to him through 2002, to the annual high share price for each year, the board said, and to take any other appropriate action to address issues identified in the report.
The board said it “expects similar actions by Mr. Lubben and the company’s most senior executives.”
McGuire, the outgoing CEO, also has agreed to reprice all options awarded to him, from 1994 through 2002, the board said. The terms of his departure from the company are still being negotiated.
The board expressed its appreciation for McGuire’s “extraordinary contributions” over the past 15 years.
“Under his leadership, UnitedHealth Group has had an enormous positive impact on the American health care system, making significant contributions in improving accessibility and making the health care system more affordable,” the board said in a news release yesterday. “The company became an industry leader with revenues growing from approximately $600 million to more than $70 billion. The stock price of UnitedHealth Group rose by almost 8,500 percent, more than 30 times the growth of the S&P 500.
“The employees, shareholders and customers of UnitedHealth Group have all benefited from his leadership, energy and vision.”
