UnitedHealth Governance Actions Prompted by Backdating Scandal

November 8, 2006 (PLANSPONSOR.com) - UnitedHeath Group announced Wednesday actions by its board of directors to shuffle executive ranks, tighten controls on stock option grants, and require executives to relinquish any financial gains received from the misdating of options.

According to a press release  about the changes, the company said the board received written agreements from senior executives that ensure there is no potential for financial gain from backdating, by resetting the exercise prices of all applicable exercised and unexercised options with recorded grant dates between 1994 and 2002. In addition, CEO William McGuire and president and COO Stephen Hemsley submitted agreements to have options granted to them through 2002 and options suspended in 1999 and reinstated in 2000 repriced.

The changes announced by UnitedHealth follow the findings of an independent investigation released in early October that led to the ousting of McGuire, who will be replaced by Hemsley as of  December 1 (See UnitedHealth’s McGuire To Depart over Stock Options Scandal). The press release announced a four-year employment agreement with Hemsley  under which he will only be ensured his base salary each year.

The company further said, as a result of the investigation, it expects to recognize non-cash charges for stock-based compensation expense that are likely to be material for certain periods covered in the review. According to the release, due solely to the stock option matter, UnitedHealth’s financial statements and similar communications for the years ended 1994 to 2005 and the interim quarters through September 30, 2006, should no longer be relied upon and it will delay filing its Form 10-Q for third quarter 2006.

Other corporate governance actions announced in the release included:

  • Strengthening director independence standards beyond what is required by the Securities and Exchange Commission and the New York Stock Exchange, and
  • Forming a Nominating Advisory Committee comprised of shareholders and representatives from the medical community to provide recommendations to the board on its search for new directors.

The nation’s second largest managed care company began looking into its own stock options practices in May, when it found a “significant deficiency” in its controls relating to the option plan administration and the accounting for and disclosure of grants (See UnitedHealth Under Fire for Stock Options ).