UnitedHealth shakes up over Options

A US probe into dating of stock options has revealed another accused, claiming the biggest corporate chief yet. After CNET Networks Inc. and McAfee Inc., who have last weak pushed out their CEOs, UnitedHealth Group Inc. is the next whose chairman and chief executive William McGuire is forced to leave the company after months of inquiry about the timing behind his stock option grants.

McGuire, the longtime chief executive of UnitedHealth Group Inc., who worked hard to turn the Group into a behemoth in its field, was forced yesterday to resign from the company and to give up a portion of the $1.1 billion he holds in severely criticized stock options. The options that McGuire had been granted over the years have led to criminal and civil investigations and public disapproval.

The decision follows the report prepared by the Special Review Committee of the Board of Directors of UnitedHealth Group and its independent counsel, Wilmer Cutler Pickering Hale and Dorr. A review and report of UnitedHealth Group’s stock option practices were reported to the non-management directors.

According to the report, McGuire will leave the company on or before December 1, 2006. He also resigned from his position yesterday as Chairman of the Board and as a Director. Between now and his departure, he will keep working as CEO and will assist in an orderly transition to new leadership.

Company chief operating officer and President, Stephen J. Hemsley is selected to succeed Dr. McGuire as CEO upon McGuire’s departure from the company.

"In light of the recently completed investigation, I have determined that it is in the best interests of the company that I assist Steve Helmsley in an orderly transition to succeed me as CEO," McGuire said.

McGuire, a medical entrepreneur, who has been CEO of UnitedHealth Group for 14 years, has been under pressure since the newspaper reported in March that he received stock options on the days the company's stock price hit yearly lows in 1997, 1999, and 2000.

The investigation by the law firm concluded that 1.5 million options, most of which were granted to McGuire as a part of his 1999 compensation package, were "likely backdated."

As per reports, McGuire has voluntarily agreed to re-price all options conferred to him from 1994 through 2002 to the annual high share price for each year to remove any possible financial benefit from options dating issues identified in the report.

Before the re-pricing, McGuire's options were reported to be worth over $1.6 billion.

UnitedHealth Group, the Minnetonka, Minnesota based health insurer, also dismissed its general counsel, David J. Lubben and a member of its board, William G. Spears, under the move.

Backdating is a process which involves changing the dates on the paperwork on options to a day when stock prices were lower, giving recipients a better chance for swift paper profits. Since the option's price is set according to the stock price on the day of the grant, a low stock price turns an option more valuable.

Though, the backdating stock options is not always illegal, but it can be a can of worms if not disclosed. Failing to reveal it can spark tax and regulatory problems.