Armchair Finance

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UnitedHealth Tastes Some Bad MedicineA chief executive officer's first responsibility is to the shareholder. That's the refrain we hear so often to excuse any number of public company actions that could be reasonably second-guessed by those of us who pay attention to such things.Say a company sells a poorly performing division. Maybe it lays off thousands of workers. Maybe it cuts its health insurance. Invariably, these unpopular actions are done "to maximize shareholder value." None of these actions is popular with employees or the general public, but the company's leadership usually gets a pass with this catch-all refrain. Here's another unpopular, yet recently common, scenario: A company's leadership tacitly approves "backdating" of stock options so that the option grantee-usually a senior member of the company's leadership-can exercise that option not at the price at which the stock closed at the grant date, but at the cheapest price the stock traded for in the quarter. It's the equivalent of being able to bet on the winning horse after the race is run. It's also decidedly not in the best interest of shareholders who bought their shares the old-fashioned way-on the open market. Most of the companies guilty of this gross abuse of shareholders reside in the technology arena. But perhaps the biggest scandal so far-and definitely the biggest head to roll-is that of William McGuire, M.D., until recently the CEO and chairman of UnitedHealth Group Inc., a health insurance juggernaut that has seen its stock price increase 85-fold since he assumed leadership. Along with five board members, McGuire resigned his chairman seat immediately following the results of an independent audit and "retired" as CEO Dec. 1.Stock options, theoretically, are a great motivator. They help align the interests of shareholders with that of management. But when management and boards manipulate the granting of equity, shareholders are left holding the bag. Meanwhile, McGuire and a few other bad actors at United, who by most accounts were masters at their business, get taken down not because their talents don't offer value to the company, but because of hubris. But don't cry too much for McGuire. He's likely to take home $1.1 billion in options on top of the $530 million he was paid to run UnitedHealth since 1992, and will get about $5 million a year from a pension, according to the Wall Street Journal. You can bet that many of the providers United squeezed at contract renewal time or through its pay-for-performance program are shedding few tears.-Philip Betbeze




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