Paydays might continue into retirement for departing CEO William McGuire, and regulatory investigations into the company's actions could carry on for months to come.
Under the terms of McGuire's employment agreement, he's entitled to a lump-sum payout of $6.4 million and a retirement benefit of $5.09 million a year, according to the company's 2006 proxy statement filed with the Securities and Exchange Commission.
"Someone's negotiating with McGuire on his severance package? What's wrong with firing the guy? Where's the sense of outrage?" said Karl Cambronne, an attorney leading a consolidated lawsuit in federal court in Minneapolis brought on behalf of UnitedHealth shareholders who bought stock during the time when the company was awarding backdated options to executives to give them the best price.
UnitedHealth said in a statement over the weekend that it is "engaged in discussions" with McGuire over terms of his departure, including his financial benefits, raising the prospect that the CEO could be leaving under different terms than those called for by his contract.
McGuire's retirement package is hardly the only unfinished business for the company. UnitedHealth still faces separate probes by the Justice Department, the Securities and Exchange Commission, the Internal Revenue Service, Minnesota Attorney General Mike Hatch and the New York attorney general's office. The report by the company-hired law firm that led to McGuire's decision to step down over the weekend could serve to buttress actions by any of those regulators and potentially make it difficult for UnitedHealth President Stephen Hemsley to permanently succeed McGuire as CEO. Like McGuire, Hemsley also was the beneficiary of backdated stock options, the law firm concluded, though it found that Hemsley played no role in deciding when the options were issued.
Corporate governance experts said Monday it was understandable that UnitedHealth's board of directors would turn to Hemsley once it became clear that McGuire no longer would be able to stay at the company: Hemsley has been McGuire's chief lieutenant during the company's explosive growth into the largest health-management company in the country.
Daniel Kleinberger, a professor of corporate law at William Mitchell College of Law, said Hemsley represents continuity of management.
"It's one thing to chop off the king's head. But to chop off the prince's head, too, is another thing," Kleinberger said.
But Hemsley's close relationship with McGuire, and involvement in the stock-option plan, left others wondering whether the housecleaning at UnitedHealth remains incomplete.
Sheryl Skolnick, a stock analyst at CRT Capital Group in Stamford, Conn., said Monday that she has "concerns" about Hemsley's promotion. While the law firm report cleared him of involvement in dating of options, it was sharply critical of UnitedHealth's legal department and human resources operations, both of which were under Hemsley.
"It makes me wonder why Steve or one of his direct reports didn't know" about the stock options, Skolnick said.
James Cox, a professor of corporate and securities law at Duke University, also questioned the promotion of Hemsley to CEO, saying he is likely to be dogged with the same questions that McGuire has faced for months.
"It seems rather strange that [Hemsley] didn't know what was going on," Cox said. "It raises the question: Was this a ritualistic cleaning of the house or a real cleaning of the house?"
Added Cox: "The question is, 'Who in the corporate suite is still identified with these past practices that got UnitedHealth in trouble?' "
Cox also was troubled by the independent investigation's finding that UnitedHealth routinely backdated stock options to new employees and employees receiving promotions, saying it suggests that the cost of the backdating could be steeper than originally thought.
"It appears they had a systematic policy of rewarding retroactive compensation to a large number of employees," Cox said. "That's worrisome."
It is unclear how soon the SEC or other regulators will wind up their probes into UnitedHealth's practices.
Hatch declined Monday to comment on the state's ongoing investigation, but he said the case raises questions about UnitedHealth's board.