Proxy Services Differ On
UnitedHealth; One Nixes Directors
DOW JONES NEWSWIRES
May 23, 2007 3:53 p.m.
By Dinah Wisenberg Brin
Of DOW JONES NEWSWIRES
Proxy advisory services are at odds over whether
UnitedHealth Group Inc. (UNH) needs greater shareholder involvement -
and to rid itself of long-time directors - in the wake of the
managed-care company's options backdating scandal.
Glass Lewis & Co. recommended Wednesday that
UnitedHealth shareholders withhold votes from three directors seeking
re-election, including Chief Executive and President Stephen Hemsley, at
the managed-care giant's annual meeting next week.
Glass Lewis also urged investors to vote against
ratification of Deloitte & Touche as UnitedHealth's independent auditor,
noting that the accounting firm served in that role during years subject
to the health insurer's recent restatement of financials to account for
backdated stock options.
Investors are scheduled to vote on director nominees,
changes to company bylaws, ratification of the independent auditors and
shareholder proposals during UnitedHealth's annual meeting Tuesday.
Other proxy advisory services support the company's director nominees
and its choice of outside auditor.
UnitedHealth's former chairman and chief executive,
William McGuire, agreed to leave the company last year after an
independent probe found that many of the largest stock-options grants
made to officers and employees over several years likely were backdated
to improve their value.
UnitedHealth earlier this year reduced past financial
results by more than $1 billion to account for backdated options and has
adopted various policies aimed at improving corporate governance.
Glass Lewis recommends that investors withhold director
votes from Hemsley, Richard Burke and William Ballard Jr., and that they
vote for Robert Darretta, who was appointed to the board last month.
Ballard served on the compensation committee during periods when options
backdating occurred at UnitedHealth, and Ballard and Burke served on the
audit committee in periods subject to the restatement, the firm said.
Hemsley served as president and chief operating officer
during the backdating period and received backdated options, Glass Lewis
noted. While he agreed to reprice his options - Hemsley reduced his past
stock compensation by $190 million in unrealized gains and forfeited
money on exercised options - Glass Lewis is concerned that he failed to
question the options-grant practices. The proxy service said that as a
former chief financial officer of accounting firm Arthur Andersen,
Hemsley should have known the implications of those policies.
Glass Lewis supports three of four shareholder
proposals, including those calling for investors to have an advisory
vote on executive compensation and for large shareholders to be able to
nominate board members. It also supports management proposals for
various bylaws changes.
Meanwhile, another advisory service, Proxy Governance
Inc., said in a report Wednesday that it supports all four UnitedHealth
director nominees, all company proposals for bylaw changes and
ratification of Deloitte as auditor, and opposes all four shareholder
"We recognize that the company had some deep-seated
problems, which hopefully have now been eradicated. We believe that the
company's current executive compensation levels relative to its peers
are reasonable and adequately disclosed," Proxy Governance said in
opposing the idea of a shareholder advisory vote on compensation.
While shareholders are justifiably dismayed over
revelations of options backdating and internal-controls flaws, the board
has responded well to those serious internal problems, Proxy Governance
UnitedHealth management's own proposals call for the
annual election of directors, allowing majority rather than plurality
voting in electing directors, and for eliminating provisions requiring
that two-thirds supermajorities of shares or directors approve of any
director removal or of certain business combinations.
Egan-Jones Proxy Services supports all director
nominees, management proposals and three of the four shareholder
Institutional Shareholder Services supports all
director nominees, company proposals and shareholder proposals. ISS said
in its current report that UnitedHealth outperformed 91.2% of companies
in the Standard & Poor's 500 Index and 99.1% of companies in the
health-care sector in corporate governance. A UnitedHealth spokesman
noted that ISS gave the company a corporate governance ranking of 19.5%
compared with the S&P 500 at the start of 2006.
"We are gratified by the widespread recognition of our
significant improvements in corporate governance. We are committed to
continually assessing our policies and procedures to ensure we maintain
high standards of corporate governance," a UnitedHealth spokesman said.
UnitedHealth's board opposes all the shareholder
- By Dinah Wisenberg Brin, Dow Jones Newswires;