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The proposal for advisory voting on compensation referenced in the article below was submitted by Hermes Equity Ownership Services, and had been offered at the December 2006 Forum meeting as an example for U.S. adaptation of advisory voting practices.  For additional information about the Forum's project relating to the development of a model for advisory voting on executive compensation policies, see

Advisory Voting


Dow Jones Newswires, May 23, 2007 article


The Wall Street Journal  

May 23, 2007 3:53 p.m. EDT


Proxy Services Differ On UnitedHealth; One Nixes Directors

May 23, 2007 3:53 p.m.

   By Dinah Wisenberg Brin 

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 proposals.

"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 said.

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 proposals.

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 proposals.

- By Dinah Wisenberg Brin, Dow Jones Newswires; 215-656-8285;

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