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Barron's, October 29, 2007 article








Meet Mr. Labor Union

ONE OF THE GREAT FIGHT STORIES of all time never took place in a ring but in the corporate boardroom of UnitedHealth Group, a benefits provider, where in September 2006 director James Johnson, who up until that point had led a remarkably charmed life, was desperately hanging on to the ropes, his eyes blackened.

Johnson, a glamorous figure who miraculously had risen from the ashes of the disastrous presidential campaign of Walter Mondale, which he had managed, to positions of enormous wealth and considerable power (such as chairman of the board of Fannie Mae, a Democratic sinecure that made him a millionaire; and then chairman of Washington's prestigious Kennedy Center), was under attack for serving on the boards of five corporations where there were executive-compensation excesses that had either been loudly criticized by shareholder-interest groups or had resulted in full-scale probes.

We wrote about Johnson's track record last year ("Meet Mr. Generosity," Aug. 21, 2006), noting that whenever Johnson joined a board, compensation controversies seemed to follow -- as at UnitedHealth Group (ticker: UNH), KB Home (KBH), Temple-Inland (TIN) and Goldman Sachs (GS).

The Wall Street Journal's Charles Forelle and James Bandler, who had outed options backdating schemes by CEOs at scores of companies, including UnitedHealth, reported a similar scandal at KB Homes, where Johnson headed the compensation committee. Then, Richard Trumka, secretary-treasurer for the AFL-CIO, wrote a letter to UnitedHealth's board demanding Johnson's resignation because Johnson's record there and on other boards was "an unacceptable record for a director of a public company."

But almost as suddenly as they had started, Trumka and the AFL-CIO stopped swinging, as if someone had sounded the bell to end the fight.

What happened? First, several Democratic party luminaries, including Mondale and former Sen. Tom Daschle, phoned AFL-CIO President John Sweeney on Johnson's behalf, we have learned. Sweeney, through a spokesman, declined to reveal the details of the conversations, and neither Mondale nor Daschle would get back to us.

But Sweeney was not swayed by any such calls, the spokesman says. Instead, it seems, it was Johnson himself who convinced the union to give him some breathing room. Johnson argued that he was leading efforts to oust the backdating CEOs at both UnitedHealth and KB Homes. He did in fact deliver the heads of both CEOs. UnitedHealth Group's founder and CEO William McGuire resigned in October 2006, and KB Homes CEO Bruce Karatz resigned the next month.

"We believe in rewarding good behavior," said AFL-CIO press spokesman Dan Pedrotty. So Johnson was given a second chance.

Coincidentally or not, UnitedHealth this year became the benefits provider for the AFL-CIO Washington headquarters. Both sides say the deal has absolutely nothing to do with Johnson, who said through a spokesman he didn't even know of the contract until we called.

Johnson, a vice chairman of Perseus capital, a merchant bank and private equity firm, still sits on five boards: UnitedHealth, KB Homes, Goldman Sachs, Target (TGT) and Temple-Inland. He has pledged allegiance to the pashas of labor, but it remains to be seen if he'll serve the cause of ordinary shareholders.


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