Thursday, July 06, 2006
A Board With Its Back To The Wall
Why does United-Health Group (UNH ) CEO William W. McGuire remain in his job? It's a question that has baffled corporate governance experts since The Wall Street Journal reported in March that UnitedHealth and other companies might have backdated options grants for officers to boost compensation. In the post-Sarbanes-Oxley world, boards are acting on the first whiffs of legal or ethical lapses. Already 15 executives and directors from the 50 or so companies under investigation for backdating have been forced out. Heck, Raytheon's board even docked CEO William H. Swanson a million bucks in May for plagiarizing passages of his book -- not even a criminal offense.
Yet despite shareholder suits, federal and state investigations, a possible earnings restatement, and the disappearance of some $17 billion in market value, UnitedHealth's McGuire remains in his post, sitting on unrealized options gains now worth around $1 billion.
Paul Hodgson, senior research associate at the Corporate Library, a governance tracker, blames a weak board that remains too deferential to its dynamic CEO. But directors have other reasons to let McGuire stay. For one, given his strong leadership -- shares soared from a split-adjusted $1 when he began in early 1991 to a high of $64 in December -- investors aren't pressing for his ouster. "No one wants to see him dismissed," says David Dreman, chairman and chief investment officer of Dreman Value Management, which recently bought 781,000 shares.
posted by Brian Moran @ 1:42 PM