The Minneapolis-St Paul Buisness Journal reported that two advisor firms that suggest how institutional investors should vote their proxies, Institutional Sharehold Services (ISS) Inc. and Proxy Governance Inc advised withholding votes from two members of the compensation committee of UnitedHealth's board of directors who are up for election at today's annual meeting. They are Mary Mundinger, who is also Dean of the Columbia University School of Nursing, and James Johnson, a former CEO of Fannie Mae. ISS stated, "the over-$1 billion that Dr [William] McGuire currently holds in paper gains shows that the committee has not applied the 'holy cow' test, as fiduciary duty requires." We previously posted (here) about the apparent conflict of interest between Dean Mundinger's fiduciary duties to UnitedHealth Group and its stockholders, and her role as a thought leader in health services research. Her publications have advocated for advanced practice nurses to take over from doctors in some areas of health care, which would coincidentally lower the costs of health insurers, such as United Health Group. In some recent publications she did not disclose the apparent conflict of interest generated by her position on the board of directors of UnitedHealth Group.
The Associated Press reported that "Minnesota Attorney General Mike Hatch ... [will] press the state's $50 billion investment fund to vote against UnitedHealth Group CEO Bill McGuire for a new term as board chairman to protest McGuire's compensation." Bloomberg News reported that the California Public Employees' Retirement System (CalPERS) demanded a meeting before UnitedHealth Group's annual meeting to discuss the stock options granted to McGuire and other top UnitedHealth managers. CalPERS President Rob Feckner wrote, "these stock option grants are an insult and add injury in a market of skyrocketing healthcare costs in America, and as the third-largest healthcare purchaser, we find this situation intolerable." In response to CalPERS' complaints, the Business Journal reported that UnitedHealth Group offered to reform certain governance practices, and end stock-option grants to a few highly compensated managers, but not to rescind any stock option grants made previously. CEO McGuire also took the opportunity to defend Mundinger and Johnson, who he said have "intimate knowledge regarding our company's areas of focus, are experienced in public company matters, and embody the highest standards of integrity."
McGuire further defended his receipt of stock options. According to the Associated Press, he said "his pay has not come from at the expense of affordable health care." Instead, he said his pay cost shareholders money. His words were, "this isn't a giveaway of money that occurs out of premiums of health care recipients. These are shareholder dollars." However, even he admitted, "but they're still a lot. You can't get away from that."
Meanwhile, a report in the Wall Street Journal (available here through the St Paul Pioneer) suggested that UnitedHealth Group's alleged practice of back-dating McGuire's stock options could lead the company open to a substantial income tax liability, thus potentially costing the shareholders even more.
Finally, it turned out that shareholders are not the only ones upset at the their treatment at the hands of UnitedHealth Group's top managers. TheStreet.com reported that some UnitedHealth Group employees are irate at what they consider to be their own poor health benefits. Reporter Melissa Davis wrote, "UnitedHealth ranks as the most diversified health insurer in the country, a company that takes great pride in offering other companies a wide range of products - including some of the richest benefits available in the marketplace today. Yet the company's 55,000 employees have just three choices when it comes to their own health care coverage. And all of these are so-called 'consumer-driven' health plans." In a recent email to TheStreet.com, an employee wrote,
We UHG [UnitedHealth Group] employees -- who don't earn millions per year but perform a vital function for the company -- are left having to pay much more out of our own pockets. Maybe [McGuire] could give his own employees part of the millions he is using for the butterflies at the University of Florida so that we could have a normal co-pay plan like we used to, and like they offer most other employers ... [Meanwhile] , the UHG benefits people won't even address our concerns with the plan. They just say that is what is being offered, and we have to either take it or not.The UnitedHealth Group annual meeting is on for today, so we will see what happens there. Of particular interest is how the Dean of the Columbia University School of Nursing will fare as a candidate for continued membership on the UnitedHealth Group board.
Meanwhile, UnitedHealth Group continues to serve as example of a big, influential health care organization that treats its top managers very well. Yet there are questions about how it treats not only its own employees, but also its stockholders, the actual owners of the company. And if these groups may not feel that their well-being is the company leadership's first priority, how should patients and physicians feel about the priority given to them? The most charitable answer I can give is: be very, very skeptical.
ADDENDUM (May 3, 2006): Via the Associated Press and Sacramento Business Journal - at the UnitedHealth Group annual meeting, only one shareholder spoke out about CEO McGuire's compensation, but he was the only such speaker to get applause. Mary Mundinger and James Johnson were both re-elected to the board of directors, but 28% of stockholders withheld votes from them. This is a fairly high rate of disapproval for a corporate board election.