Risk & Compliance

UnitedHealth Overhauls Governance

Under pressure from shareholders, the company makes sweeping changes to director requirements, director tenure, compensation policies, and change-o...
Stephen TaubApril 28, 2006

UnitedHealth Group Inc., whose board of directors is facing a shareholder revolt at its May 2 annual meeting as a result of the $1.6 billion in stock options held by chairman and CEO William McGuire, has announced a slew of corporate-governance changes.

“These changes represent substantial further steps in the Board’s ongoing program to review and upgrade governance practices to ensure adherence to evolving best practices,” the company stated in a press release.

Proxy-advisory firms Institutional Shareholder Services Inc. and Proxy Governance are recommending that shareholders oppose the reelection of compensation-committee members James Johnson and Mary Mundinger.

Meanwhile, Calpers, the largest pension fund, sent a letter to UnitedHealth requesting a meeting before the annual meeting, adding that it may withhold its votes for McGuire, according to The New York Times.

UnitedHealth said it will recommend that shareholders vote at the 2007 annual meeting to amend the company’s articles of incorporation to remove supermajority approval requirements and to replace the currently staggered terms of the directors with boardwide annual elections.

UnitedHealth also implemented share-ownership guidelines for officers and directors and a requirement that all members of the audit committee be financial experts. In addition, it limited the number of boards on which its directors may serve to six, appointed co-presiding lead directors for executive sessions, and required all directors to attend director’s education sessions.

The company also announced that on Monday, the board will eliminate enhanced severance compensation in connection with change-in-control transactions, freeze benefits under supplemental retirement plans, eliminate noncash perquisites for reporting officers, and terminate further equity-based awards for a small number of the company’s most senior and longest tenured executives for whom equity positions are well established from prior years of service.

UnitedHealth also said the board will review overall levels of equity-based compensation, performance criteria for equity grants, vesting policies, and levels of director compensation.

“At UnitedHealth Group, we recognize that ongoing self-assessment and refinement is fundamental to maintaining the highest standards of performance and integrity,” McGuire said in a statement. “The steps taken today and the actions to be taken on Monday are consistent with this commitment. They will further ensure that in addition to our efforts to provide the highest standards of service for our clients and to create shareholder value, our corporate governance and compensation practices are moving to the highest standards.”