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WHEN LOOKING AT THE SCANDAL--and we don't think that is too strong a word--involving UnitedHealth Group Inc. and stock options granted to William McGuire, who is resigning his post as CEO--we can't help but ask, "Why?"
As reported, Dr. McGuire resigned after an investigation by an outside law firm found that certain stock option grants provided to him, as well as to other top UnitedHealth executives, were "likely-backdated" and set on days when UnitedHealth stock hit lows. That was a way, of course, for individuals like Dr. McGuire to maximize profits when the options were exercised.
Said another way, it would be as if an individual investor would be allowed to purchase--retroactively--shares during the period of time when the shares were at their low.
Our question is: Why was backdating allowed? Without backdating, Dr. McGuire still would have reaped a fortune--given the huge run-up in the price of UnitedHealth stock during his tenure--when he exercised those options. Wouldn't that have been enough?
Now UnitedHealth faces a public relations disaster, to say nothing of potential legal problems. Certainly, its customers will want to know if the premium increases they were hit with over the years were used to cover rising medical costs or to pay for lavish and perhaps improper CEO compensation.
UnitedHealth has a lot more explaining to do--most notably that it won't allow such action again--if it is to regain the trust of its customers.