ALL BUSINESS: UnitedHealth Controls Lax

William McGuire, chairman and CEO of UnitedHealth, is shown in an undated photo released by UnitedHealth Group Inc. (AP Photo/UnitedHealth Group, Inc., File) (AP)

NEW YORK -- William McGuire ran UnitedHealth Group Inc. like his personal fiefdom, allowing the former CEO and his cronies to gain tremendous wealth with few internal controls to stop them.

That's the startling conclusion of a board-mandated probe of how the health insurance giant timed its stock-option grants over the last decade. But the review headed by former SEC top cop Bill McLucas ends up telling a much more important story: That of a controlling leader who put his personal interests ahead of the welfare of the company's shareholders.

Such revelations led to McGuire's "retirement" this week after a 15-year tenure. Quite a convenient way to go, given the damage he has caused the company and its investors.

This certainly wasn't the send-off that many had expected for McGuire, who joined the company in 1989 and rose to chairman and CEO in 1991. He has been lauded for engineering UnitedHealth's rise from a regional health insurer into one of the largest managed care companies in the country.

But those achievements have been overshadowed in recent months by allegations that the company manipulated the grant dates of stock options to executives to when the company's share price was depressed. The backdating of options documented in the report allowed executives to pocket unfair and potentially illegal profits that they never disclosed to shareholders.

More than 135 companies have disclosed in Securities and Exchange Commission filings that they are under government investigation or conducting internal reviews of their option programs, leading to the ouster or resignations of 34 top executives at 17 companies so far.

Minnetonka, Minn.-based UnitedHealth got swept up in the scandal in March when The Wall Street Journal detailed how McGuire had received options on the days the company's stock price hit yearly lows in 1997, 1999, and 2000, and that other options grants had occurred on low spots in the company's share price. Statistically, that was nearly impossible unless the options were granted retroactively.

That spurred the company's board to hire an outside law firm to conduct a review. Its findings, released Sunday, provided a detailed look at how the stock-option grants to McGuire and others were likely manipulated, allowing the former CEO amass exercisable options that had soared to a value of $1.6 billion by the end of 2005.

"This shows how a board stopped managing a CEO and just cheered him on," said Patrick McGurn, executive vice president and special counsel to Institutional Shareholder Services, a proxy advisory firm. "They just wrote McGuire a blank check."

The probe by McLucas' law firm, Wilmer Cutler Pickering Hale & Dorr, examined 29 grants made by the company from 1994 through 2006, totaling nearly 450 million split-adjusted shares of common stock. That accounted for about 85 percent of the total number of options issued during that time.

McGuire's stock options often got a boost in value because they were issued on one day but priced as though they had been issued earlier, when the stock price was lower, the report said. In the 27 grants between 1994 and August 2002 under review, eight were given at the lowest price of the quarter in which they were dated. Some others were close to the lowest price.

Highlighted in the report was a 1999 special grant in which McGuire received one million options. They carried an effective date of Oct. 13, 1999, but they weren't approved by the board until Nov. 5, 1999 and his employment agreement was not signed until December of that year, the report shows.