UnitedHealth Group (UNH)

William Spears/Dr. McGuire Financial Relationship

In 1992, William Spears, a member of the Board of Directors of UnitedHealth, entered the first in a series of financial relationships with Dr. McGuire. Beginning in 1992 Mr. Spears served as a trustee for two trusts for the benefit of each of Dr. McGuire’s children. From 1994 through mid-2006, Mr. Spears acted as an investment manager for certain assets of Dr. McGuire and his family. The amount of assets managed for Dr. McGuire fluctuated over time, from approximately $15 million in 1996 to over $55 million in 2006.¹⁵ In June 1999, Mr. Spears accepted an investment of $500,000 from Dr. McGuire in connection with Mr. Spears’s repurchase of the money management firm that bears his name from the financial conglomerate that had earlier acquired it. Dr. McGuire had unwound that investment by early 2003.

During most of the period under review, Mr. Spears served on the Compensation Committee and acted as its Chairman. In 1999, Mr. Spears was appointed as Chairman of an Ad Hoc Committee of the Board to which the Board delegated authority to negotiate and execute a revised employment agreement for Dr. McGuire and an agreement for Mr. Hemsley. In that capacity, Mr. Spears acted as the representative for the Ad Hoc Committee in negotiating with Dr. McGuire through the summer and fall of 1999. The terms of these proposed agreements were discussed at several meetings of the Ad Hoc Committee and at one meeting of the Board, and were ultimately approved by the Ad Hoc Committee in November 1999.

Handwritten notes made by David Lubben, the Company’s General Counsel, in connection with an Audit Committee meeting in February 1999, make clear that Mr. Lubben was aware of some “conflict” issue involving Mr. Spears and Dr. McGuire. Although it is possible that the notes indicate that Mr. Lubben discussed this relationship with the Audit Committee, neither Mr. Lubben nor any member of the Audit Committee recalls such a discussion. Mr. Lubben also sent an e-mail to outside counsel on October 12, 1999 generally outlining the McGuire/Spears relationship and indicating that disclosure of some “conflict” had been made to the “full” Board. In addition, Dr. McGuire and Mr. Spears have each stated that they believed the Board was aware of the money-management relationship. However, there are no minutes or other documentation to confirm that such disclosure took place in that time frame. No Director recalls being apprised of the money management relationship or the investment in Mr. Spears’s firm prior to or during the time frame of the 1999 employment contract negotiations.¹⁶ Only one Director thought it possible that he could have learned about the investment advisory relationship in 1999, but he believes that it was not before the end of 1999. All Directors believed that they first learned of the investment that Dr. McGuire made in Mr. Spears’s firm after the commencement of this investigation. Two Directors were adamant that they believe they would have remembered had they been told earlier of or had been aware of such relationships between Dr. McGuire and Mr. Spears.

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We have concluded that the nature and full extent of the financial relationship between Dr. McGuire and Mr. Spears likely were not disclosed to the members of the Ad Hoc Committee or the Board during the time frame that the 1999 employment agreements were being negotiated.