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Correction: A version of this article appearing in the April, 2013 print issue of Corporate Counsel magazine was incorrectly accompanied by a photograph of David G. Lubben, rather than David J. Lubben, who was the former general counsel of UnitedHealth Group, Inc. David G. Lubben, whose photograph appeared, is a member of Illinois Davis & Campbell LLC, and has never worked at UHG (and accordingly had no involvement in the stock option backdating scandal described in the article). The below article has been revised to add Mr. Lubbens middle initial. We regret the error.
The UnitedHealth Group Inc. hired a new chief legal officer in January, adding more movement to an already revolving door. With five chiefs in seven years (six if you count cogeneral counsel), the company's legal department has had an unusually high turnover rate. And some experts say that this much instability isn't good for a legal groupor healthy for a corporate management team.
Donald Nathan, spokesman for Minneapolis-based UHG, says the total is actually only three lawyers, because that's how many held the title of chief legal officer. However, company press releases show that the other three were permanently placed in charge of the legal department during their tenure as general counsel. "Our only comment," Nathan responds, "is that we are fortunate and proud to have had outstanding and talented people leading the legal efforts at our company."
Job titles aside, experts say the high turnover at the top sounds a warning that should evoke questions from shareholders and directors. Daniel Siciliano, an associate dean at Stanford Law School and the faculty director of the school's Arthur & Toni Rembe Rock Center for Corporate Governance, says, "A great general counsel can add tremendous value to a company, but any GC office that has that much turnover is going to have a very hard time as a team functioning at its best."
Siciliano says the instability raises questions about the adequacy of information to the board. It also could affect accountability on issues that the GC normally oversees and that can materially affect a company. "Anything more than a couple of turnovers in a four- or five-year period is a lot, and it raises a red flag that needs some scrutiny," he adds.
Other lawyers agree. Matteo Tonello, managing director of corporate leadership at The Conference Board Inc., cites a 2011 analysis of Fortune 500 companies by Heidrick & Struggles International Inc. The study says the usual GC tenure is six to eight years; in the health care industry, it's six.
Tonello says a high turnover rate isn't good for any company, and "may reflect some degree of discord in a management team." But he notes that the exit of a general counsel can also be caused by unfortunate eventsin other words, more bad luck than bad management. Whatever the cause of instability, he adds, the board needs to address it.
On further inspection, the reasons behind UHG's turnover appear varied. It started when general counsel David J. Lubben abruptly resigned in 2006, after a decade on the job, amid a stock options backdating scandal. The chief executive also was ousted in the scandal. The Securities and Exchange Commission later fined Lubben $575,000 and suspended him from practicing in front of the agency for three years. (By all accounts, UHG has been a well-managed Fortune 20 company since that scandal.)
The new CEO, Stephen Hemsley, hired Thomas Strickland as chief legal officer in 2007. Strickland cleaned up the backdating mess, but voluntarily left in early 2009 to become chief of staff for his close friend, Ken Salazar, newly named secretary of the U.S. Department of the Interior. "I would still be at UnitedHealth Group today if it weren't for being offered my dream job of a lifetime," Strickland says, pooh-poohing the turnover questions.
The company next named two GCs, Christopher Walsh and Mitchell Zamoff. They served as interim coheads from January to October 2009, and then were made permanent.
But in June 2011, the company decided to hire a chief legal officer over them. He was Rich Baer, formerly GC at Denver-based Qwest Communications International. Zamoff and Walsh were given GC duties at two UnitedHealth subsidiaries, and both subsequently joined a private law firm, Hogan Lovells. Neither would comment for this article.
Baer also declined to comment, but UHG said he left in November 2012 for personal family reasons. People close to Baer say his family didn't want to make the move from Denver to Minneapolis, and he commuted to UHG for 18 months. That's when he acceptedwith the understanding and support of UHGthe GC job at Liberty Media Corporation, near his Denver home.
So the company was at it again. This time it filled the CLO post with Marianne Short, managing partner at Dorsey & Whitney and a former judge of the Minnesota Court of Appeals, who started in January. Short, who had worked with UHG as an outside counsel since 2000, declined to comment.
While its general counsel woes raise a warning flag, they may not be proof of a systemic problem, experts say. Still, Charles Elson, director of the University of Delaware's Weinberg Center for Corporate Governance, says that a high GC turnover is an issue for any company.
"If I were a shareholder, I would be concerned," Elson says. "The question now is: How do they respond?"