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Simple Moral Arithmetic


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William F. Buckley Jr.

Some years ago, at the outset of the age of e-mail, I was lunching with three or four media moguls, and the discussion turned to security. Specifically, how to guard A from B’s gaining access to A’s correspondence. The late A. M. Rosenthal, at that time the executive editor of the New York Times, told how he had addressed the problem at his place of work. “I called in the senior staff and said, Look, we don’t read each other’s mail, do we? Well, for the same reason we don’t do that, we will not look at other people’s e-mail.”

 

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This seemed to us, for a very brief moment, kindergarten moralizing. But there was silence at the table as we recognized that Rosenthal had said everything that needed to be said on the question. If it is wrong to read other people’s mail, it is wrong to read that mail in whatever form it comes in, and transmissions by Internet are no exception–why should they be?

 

That moral question is easily answered if you simply stare it in the face, as are many others. But our failure to do so results in acts of monumental moral default which somehow go on. The most spectacular recent episode of this is the matter of Dr. William McGuire, of the UnitedHealth Group.

 

The device he used is very tempting. The executive asks for, and receives in his package of compensation, stock options on the company he goes to work for, such options giving him the right to purchase shares at the value they sold for on a given date.

 

Let us say that the hypothetical company shows a rise in the value of its securities, which is most generally the case in successful companies. The trick is to exercise an option granted on a date when the stock sold at a lower price than it is selling for today. The point at issue is whether the dating was by happenstance, or whether an option was deliberately written to coincide with downward fluctuations in the share price.

 

That practice is called “backdating.”

 

An exposé in the Wall Street Journal last March drew attention to the extraordinary skill of UnitedHealth personnel, most notably the president, Dr. McGuire, in acquiring options effective as of the date in the quarter on which the stock price was lowest. The practice resulted in enormous gains for Dr. McGuire, thanks to his uncanny ability to guess when the stock would hit the low.

 

The Wall Street Journal article caught, of course, the attention of the Securities and Exchange Commission, which waded into the picture illuminating the details of Dr. McGuire’s swinging machinations.

 

His initial defense was that it was sheer chance that his options had been written on the days when the stock was lowest. This explanation caused a great laugh, which was given a statistical life when the Wall Street Journal people ran it through the probabilities wringer. The odds that Dr. McGuire would have had the success he had purely by luck were one in 300 billion. That would have called for the skills of a necromancer. McGuire’s background was as a pulmonologist.

 

Two avenues are left to explore. The first is how to return to the shareholders the money the magician took, for himself and his employees, from the shareholders’ pool. The figure for that has not been published. But it has been revealed that the value of the doctor’s extant options is $1.1 billion. That’s “billion.” Analysts say that if such options were honored and exercised, UnitedHealth would be turning over to the erstwhile CEO nearly two percent of the value of the entire company, which is estimated to be worth $66 billion.

 

That is now unlikely to happen. But the second avenue is whether this is purely a civil matter between Dr. McGuire and the shareholders, or whether any of this amounts to criminal activity. And as yet unformulated is the final ruling of the Securities and Exchange Commission. At the end of that line Dr. McGuire will learn whether he will spend the rest of his life in pleasure domes, or in Sing Sing.



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