A recent shareholder lawsuit against health insurer UnitedHealth Group may be an indication that corporate board decision making is going to come under much greater scrutiny than in years past. The lawsuit brings into question the level of accountability directors have to truthfully communicate critically important information to investors; and to develop and approve business strategies that are ethical and not harmful to the public.
The lawsuit accuses UnitedHealth of making “false and misleading statements while failing to disclose crucial information to investors” which eventually led to a loss of $170 billion in shareholder value in the wake of the murder of UnitedHeathcare CEO Brian Thompson on December 4, 2024. UnitedHealthcare is the health benefits business of UnitedHealth Group.
According to news reports, the shareholder complaint states, “defendants made false and/or misleading statements and/or failed to disclose that: UnitedHealth had, for years, engaged in a corporate strategy of denying health coverage in order to boost its profits, and ultimately, its share price; this anti-consumer (and at times unlawful) strategy resulted in regulatory scrutiny (as well as public angst) against UnitedHealth, which ultimately resulted in the murder of Brian Thompson.”
In fact, UnitedHealth had issued guidance on its 2025 forecast one day prior to Thompson’s murder – a forecast that was based on the company’s profit-boosting strategy of denying health coverage. Intense public pressure and regulatory scrutiny forced the company to adjust its business strategy, and when it announced it was lowering its 2025 growth forecast on April 17, its stock price plummeted. In May, the insurer withdrew its 2025 forecast entirely and its stock price fell even more. As of May 14, UnitedHealth Group stock was down 38.95% for the year.
The lawsuit alleges that shareholders that purchased UnitedHealth stock between December 3, 2024 and April 16, 2025 were defrauded because, “Had plaintiff and the other members of the class been aware that the market price of UnitedHealth’s securities had been artificially and falsely inflated by defendants’ misleading statements and by the material adverse information which defendants did not disclose, they would not have purchased UnitedHealth’s securities at the artificially inflated prices that they did, or at all.”
The UnitedHealth board now faces the difficult task of fighting what is now a class-action lawsuit that seeks unspecified damages; reassuring shareholders that the company can develop and implement a new profitable business strategy that is not viewed as anti-consumer; and mitigating the reputational damage that this crisis has caused. In what might be viewed as a first step toward UnitedHealth’s turnaround, the company announced that CEO Andrew Witty will be stepping down “for personal reasons” and will be replaced by chairman Stephen Hemsley, who was UnitedHealth’s CEO from 2016 to 2017 and will now hold both CEO and chairman positions.
The allegations in the lawsuit and the public and regulatory reaction to the situation at UnitedHealth Group might make boards want to consider the following:
There will be greater scrutiny of the disclosure of the impact of business decisions on shareholders. Although boards have great discretion regarding pursuing business decisions, the consequences of those decisions will be judged more harshly—especially by shareholders. There will likely be more second-guessing of board decisions, so boards will need to be able to defend their decision making with as much hard data as possible. Business forecasts that are far off the mark could very well lead to resignations and lawsuits. Directors may consider including discussions of “upside” and “downside” potential in their forecasts for full disclosure where appropriate. Timely disclosure of negative impacts on the business helps investors make informed decisions and protects executives from fraud claims. Transparency can be the board’s friend.
There is greater risk in approving business practices that are borderline ethical. If there is the slightest concern that a business practice might be questionable on any level, directors should seek to find alternatives that do not harm consumers and expose the company to future lawsuits. Placing the company’s reputation and future existence at risk is unacceptable. Knowingly engaging in unethical business practices could also lead to jail time.
Listening to customers and the public can help strengthen the business. It should not have taken the horrific murder of an executive for UnitedHealth to realize that it needed to adjust its business practices. The company had information from customers about denials of claims that it could have addressed, avoiding an unnecessary death and the loss of shareholder value. Used correctly, customer engagement is key to a company’s long-term growth. This situation shows that ignoring customer feedback can result in a crisis for the organization.
