The Real Big Picture Around Options Backdating
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If you take some time to think about the big picture story around options backdating, here are some patterns that emerge. Each is valid, and has some merit, but it gives you some reason why the general public is still not interested in the story and outraged by it, but the media and some institutional investors are.
If you take some time to think about the big picture story around options backdating, here are some patterns that emerge. Each is valid, and has some merit, but it gives you some reason why the general public is still not interested in the story and outraged by it, but the media and some institutional investors are.
1. CEO and Executive pay: Realistically speaking this is a weak argument at best. CEO pay has always been big and its getting bigger because lot of these executives have big risk jobs and are responsible for millions or billions of $ and thousands of employees. Add to this the legal ramifications of doing a bad job, their job is not easy. Fortune's Rick Kirkland wrote a piece on CEO pay and its an interesting read, but still does not offer any solutions.
2. Full Disclosure of pay for executives: SEC chairman Christopher Cox has stated full disclosure guidelines will be issued soon, and the "perks" that executives get do add up, but still this argument is also not very strong. There will always be the CEO parachute deals, and tax perks etc. Again we fail to see this being the big change force.
3. Better internal controls: Most companies before SOX did not have the best internal checks and balances processes for ensuring these "issues" were tracked, reported and managed. Accounting, Finance and Legal were mostly "side roles" to Sales, Marketing, Manufacturing and Engineering. Lack of internal controls is an issue for most companies that they need to fix. Its in our opinon this is a good but not the big "a-ha" compelling argument.
4. Poorly stated guidelines around gray areas: That's why they are called gray areas in the first place. Most auditors and legal firms use "judgement" around these areas such as grant and enforcement dates for options. The SEC's has stated they will have better guidelines around summer '06. This is also not a compelling argument for backdating not getting a bigger attention and outrage from the public.
5. World cup Soccer: (grin) - We made this up. Newsweek had a piece about why this time the world cup soccer has more attention of Americans. This is by far the most compelling argument why the general public does not care much about the options backdating story.
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