stock options

The flip side of the stock options scandal

Tue, 11 Mar 2008 07:59:59 -0400

Some of you would argue that Sarbanes-Oxley adequately addresses the issue of stock options backdating. By forcing disclosure within two days of grant, it makes it harder to play games with grant dates. But Sarbox does not apply to donations of stock. According to other rules, executives who give stock (to charity, for example) do not have to disclose the fact until 45 days after the fiscal year ends. The Wall Street Journal notes that his allows for some games when it comes to donations. Indeed, an NYU professor has found that some donations of stock just happen to occur right before the stock tanks. That maximizes the value of the donation and tax savings. Given all the options scandals, I'm not at all surprised by this.

For more:
- here's the Wall Street Journal item

Related Articles:
How widespread is options backdating? Article
Options scandal: Where were the auditors? Article
PwC ensnared in backdating controversy. Article
How to control for options dating miscues. Article
Union steps up war on options abuses. Article

Study: Media coverage generates CEO pay increases

Tue, 04 Dec 2007 06:59:59 -0500

Does this mean you should invest in your media relations department? Sarbanes Oxley has led to a rise in the number of outside directors on compensation and other committees. Outsiders of course are supposed to bring fresh experiences and external views of the company. But a study by Markus Fitza, a doctoral candidate at the Leeds School of Business (Univ. of Colorado), suggests that outsiders tend to believe what they read about their companies. He has found a correlation between media coverage and the amount of stock options and pay committees grant CEOs. For boards with lots of outsiders, an article about the CEO in a major business publication boosted the value of options and bonus by more than $600,000. PR folks, take note. You're valuable to the top dog!

For more:
- here's a summary

Related articles:
- Goldman CEO makes over $50 million
- Do fund firms enable excessive CEO pay?
- Fund manager pay beats CEO pay

Brocade verdict to embolden prosecutors?

Tue, 14 Aug 2007 06:59:59 -0400

The conventional thinking on stock options backdating cases was that prosecutors would have the best shot at companies that continued their shenanigans after Sarbanes-Oxley became law. Recall that Sarbox requires that executive (not rank and file) option grants must be reported within two business days of the grant date. But the Brocade decision really may change that. The prosecution won without airtight evidence, and Business Week Online says that the case "sets a low bar for prosecutors to clear, should they decide to bring more cases." Needless to say, fear is mounting in Silicon Valley and elsewhere. It's way beyond a civil issue now. CEO Greg Reyes faces up to 20 years in prison. It is critical that you leave no room for doubt with your grants. You need to do more than go by the book. Even appearances can be damning as Reyes supporters would say.

For more:
- here's the article

SEC aims at stock sale and bonuses under 304

Mon, 04 Jun 2007 20:01:39 -0400

For the first time, the SEC has made use of Section 304 of Sarbanes Oxley, which gives the agency the right to seek repayment of bonuses and stock sale profits when financial results are later restated. The SEC will apparently be seeking this disgorgement from two of the four former Mercury Interactive officers who have been charged with fraudulent stock options dating. The SEC also alleges the officers did not record hundreds of millions of dollars of compensation and falsified documents. Indeed, two of the defendants were charged with wrongfully signing off on certifications that stem from Section 302. This is serious stuff. It's unclear how much the agency wants paid back. It will likely be a large sum. One question is why 304 has not yet been invoked? There have certainly been a spate of backdating cases.

For more:
- here's an article

Financial and IT pros more alike than we think?

Mon, 30 Apr 2007 20:01:39 -0400

One issue we've grappled with in this newsletter is that the different worldviews that financial pros and IT pros bring to the table. It's fair to say that they do not often see the world the same way. One CIO has dared to write a column listing ten reasons why there's a "dark side" to going public. As I read the list, there was a sense that perhaps the two sides aren't that far apart. Number 1 on the list is "Ronco sales tactics." Truth be told, the frenzy to come up with earnings, as if they can be magically conjured, probably rubs a lot of financial people the wrong way also. It's a fact of life, and I'm sure more than a few CFOs have nixed some ideas. Number 2: Obsession with stock options. The CIO sees a lot of time wasted on the complex processes that govern the use of options. While the CFO understands the need to incent people, I'm willing to bet that more are sensing that some grants aren't achieving that. Then we get to Number 3: "The Crushing Burden of Sarbanes-Oxley." The CIO certainly sees the pain and the costs, but does he see the upside? More CFOs are coming around to the procedural benefits of compliance. It's all a matter of perspective. I propose that all CFOs ask the company's CIOs out for lunch more often.

For more:
- here's the CIO's column in Computerworld

ALSO NOTED: Oxley blames the PCAOB; Conflicts of interest for directors over pay?;

Mon, 23 Apr 2007 20:01:38 -0400

> A new survey has found what we would expect: In year three, Sarbox costs should decline, automation is on the rise, as is a more risk-based approach. Interestingly, the stock options scandals have led to little change. Release

> It's not exactly man bites dog, but another Big Four audit firm (KPMG) has sued a client (Fannie Mae). Article

> A new conflict for directors: Their own pay. The average pay of a large company director is now $200,000, up 75 percent from 2000. The pay is warranted by the workload, which is higher in the Sarbox era. But as compensation mounts, more approved increases may not go over so well with shareholders. Article (sub. req.)

> Fox guarding the henhouse: Compliance office in charge of blackout dates charged with insider trading. Article

> It's well-known that Michael Oxley is not all that happy with the law that he authored. In part, he blames the PCAOB. Article

> Scrushy to pay $81 million to settle SEC suit. Article

> Biotech drumbeat for small-company reform continues. Article

> PWC's license in Russia is renewed. Article

> An interesting bit of commentary on self-service Sarbox tasks. Article

And finally... Another Enron fraud. Article

CFOs want out fast

Mon, 05 Feb 2007 19:01:39 -0500

Sallie Krawcheck of Citigroup and Alvaro De Molina of Bank of America are hardly the only CFOs who wanted out. Last year, 12 Fortune 50 CFOs opted to quit, and few would be surprised if the trend held for 2007. The issue is how much Sarbanes-Oxley had to do with it. By one account, because of Sarbox, CFOs now spend about one-third of their time on IT systems, paperwork, and board issues (often questions). What's lost is the "big picture" focus that often paved the way for CFOs to ascend to CEO. At the same, shareholder issues--which often are related somehow to Sarbox--have become more vexing. So the bottom line is that the job is now much more task and process oriented, with a lot of risk and little reward, in the words of De Molina. Some companies are adding chief accounting officers to ease the burden, which is a good move. Adding a chief compliance officer might also be wise. Both should report to the CFO.

For more:
- here's a Fortune article

Related Articles:
Should CFOs be stripped of all stock options? Report
The churn begins, turnover high for CFOs. Report

ALSO NOTED: More "fair funds" coming?; Resolutions for directors;

Mon, 08 Jan 2007 19:01:38 -0500

> Will we see more fair funds? Inevitably, thriving financial markets brings about more scams. So we may be in for more "fair funds" being set up in accord with section 308. Example

> PCAOB ad for accounting professionals draws ridicule. Brief

> Directors and finance professionals may want to tune into user feedback on their reporting efforts. The FASB has created a new committee to do just this. Article

> Here are some proposed new year resolutions for corporate directors. I am not sure if this was meant to be funny.

> More on the SEC's Holiday gift, that is, more favorable exec pay reporting. Article

> More on Apple stock options conundrum. Article

And Finally... Employees are losing faith in their managers. Article

Options scandal: Where were the auditors?

Mon, 06 Nov 2006 19:01:39 -0500

It's the question that has been lurking in the back of many minds out there: In the ongoing options scandal, where were the auditors? One story making the rounds on the Net holds that Daniel Goelzer of the Public Company Accounting Oversight Board (PCAOB) was asked whether the PCAOB will slap auditors for not catching the abuses. Goelzer reportedly said that accounting rules historically did not count options expenses as compensation, so why would auditors really search for bad practices in this area? This came up at a recent conference, and at least one person was dismayed by the attitude. You have to wonder what SEC enforcement staffers think. If we see a lot of charges come down over backdating, the audit firms may yet be held accountable in some form.

For more on this:
- read this Forbes article

ALSO: This editorial makes the point that options back-dating scandal would not have happened if Sarbox was enacted about 10 years earlier. Editorial

Related Articles:
Meet the man who uncovered the options scandal. Report
How much will the options scandal cost shareholders? Report
Should CFOs be stripped of all stock options? Report
Kickback scandal raises issue of independent boards. Report

How to run a successful internal investigation

Mon, 30 Oct 2006 19:01:38 -0500

We brought you news last week that more companies are being forced to undertake the messy business of internal probes. The ongoing stock options grant date scandals is but the latest catalyst. You can never fully anticipate what happens. But some good advice in this area is be prepared--for anything. Make sure you know what your D&O insurance covers. Have some law firm prospects ready; your best bet may be to rely on an outsider. Understand that the audit committee may be the most appropriate overseer of such a probe. Be prepared to set rigid parameters and objectives. All your planning may be for naught given the specifics of the probe. God forbid you are the subject. But establishing some generic procedures now will sustain your credibility when the rubber hits the road. Tips