Yesterday we posted a trio of items on backdating. One illustrated how pressures to hold down executive pay may have encouraged backdating. Another explained why the best-guess-ish nature of options accounting probably also helped encourage backdating. And a third pointed out that Goldman Sachs' utter lack of shame protected them against the temptations of backdating. (It also probably helped that they didn't go public until almost the very end of the backdating era.)
And a couple of those posts were, uhm, rather lengthy for a DealBreaker item. If you are anything like most of our readers, you're a busy person, reading DealBreaker while you pretend to work and probably don't have time to read a couple of thousand words on anything, much less backdating. We're sorry about that.
Fortunately, Larry Ribstein read our backdating items so you don't have to. And he's provided a quick little summary for your convenience.
Here's how he sums it up:
But here's the real point: the fact that companies are operating under these constraints is largely attributable to the media frenzy over compensation. Goldman, for example, doesn't have backdating problems because, as Dealbreaker reports, "it has no shame. Blankfein and Co. just put it all right out there: our guys make more than everyone you know." Goldman apparently doesn't have to worry about media criticism of backdating. Firms that sell to ordinary consumers need to worry about the image they'll get in the papers if they pay their people what the journalists view as "too much."So, in conclusion, firms need to pay their people a lot to hire and keep them. But the media imposes a shame cost on disclosing these amounts. The backdating executives figure it doesn't really matter because even the correct option numbers are bogus and the real numbers, which measure the firms' actual performance, are disclosed. But the media is actually focusing on the bogus numbers, so the disclosure problem may be material because the media makes it so. And, finally, as I've discussed in many posts, the media, anxious for readers and Pulitzers, inflates this into a scandal of major proportions that requires the gathering of scalps. The prosecutors, sensitive to public opinion and ready to reap benefits from high-profile cases, are ready to oblige.
How the media produced the backdating scandal [Ideoblog]
Posted by , Feb 23, 2007 1:55PM
Maybe I'm just simple, but if we strip away all of the complexities of options accounting, can't we all agree that it's wrong if a management willfully chooses a previous date with no significance save for a low stock price to be the strike price date of the options it awarded itself? We sure didn't see any managements backdating options grants to, say, 52-week-high dates. I agree with Dealbreaker (and disagree with Gret-gret) on most subjects, but on the subject of options backdating I think Dealbreaker have become apologists for corporate thieves. There are "honest" accounting mistakes, but this is not one of them. And the "everyone's doing it" argument doesn't make it any less of a crime.