The Wall Street Journal has done a great job on backdating, both on its news and editorial sides. Its news side basically broke the backdating story wide-open with its investigation into the practice, and has been one of the best places to keep up with which executives and companies have faced options timing challenges. The reporting has been accurate and penetrating.
Its editorial side has consistently been a voice of sanity on the gravity of backdating. On their main editorial page and in the columns of Holman Jenkins, the Journal has made it clear that there is a danger in over-reacting to the “scandal.” Not all backdaters were trying to enrich themselves through fraud. In fact, some of the most prominent alleged backdating cases involve CEOs who were not granting themselves or their friends options. They were granting them to valuable employees who might have otherwise sought better compensation elsewhere. By changing the date of the grants, the companies were able to make the options more valuable to those who received them without incurring additional expenses. Rather than secretly boosting executive compensation and hiding it from shareholders, the point of changing the date often seems to have been to have been to diminish the tax hit the employees would have taken if they had instead been given grants of already “in the money” options. It’s worth asking whether we really think this is criminal behavior. And if it was criminal, who exactly were the victims here?
The latest review-and-outlook piece on backdating in the Journal, focusing on the situation at United Health, is definitely must-reading on backdating.
McGuire’s Options [Wall Street Journal]
[Note: Brian Carney, a member of the Wall Street Journal editorial board, is the brother of DealBreaker’s John Carney. Also, John Carney has written for the Wall Street Journal.]
Update: Larry Ribstein agrees.
Readers of this blog know that I think backdating is another witch hunt. See my Executive Compensation archive. The fickle finger of justice has decreed that McGuire shall burn. So how is McGuire different from Steve Jobs?
The result of all this is a “compliance mindset,” in which an obsession with “optics” replaces risk and innovation, and a job in the Justice Department is considered the best training for industry.