Tuesday, November 28, 2006

Future Shock

I just waded through God knows how many documents companies dumped at the SEC last Wednesday and Friday. I expected to uncover dastardly deeds, but emerged from the Thanksgiving Twilight Filing Zone empty handed. Either companies have given up using holidays to hide bad news, or they decided to ignore Thanksgiving in favor of Germany’s Repentance Day, an occasion for "examining one's conscience."

So I’m reduced to posting about a company that did something commendable.

Norfolk Southern Corporation (NSC) , which owns freight train lines, chose the day before Thanksgiving to make public the agreement employees will be signing when they receive stock options early next year. Even though it hasn’t been accused of backdating, Norfolk decided to frontdate: It will grant options on January 26, 2007, with an exercise price of whatever Norfolk stock turns out to be worth on that date - the corporate version of Russian roulette.

In last year’s option agreement, Norfolk followed the more common practice of leaving the grant date open, so they deserve credit for making the process extra squeaky clean this year. I sense that Norfolk is an aspiring corporate governance goody-goody. In September it adopted a version of majority voting for directors. And the company’s new-ish CEO, Charles Moorman, lamented in an interview that "the public opinion of CEOs is down there with politicians and just above dog catchers." The way he's going, he might rise to the level of a proctologist or tarot card reader.

A CEO who sets the timing of option grants in advance can't bestow them whenever the spirit moves him - not even on special occasions like St. Swithin’s Day or the Anniversary of Portuguese Aggression in Guinea - and can't backdate to a date when the price was lower. If he wants to cheat, I guess he could try to release bad news right before the grant date, but he can't be assured there'll be anything awful to report when that date rolls around. (Contrast this with the handy backdating practice people call "bullet dodging," where management puts out distressing news on Monday, watches the stock price fall, and suddenly grants options on Tuesday.)

Of course, a CEO could always put on the "time helmet" from a famous Twilight Zone episode, travel into the future, and figure out when the stock is destined to be hammered. Though I could think of better uses for that helmet, like finding out what the weather will be like on Leif Erikson Day.