Taking Heat

The Corporate Library made a splash recently with a study on options backdating that showed a "web of inter-relatedness" among directors of Allegedly Backdating Companies (ABCs). I could get all "English teacher" on The Corporate Library’s ass and point out that the term "web of inter-relatedness" is redundant (could there be a "web" of non-inter-relatedness?), but it’s Friday and I want to move on so this blogging thing doesn’t cut into happy hour.

Full disclosure: I haven’t read the study. I’d love to, but The Corporate Library is charging ELEVEN HUNDRED DOLLARS for the privilege. Some library.

There’s been a bit of bickering about whether the study has the facts right. But what it found, as far as I can glean without spending money, is that something like 40% of ABCs shared at least one director, vs. 17% of companies in some kind of control group. This could mean, the study suggests, that backdating "may have been spread by word of mouth, through the conduit of directors sitting on the boards of more than one company."

Much as we all love a big rollicking conspiracy, this one underwhelms me. I'm not surprised certain directors served on the boards of more than one ABC, but that doesn’t necessarily mean they spread backdating around like the latest YouTube video.

Let's try an alternate explanation. Companies with a laid-back attitude toward compliance tend to seek out directors with similar feelings, and vice versa. It’s like a high school clique: You sit in the lunchroom - or boardroom - with the crowd that makes you feel comfortable, and you’re sure as hell not going to invite some compliance-loving geek (who’s probably got something gross on his tray, like a sloppy Joe) to sit with you. So just because Mr. Oblivious J. Director served on the board of two or three ABCs doesn’t mean he’s the one who told them all to backdate options. It might just be that, in the natural order of things, he found his way to the boards of several companies whose CEOs shared a fetching devil-may-care attitude toward the rules.

I say this because the idea of a bunch of conspirators whispering the precious secret of options backdating strikes me as silly. No MBAs were harmed in the making of this scandal; we’re not talking Enron special purpose vehicles here. The most dunderheaded CEO could think of this one all by himself, and if he happened to be a bit handy with a pen he could execute the dastardly deed too. Easy as ABC, really.

Of course you shouldn’t listen to me, since I haven’t even read the report. Don’t ask me why, but I decided to spend the ELEVEN HUNDRED DOLLARS to heat my house this winter instead. Which might leave me enough for a sloppy Joe.