Monday, March 27, 2006

CEO Corruption: will there be unexpected consequences

Unless someone's made a gross statistical error, it is certain far beyond a mere reasonable doubt that a good number CEO option grants are being backdated to maximize returns:
The Big Picture: CEO Options: Luck -- or something else?:

... A Wall Street Journal analysis suggests the odds of this happening by chance are extraordinarily remote -- around one in 300 billion. The odds of winning the multistate Powerball lottery with a $1 ticket are one in 146 million.

Suspecting such patterns aren't due to chance, the Securities and Exchange Commission is examining whether some option grants carry favorable grant dates for a different reason: They were backdated. The SEC is understood to be looking at about a dozen companies' option grants with this in mind.

The Journal's analysis of grant dates and stock movements suggests the problem may be broader. It identified several companies with wildly improbable option-grant patterns. While this doesn't prove chicanery, it shows something very odd: Year after year, some companies' top executives received options on unusually propitious dates.
What kind of impact does this corruption have on a society? At what point do people start dropping out -- or become receptive to a populist reaction? It's happened in America before.

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