Monday, August 07, 2006
Three cheers for Sarbanes-Oxley
THE STOCK option re-pricing scandal has been perturbing corporate America for months but yesterday’s admissions by Apple thrust the issue right to the front of minds all across the globe. Not only is Apple a big name, it also projects an image of cleanliness and decency. If the top brass at Apple thought it was reasonable to re-price options retrospectively to maximise the financial rewards to executives, it suggests that the practice was widespread.
It also suggests that standards of behaviour among executives are woefully low. It simply cannot be right to issue options to buy shares at levels below the market price at the time of grant. If this is not appreciated, it raises questions about all manner of other judgments made by businessmen and women. Besides being intuitively wrong, it makes a mockery of the justification for the schemes. It is good for executives to have shares or share options, so the argument goes, because it aligns the financial interests of shareholders and executives. But if the starting price is revised downwards, directors are getting money for nothing. That does shareholders no good at all.
While stock option re-pricing paints corporate America in a dismally poor light, its discovery should leave observers grateful to Sarbanes-Oxley regulations. Sarbox is ritually abused for adding needless bureaucratic burdens on business. The Sarbox inspired obligations on senior executives to sign off accounts, however, seems to have led to the discovery of deplorable practice.
Making directors accountable for the books they keep may result in an extra administrative cost, but if it keeps the custodians of America’s publicly owned companies on the straight and narrow, it is a small price to pay. If it makes all executives re-examine practices blithely assumed to be justifiable, so much the better.
posted by Brian Moran @ 1:51 PM