Backdating as a virus

20Oct06

Back in June when the options backdating scandal was breaking hot and heavy we had a feeling that there was some sort of “common thread” lurking behind this seemingly widespread phenomenon. At the time we fingered executive compensation consultants as a potential source of the justification for backdating.

It now appears another culprit may be out there. DealBook highlights a story in the Los Angeles Times by Kathy M. Kristof who reports on a study that points the finger at overlapping corporate directors as a potential source of options backdating.

Options backdating may have spread like a virus — from personal contact between corporate directors.

A study released Thursday found that 51 of 120 companies under scrutiny in the widening option backdating scandal had something in common — directors who served on the board of at least one other company with questionable option grants.

Coincidence? The authors of the study think not.

Color us unsurprised. Post-Sarbanes-Oxley executive compensation in general, and options backdating in particular remain a sore point for many shareholder watchdogs. Ultimately it comes down to boards of directors acting in the best of interest of shareholders and not the executives of the firm in question.

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