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Shareholders' poor optionsEditorial in the San Francisco Chronicle, Thursday, July 27, 2006THESE ARE not the best of times to be a shareholder. Recent years have brought so much woeful news about executive behavior, behavior for which shareholders usually have to pay. Now there are investigations into more than 80 companies, about a third of which are based in Silicon Valley, on the issue of stock-option mis-pricing. The scandal may be far-reaching in all ways except for monetary punishment. So far, there's only been one criminal lawsuit -- against three former top executives for San Jose-based Brocade Communications Systems. Because backdating options isn't illegal -- the failure to properly report it is -- experts believe many companies will never face charges. It's not easy to prove that a company deliberately falsified paperwork, especially when many have slipshod options-granting policies anyway. Though it is still talking a tough line about further lawsuits, the Securities and Exchange Commission voted unanimously Wednesday to require companies to disclose the timing and pricing of executive options. SEC Chairman Christopher Cox hopes that this action will lead to better self-regulation, and it might. But our money is on the executives, who will undoubtedly find another way to enrich themselves. The real story is how stock options -- once a universally cherished benefit in Silicon Valley -- have led to executive abuse and erosion of the public trust. Stockholders once believed that stock options would encourage positive executive leadership, and rank-and-file workers believed that they were an equally golden opportunity for everyone. They believed that stock options were an expression of the company's trust in their abilities, and so they worked hard -- and for less pay, in some cases -- to build success for everyone. Now that we've seen that some executives knew how to game the market for personal gain -- sometimes while less fortunate employees watched their options go underwater -- those beliefs are officially passé. Shareholders will pay for this one, all right., but it is hoped this new scrutiny puts on the brakes to excessive perks for top executives. Page B - 8 |
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