http://blogs.law.harvard.edu/corpgov/2008/04/21/option-backdating-and-its-implications/ Sponsored by the HLS Corporate Governance Program Mon, 07 Jul 2008 01:33:21 +0000 http://wordpress.org/?v=wordpress-mu-1.2.1 http://blogs.law.harvard.edu/corpgov/2008/04/21/option-backdating-and-its-implications/#comment-18754 David Grace Tue, 22 Apr 2008 23:28:47 +0000 http://blogs.law.harvard.edu/corpgov/2008/04/21/option-backdating-and-its-implications/#comment-18754 The debate on backdating options is interesting. As a company director and corporate lawyer in Australia I have always looked for one thing in assessing the integrity of a company. It is that the CEO tells the truth.And I don't have the difficutly of Pontious Pilate in "What is truth". When it comes to back dating it is pretence that something happened at a certain time when it did not. So if a CEO is prepared to engage in lieing about the date options were granted to gain an advantage for himself or herself, what else will the CEO do that may bring the company into disrepute. If a person cannot be trusted in matters of truth and honesty , how can a corporate Board retain the serviecs of such a person? Is the Board always told the truth? How can a Board have confidence in its fulfillment of its oversite responsibilities when the chief officer through which much if not all the information comes to it is not a person it can trust? If the Board allows such a person to run the company, it certainly runs a substantial risk of being held accountable to shareholders for breach its duty to them. If directors allow such events to occur and fail to disclose that to its D&O insurer, might not that be a material event upon which an insurer might rely to seek avoidance of liability to indemnify directors for damages awarded to aggrieved shareholders? To raise a somewhat old but nonetheless truism, "honesty is the best policy". Perhaps some Boards should dust off and review their policies. The debate on backdating options is interesting. As a company director and corporate lawyer in Australia I have always looked for one thing in assessing the integrity of a company. It is that the CEO tells the truth.And I don’t have the difficutly of Pontious Pilate in “What is truth”. When it comes to back dating it is pretence that something happened at a certain time when it did not. So if a CEO is prepared to engage in lieing about the date options were granted to gain an advantage for himself or herself, what else will the CEO do that may bring the company into disrepute.
If a person cannot be trusted in matters of truth and honesty , how can a corporate Board retain the serviecs of such a person? Is the Board always told the truth?
How can a Board have confidence in its fulfillment of its oversite responsibilities when the chief officer through which much if not all the information comes to it is not a person it can trust?
If the Board allows such a person to run the company, it certainly runs a substantial risk of being held accountable to shareholders for breach its duty to them.
If directors allow such events to occur and fail to disclose that to its D&O insurer, might not that be a material event upon which an insurer might rely to seek avoidance of liability to indemnify directors for damages awarded to aggrieved shareholders?
To raise a somewhat old but nonetheless truism, “honesty is the best policy”.
Perhaps some Boards should dust off and review their policies.

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