Focus Areas:    disclosure regulation | Insider Trading | Securities Regulation

Jenkins channels Manne

Today’s WSJ has a great article by Holman Jenkins on reporting on the backdating “scandal.”  Larry is, of course, on the case.  I would also — modestly — point out that much of what Jenkins says in his article today, I said in this space about four months ago, when the news was first breaking.  The key elements:

  1. The notion that backdating gives executives an incentive-defeating “paper profit right from the start” is asinine.
  2. “Backdating” may make perfect sense as a means of compensation, especially given certain regulatory quirks.
  3. If the practice amounts to corporate shenanigans, they sure didn’t bother to hide it very well.
  4. Non disclosure of the practice, if disclosure was required, may, of course, be illegal.
  5. To quote Larry, “second-guessing executive compensation is a tricky business, even when the problems seem clear.”

On the somewhat-related matter of spring-loaded options (the raising of which was not at all inappropriate, Elizabeth), I find myself in complete agreement with Larry.  Strange, I know.  But it ain’t misappropriation if the board knows what’s going on.  Once again, perhaps some disclosure is required, but it’s hard to see how non-disclosure of the compensation scheme could transform informed executive compensation into a section 10(b) violation.

In both cases, I’m pretty sure there’s no “there” there, but I’m equally sure we’ll be reading (and litigating) about them for quite some time to come.