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Saturday, June 17, 2006

Greedy CEOs Can't Help Themselves - by Richard Gwyn

The Financial Times of London, although its pages are pink coloured, is
pretty grey. It puts a premium on detail and accuracy; it doesn't inject
spin into its stories; it would rather be right than be first.

So how come the Financial Times is the only paper that I know of to have
covered one of the hottest stories on the go?

This story is about an investigation being carried out by the New York
Securities and Exchange Commission (SEC) into what appears to be widespread
corporate fraud.

Admittedly, the nature of this fraud is complicated.

It involves allegations that a large number of companies have been lying to
the SEC and to their shareholders.

The specific, alleged lying comes in the form of what could be called
post-dated, secret, payments to corporate executives.

As is standard practice, the CEOs and other senior executives of these
companies, are awarded "options," that is, the chance to buy hunks of
company stock at reduced prices.

The justification for these options is that they encourage the executives to
work hard - for their own benefit, first, but also for the benefit of
shareholders. This is because the higher company share prices go, the
greater will be the value to them of their options when they cash these in.

Regular shareholders will benefit, too, because the shares they own, even
though bought at regular market prices, will likewise be worth more when
they choose to cash in. This is a legitimate business incentive.

It becomes a wholly illegitimate non-incentive - a straight giveaway, an
outright rip-off - when the option is backdated.

more...Greedy CEOs Can't Help Themselves


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