A 'Witch Hunt' in Silicon Valley

garzpacho writes "BusinessWeek Online has an interview with Daniel Warmenhoven (CEO of Network Appliances), who joins a growing list of technology executives in saying that the government's search for backdated options among tech companies is going too far: 'It's become a witch hunt. I think the government is looking to find some egregious examples [of wrongdoing] and to publicly hang people for them. That's fine. But where does it stop? I'm not saying the past practices were all good. But I thought the SEC's role was to build investor confidence. What they're doing right now is destroying it, and I don't see the purpose. They're penalizing today's shareholders for events that occurred five years ago. But who is this protecting, exactly? With Enron, every shareholder in the company lost money. The same with Qwest, and with MCI-Worldcom. But I don't know who the injured party is here.'"

Comments

injured party

[56ker]

"But I don't know who the injured party is here"

Well that should be obvious - it's the shareholders. If executives weren't fiddling the dates over share options to make more money, the shareholders would probably get more money in dividends, a higher stock price, shares in a company without a damaged reputation and possibly a company with more money too. All these should be incredibly obvious to someone who's spent more than 2 seconds thinking about it.

Who ?

[OpenSourced]

But I don't know who the injured party is here

Well, the shareholders are, that is, the owners of the company, if you had forgotten. Giving a stock option is fine, backdating it is plainly getting money out of the coffers of the company and into the hands of employees. That's also fine if the shareholders accept it, but they didn't.

About the witch hunt, it's based perhaps in the SEC being fed up with ever-more-ingenious schemes to divert money into the hands of the executives, said schemes devised by the executives themselves. Of course now there are not failing companies, like with Enron, because the economy is doing all right. But Enron crashed during a small recession. Let's see what the next recession bring. Then perhaps many of those back-datter companies will fail, the executives retire rich and the stockholders start asking questions, some of the to the SEC.

In a word, if they want to reward themselves, let them do it, but in an open way, that's all the shareholders and the SEC ask. And only fear of criminal prosecution will do it, because they'll certainly have no fear of money fines.

Well, then why does the WSJournal disagree?

[WillAffleckUW]

In a print edition of the Wall Street Journal, they had (think it was D1, but the cover of one of the inside sections) a fairly lengthy article yesterday, and another lengthy one on Saturday (the weekend edition), on how Sarbanes-Oxley and back-dated options are in fact serious problems and most of the CEOs and senior execs who were so upset at options expensing being a balance sheet cost for tech businesses later turned out to be the people using back-dated options to steal money from the shareowners of the company.

So, you may call it a witch hunt. I'll call it going after employees who steal from me, thank you very much.