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The purpose may be tax avoidance or the cash and assets may be the result of illegal activities such as payoffs to government officials, illegal drug sales and arms trafficking.
Backdating can involve assigning an event “to a date prior to that of actual occurrence” or dating a document “to reflect an event that occurred prior to execution.” The propriety of backdating, says law professor Jeffrey L.
What values and norms should guide the board of directors in protecting the shareholders’ interests?
To examine these issues, we first discuss the role values and norms can play with respect to underlying corporate governance and the proper role of directors, such as .
The process was illegal in many cases because documents were forged, the options were not properly accounted for, and the backdating was not clearly communicated to the company’s shareholders.
If someone presents you with a spreadsheet of the last month's stock prices and asks you to pick the date on which you want to pretend that you granted, or were granted, several million options, might that not at least spur further inquiry?
When then-general counsel Nancy Heinen emailed Apple (AAPL) CEO Steve Jobs such a spreadsheet on January 30, 2001, she noted that it was a bad idea to choose January 2 as the grant date--even though that was the day the stock had been at its lowest--if they wanted "to avoid any perception that the Board was acting in appropriately [sic] for insiders prior to Macworld announcements." (They ultimately chose one of the next-best dates from after Macworld.) Now isn't it obvious to everyone on that email that shareholders are being misled?
It was the pseudo-scandal launched by the Wall Street Journal's investigative unit, after its reporters began following up on an academic report that demonstrated many executive stock options awards were too well-timed to be plausible.
The basic idea was that many companies seemed to award stock options on days when their stocks were at low-points, which increased the value of the options when the stock increased and made the stock cheaper to buy for the executives.
No one's pay was "inflated" by backdating, unless you assume that the alternative would have been awarding executives exactly the same number of options at less-advantageous prices.