The Dangers of Options Backdating

Backdating scandals second

The unethical acts were at the very top of the corporate ladder and even among the board of directors. The complete study is available here. The amount of people who knew about backdating and did nothing to stop it is evidence of group conformity. The media attention that options backdating has received has also played a roll in discouraging future backdating.

The board did not want to lose any of the executives and therefore wanted to give them an incentive to stay with Apple. They were deceived when Apple appeared to be more profitable than they actually were. The board of directors benefited from the backdated options by being able to reward Jobs and other top executives who were valuable to the company.

Apple Executives Settle Backdating Suit. Since he or she had already successfully backdated options, it gave that person and the idea more credibility. The news, centered on the dubious awarding of stock options to Steve Jobs, prompts Apple share prices to fall.

However it was certainly enoughIt is rare for someone to

Note, however, that many of these firms no longer exist as independent public firms. Indeed, we found that the stock price pattern is much weaker since the new reporting regulation took effect.

The other major way that backdating can be misleading to investors relates to the method by which the company accounts for the options. In comparison, had the options been granted at the year-end price when the decision to grant to options actually might have been made, the year-end intrinsic value would have been zero. However, if the options were effectively in-the-money on the decision date, they might not qualify for such tax deductions.

Unless corporate insiders can predict short-term movements in the stock market, my results provided further evidence in support of the backdating explanation. Backdating is legal so long as it is disclosed correctly.

It is rare for someone to commit unethical behavior without the expectation of gaining some sort of benefit. However, it was certainly enough to cause a bit of concern at Apple, considering the crucial role Jobs had played in turning the company around since his return a decade earlier. Apple Owns Up to Backdating.