Backdating and 9/11 muckraking

The WSJ breathlessly tells us on p. 1 today:

Amid the stock-market swoon that followed the Sept. 11, 2001, terrorist attacks, dozens of companies granted stock options to top executives or other employees. Now, some of those companies are saying the grants were in fact made weeks later -- and backdated.* * * The post-Sept. 11 backdating has caught the attention of plaintiffs' lawyers. * * * Joel H. Bernstein, an attorney at Labaton Sucharow & Rudoff LLP in New York, says that taking advantage of a national tragedy "is an emotional issue," but one that will "resonate very well with the judge and the jury." * * *Post-Sept. 11 backdating also figured in two separate criminal cases filed last month in New York, in which a pair of former executives pleaded guilty to backdating-related offenses.

This isn't the Journal's first big story on this. Another featured story, from last July, about 9/11 option timing, also suggested there had been backdating.

Let's put this in perspective.  The fact that the backdaters picked a date that has been depressed by tragedy has nothing whatsoever to do with what the backdaters did or didn't do wrong. I pointed out at the time:

There's a sort of journalist dishonesty here I've called "cooking the journalistic books." The whole backdating/springloading story has had the aspect of the mutual fund "scandal" -- leveraging a bunch of tangentially related stories involving quite disparate practices into one big scandal that keeps the readers coming back and buying newspapers. The last thing the journalists want is the sort of analytical clarity that we need for useful public policymaking. Rather, they want to obfuscate differences to enlarge the apparent, though not actual, size of the story. With respect to the 9/11 "scandal," the reporters can add to the usual book-cooking large dollops of greed-and-resentment-mongering curried in sanctimony.

All of this is part of a larger problem, as John Carney at Dealbreaker has pointed out:

Basically, crime sells, and journalism is a business like any other and that means it's got to sell stuff.

He was writing about a recent article by Sara Sun Beale that I discussed, which observes:

Through agenda setting and priming, media emphasis increases public concern about crime and makes it a more important criteria in assessing political leaders. Then, once the issue has been highlighted, the media's emphasis increases support for punitive policies,

It's not happenstance that the articles about 9/11 backdating are coming out now. After all, the press would not want to see their little drama peter out. And it might, if Holman Jenkins has anything to say about it. His column today discusses a recent article that casts significant doubt on the whole idea that backdating is a story of greedy executives.

I wrote about this article last month, noting that it shows that

there really were business reasons for the backdating that did not involve overpaying executives. Indeed, the study * * * suggests that companies can use in-the-money options to get away with paying executives less than if they used straight cash. * * * As we get broader and deeper knowledge of backdating, and learn more about the institutional and economic background of backdating, the standard journalist story (other than Holman Jenkins) of greed and thievery gets less obvious. What I think we're going to find when the smoke finally clears is a bunch of routine accounting misstatements, some ruined executive careers and, of course, a Pulitzer Prize.

In today's story, Jenkins says other journalists have caught onto the more modest dimensions of the backdating story, noting:

These are refreshing correctives to presumptions that continue to linger in certain media accounts -- that backdating necessarily implies excessive or "stolen" compensation; that backdating violates the "rationale" for using stock options to attract, retain and incentivize employees. Why such canards persist in the coverage is itself a bit of a mystery, but editors have their reasons. A more important question now is whether prosecutors will be able to scale their efforts to the actual nature of the wrong rather than the inflated version in some media reports. This question may be the hinge on which justice turns.

So the 9/11 story comes just when journalists needed some fire-fanning to ensure that backdating stays a story about evil executives rather than retreating into the murk of just another story about bad accounting.

We have to keep in mind that this is not just about selling papers. The quotes from plaintiffs' lawyers in today's WSJ indicate what we can expect prosecutors will be saying as well.  As I said a few weeks ago:

While the media are happily selling papers (though not as many as they used to), real people in and out of business are spending extra time in jail.