In today's backdating news, William McGuire is giving back $620 million in compensation to settle backdating claims. The SEC said that Dr. McGuire used "hindsight to pick advantageous grant dates." Overall, the company has recovered about $900 million overall from former and current executives. He's keeping 24 million stock options currently showing a gain of about $800 million, plus the half billion he made at UnitedHealth from 1991 to 2006. He will be barred from serving as an officer or director of a public company for ten years. But the WSJ says "it isn't clear whether [the criminal inquiry] will continue, in light of the SEC action." So he may well be free to spend all that money.
A year ago I discussed a WSJ editorial that noted that, in my summary, "McGuire was following company policy in backdating, with the objective of retaining valuable employees. His offense was really having an undisclosed financial relationship with the board's compensation chair." The editorial quoted a UnitedHealth board report that the backdating practices "were followed openly in the Company, at least within the HR organization."
Meanwhile, Brocade's former hr director, Stephanie Jensen, was found guilty "of one count of conspiracy and one count of falsifying books and records for scheming with then-CEO Gregory Reyes for several years to keep their compensation practices off Brocade's books." The defense argued that "Jensen had no responsibility for financial or accounting practices at Brocade and simply followed instructions from superiors to continue policies that existed before she was hired and continued after she left the company."
Jensen was not accused of personally profiting from her actions. The prosecution conceded that the company offered "backdated options to attract talent in the competitive Silicon Valley market." The defense argued that "Brocade had a well-known practice of "flexibility" in stock option dates. . . Jensen merely provided information to Reyes, who had complete authority over employee compensation and chose the most lucrative dates."
So we have two companies. In both the backdating was apparently an open practice within the company, and done for purposes of recruiting and retaining employees rather than merely enriching top executives. In one the chief executive and main beneficiary likely will walk away with hundreds of millions of dollars. In the other, an underling who didn't profit from the offenses likely will go to jail.
Readers know that I don't favor criminal liability in either case. One reason is because of the corporate crime lottery that I believe is an inevitable consequence of trying to criminalize everything that happens in corporate offices. These two cases are only the most recent examples of the lottery in action. Not much is gained from criminalizing this conduct over the many remedies, including the corporation's own right of recovery, available for any wrongs that occurred (mostly inadequate disclosure). But much is lost from the odor of injustice that wafts over these disparate results.
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