Stock Option Probes Force Out McAfee, CNET Execs
[A sign of things to come?]
By Howard Schneider
Washington Post Staff Writer
Wednesday, October 11, 2006; 10:38 AM
Top executives at two technology companies quit or were fired today as the repercussions of a broad government investigation into stock option awards continued to expand.
Computer security expert McAfee Inc. announced that chairman and chief executive George Samenuk had retired and that president Kevin Weiss had been terminated following an internal investigation of company stock option awards.
Internet publisher CNET Networks Inc., meanwhile, announced the resignations of three top executives, including company co-founder and current chairman and chief executive Shelby Bonnie.
CNET said in a press release that an internal investigation found problems with company stock option awards between 1996 and 2003, including a practice known as backdating that helps ensure employees profit from stock option grants. The executives who resigned, the company said, "bear varying degrees of responsibility for these deficiencies."
Both Bonnie and Samenuk apologized for the stock option problems at their companies.
Samenuk said he was retiring "in the best interests of the company, its shareholders and employees. I regret that some of the stock option problems . . . occurred on my watch."
"I apologize for the option-related problems that happened under my leadership," said Bonnie, whose company puts out an array of Web publications devoted to technology and other topics.
More than 100 companies are being investigated by the Securities and Exchange Commission for their compensation policies, particularly practices that manipulate the award of stock options to guarantee that top executives profit from them. The Internal Revenue Service is also investigating.
Stock options are a popular form of executive compensation that allow an employee to buy shares at a fixed price, but can be worthless if the share price falls. Manipulating the date of the award to correspond with a low stock trading price can ensure the employee makes money.
Regulators, however, say backdating undermines the intended purpose of options, taking away an executive's incentive to run the company soundly so that the share price increases.
The probe has already led to criminal charges against executives at two technology companies. It has prompted an apology from Apple Computer chief executive Steve Jobs, who acknowledged that Apple had backdated options "on my watch." Earlier this week, Monster Worldwide founder and chief executive Andrew McKelvey resigned because of the amount of time the investigation was consuming.
In announcing the result of its own look at options, McAffee said it would now have to reduce earnings by as much as $150 million to account for option awards that were improperly recorded on its books.
The company probe covered about a decade of stock option awards, and was prompted by a subpoena from the Securities and Exchange Commission asking for information on options going back as far as 1995, the company said.
McAfee board member Dale Fuller will take over as interim chief executive and president while a search is conducted for a permanent replacement. Board member Charles J. Robel will take over as chairman.
CNET says it will also have to restate its earnings to account more accurately for its options, but did not release any figures. In addition, the company said that executives and directors who benefitted from the improper option awards had agreed to have their options repriced to reflect fair market value on an appropriate date.
Neil Ashe, who has been in charge of expanding the company's content since joining CNET in 2002, will take over as chief executive. Board member Jarl Mohn will become chairman. |
