In Internal Probes Of Stock Options, Conflicts Abound (US)
Friday, August 11, 2006
The number of companies caught up in the stock option backdating scandal grows daily. The usual first step for companies that suspect problems or irregularities is to authorize an internal probe by the board or a committee of the board. That may sound reassuring. But don't get too comfortable.
Many, if not most, boards are ripe with overlapping relationships and potential conflicts of interest. The overlapping relationships may not affect the objectivity of board members, but the perception is there, and perception can be everything. At Affiliated Computer Services in Dallas, the entire board is the special committee investigating backdated options. The chairman of the board and two other members received some of the backdated options and had a role in their timing. Two other board members have business relationships (some of which were not successful) with the chairman that go way back. Perception.
At UnitedHealth Group, former New Jersey Governor Thomas Kean was put in charge of the internal probe. The same day as a board meeting, Kean's son, who was running for the US Senate from New Jersey, attended a fund raiser in Minnesota and took home donations from UnitedHealth's chairman and some other board members. Another board member manages money for the chairman's family foundation, and a cause championed by another board member received donations from the chairman's family foundation. The chairman has benefited handsomely from stock options.
Perception. (The Wall Street Journal, 11-Aug-2006, Midwest ed., p. A1)
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