Sometimes The Audit can only drop its monocle, place the riding crop under its arm, and bring its heels together with a deferential “click” in recognition of truly original and potential-lawsuit-defying work in the business press, and this can and will be done today in the direction of the Wall Street Journal’s options-backdating series.
Sure, this is a bold position for The Audit to take, coming mere days after the Pulitzer board upstairs said basically the same thing. What if the board changes its mind? What if someone disagrees? But The Audit says, “I will take that risk.”
But here’s the thing: It’s one thing for business reporting to win a Pulitzer. It happens. But to win the Public Service prize, well, journalism honors do not come any higher. I mean, winning the investigative prize is hard enough. That, by itself, takes courage, foresight, perspicacity, refinement, good looks, a certain—comment dit-on?—muscular rectitudinous virtuosity. Indeed, one would think that would be glory enough for a lifetime, and it is!
The options series, though, was extremely creative and bold, even as these things go. It showed that scores of companies – including brand names – gave top executives the right to buy shares at a date in the past, when the price was low, in effect betting on a horse race(1) after it was over, while pretending the grants were given at the market price in real time. The series resulted in 140 companies coming under investigation by the Justice Department or the Securities and Exchange Commission, eighty executives losing their jobs and criminal charges against ten people, including the fugitive in Namibia.
And while the total number of potential wrongdoers identified is less than 3 percent of public companies, I leave it to Audit Readers to decide whether the series provides fresh evidence of the willingness to define deviancy down at the top levels of the U.S. business culture.
So, you must read the Wall Street Journal options series, by Charles Forelle, James Bandler, Mark Maremont, and Steve Stecklow (all based in Boston, by the way, and not, as The Audit mistakenly suggested two weeks ago, part of the Money & Investing Group, based in New York. Maremont heads a special projects group there). The longtime bureau chief up there is Gary Putka, who back in the mid-1990s interviewed The Audit for a job wearing a Hawaiian shirt (Overdressed in a Glen Plaid suit and rep tie, I ended up in the New York bureau).
If your heart does not skip a beat when you hear the words “options” and “series” in the same paragraph, at least read the first day, March 18, 2006. And to truly appreciate it, you must mentally send yourself back – just go back, Audit Reader, back in time, back to the evening of March 17. The paper is already coming off the presses in Hong Kong, or wherever they’re printed over there. Maintenance is vacuuming around your cubicle. It is too late for fixes. You, Forelle and Bandler, are running a story that says several companies, including Affiliated Computer Services Inc.—not a household name, but a sizable public company nonetheless with, one assumes, plenty of lawyers—paid compensation to its chief executive in ways that look suspicious and are possibly illegal. You are saying that this and other New York Stock Exchange-traded public companies—with their boards of directors, CFOs, human resources and accounting departments, general counsels—may be cheating.
Or at least, you are pointing out a “striking pattern” in which Affiliated Computer’s CEO Jeffrey Rich was awarded the right to buy shares on six different dates “just before a rise in the stock price, often at the bottom of a steep drop.”
“Just lucky? A Wall Street Journal analysis suggests the odds of this happening by chance are extraordinarily remote — around one in 300 billion. The odds of winning the multistate Powerball lottery with a $1 ticket are one in 146 million.”
Dean, I agree with your appraisal of the very fine series on backdating of options.
However, nowhere in your piece do you address, much less repudiate, The Audit's snide appraisal of the backdating options coverage at the time.
See
http://www.cjrdaily.org/the_audit/wheres_the_thief_the_options_s.php
"Where's the Thief? The 'Options Scandal' is a Dud"
in which The Audit said:
"In recent weeks, this supposed national corporate stock options scandal has started to remind us of nothing less than the Duke lacrosse scandal -- perhaps because in both cases the swarm of accusatory press coverage swirling around the developing story seems to have rapidly outpaced any actual proof of criminal wrongdoing"
The above Audit item specifically chastised the Journal for its series on backdating:
". . . the would-be scandal gained momentum this past March, when the Wall Street Journal picked up on Lie's research and published a story entitled, "The Perfect Payday," which would prove to be the first of an ever-expanding series of articles about options backdating."
The only thing the Audit had good to say about the Journal's coverage was an editorial page piece criticizing the media coverage of the backdating scandal:
"We hope that in the coming weeks, the Journal's reporters will take note of [Homer] Jenkins column before rushing to "out" companies for accounting techniques that were widely popular in the late '90s and which, in recent years, appear to have fallen by the wayside."
The Audit also said as follows:
"For readers who like their schadenfreude catalogued, the Journal has even published a handy Options Scorecard, listing some 50 or so companies and noting which ones are currently being investigated by the SEC, the justice department, and so on.
But having your books looked over by the SEC no more makes you guilty of corporate malfeasance than having your block patrolled by a beat cop makes you guilty of kicking the tar out of your neighbor. With more than two-thirds of all SEC investigations resulting in clean bills of health, we humbly submit that the nation's greatest business paper should impose some minimum quota on its a priori insinuations of guilt."
The Audit continued its criticism of the backdating coverage in
http://www.cjrdaily.org/the_audit/media_blows_more_hot_air_into.php
"Media Blow More Hot Air Into Options Scandal"
In this, the Audit "lamented the increasingly hysterical coverage of a supposed "scandal" involving dozens of corporations that might have issued backdated options to their presumably crooked executives. With growing numbers of "suspicious" companies targeted by the media, it seems a bit odd that so few of these companies have been found to have done anything particularly egregious."
While I appreciate the stance you now are taking, this is a dramatic departure from the past. Don't you think the Audit's past coverage should have been mentioned by you and specifically repudiated?
Thank you for your time.
Posted by Graham P. on Sun 22 Apr 2007 at 12:57 PM