Directors Link Firms in Option Probe
Options backdating may have spread like a virus -- from personal contact between corporate directors.
A study released Thursday found that 51 of 120 companies under scrutiny in the widening option backdating scandal had something in common -- directors who served on the board of at least one other company with questionable option grants.
Coincidence? The authors of the study think not.
“We were looking at what relationships could have caused the spread of backdating,” said Paul Hodgson, senior research associate at Corporate Library, the corporate governance research firm that released the study. “The relationships between directors became the most fertile ground.”
More than 130 companies are the subject of federal or internal investigations into whether they cherry-picked the dates on which stock options were granted to coincide with a date when the stock price was exceptionally low -- raising the paper value of the options immediately.
One of the running questions in the scandal has been how so many companies could have simultaneously come up with a scheme to backdate.
The report illustrates a spider’s web of connections. For instance, Stratton Sclavos, chief executive of Verisign Inc., served on the boards of three companies that have acknowledged they were under investigation -- Verisign Inc., Intuit Inc. and Juniper Networks Inc.
The chairman of Intuit, William Campbell, served on both his board and that of Apple Computer Inc. Apple Computer CEO Steve Jobs served on the board of Gap Inc. Gap’s former CEO, Millard Drexler, also served on Apple’s board.
A Verisign spokesman noted that Sclavos was not on the compensation committees of the boards on which he served and declined to comment further.
Representatives of the other companies declined to comment about the report. However, a Gap spokesman said the company’s internal investigation found no “material” wrongdoing. Intuit closed an internal probe in the summer, saying that the firm found “no evidence of fraud or intentional wrongdoing.”
Corporate Library also noted that dozens of the companies under scrutiny over backdating of stock options had links to the Palo Alto law firm Wilson, Sonsini, Goodrich & Rosati.
The firm’s founder, Larry Sonsini, served on the boards of three companies under investigation; 10 other partners are either corporate counsel or directors at dozens of other companies tainted in the option scandal, the report noted. Many were personally invested in those same firms.
Wilson Sonsini has been involved in the bulk of public offerings of Silicon Valley technology firms, which may explain the links, the report acknowledged. And there is nothing improper or illegal about those connections. However, Corporate Library said good governance practices would bar attorneys who work for a company or own its stock from also serving on the company’s board.
“The firm is proud that so many companies have chosen Wilson Sonsini as their counsel. The innuendo related to the firm included in the publication is false and irresponsible,” said Courtney Dorman, a spokeswoman for the law firm. “We take issues of conflicts, real or perceived, very seriously, and to suggest otherwise is simply untrue.”
Industry experts said they were not surprised by the report’s findings.
“We have long found that there were networks of directors that were all interrelated to bad pay practices,” said Richard Ferlauto, director of pension and benefits policy at the American Federation of State, County and Municipal Employees.
Links between directors serving on multiple corporate boards have been part of the ongoing probe by the Securities and Exchange Commission, said Timothy England, the SEC’s assistant director of enforcement.
“If there are overlapping employees and personnel with companies that have similar backdating problems, you would take note of that,” he said.
